rose to move, That the order laid before the House on 7 October be approved (SI 2008/2645).
The noble Lord said: My Lords, it is a great honour to speak for the first time in this House. I want to begin by thanking your Lordships for the wonderfully warm welcome I have received from all sides of the House over the past few days and also from the staff who work here and add so much to the character of the House. It means a lot to me; it is nice to be back.
Being greeted by such a succession of noble Lords these past few days—many old friends and former colleagues—has been like replaying the last 30-odd years of my life, starting in the Wilson years and moving through the eras of Callaghan, Foot, Kinnock, Smith and then Blair. I know that a lot of people think of me as being quintessentially new Labour—indeed, who could doubt that?—but my roots go deeper. One of the privileges of being a Member of your Lordships’ House is the richness of the political experience drawn from past decades that I have benefited from over the years, and which is available to our debates today.
Of course, my greatest wish is that my parents were alive today. My gregarious father loved mixing with politicians. When I was a boy, he was not above driving his car into the precincts of Parliament, although not a Member, relying on a cheery wave and a copy of Hansard left casually on the back shelf of his car to reassure the policeman on the gate—in those days it was a single policeman on the gate. My mother had more mixed feelings about politicians. The daughter of one, and then the mother of another, she had no appetite for more.
The House is very different from the one my that my grandfather attended. Its breadth is wider. It is more representative. It is also a House that takes its scrutiny role very seriously, as I know from my European experience. There is not only a breadth but a depth in this House—something that might be more generally acknowledged.
More than 50 years ago, my grandfather, making his maiden speech in this House, spoke of the Marshall plan and its importance in rebuilding the shattered economies of the allied countries of Europe after the Second World War. Now, as then, the world must come together to secure the future of its financial systems and the international architecture supporting them, at a time of deep uncertainty and turbulence in global markets.
A strong, stable banking system is essential to support and protect the investments, savings and loans that help us grow our economy and succeed as individuals. Further to the recent measures announced by the Prime Minister and Chancellor to put the British banking system on a sounder, more secure long-term footing, private sector mergers can play an important role in helping a financial institution in difficulty.
It is critical that in cases where a proposed merger could bolster financial stability in the UK’s economy, the overall public interest is served by a proper consideration of the need for stability, alongside the implications for competition.
I beg to move, therefore, that your Lordships consider the Enterprise Act 2002 (Specification of Additional Section 58 Consideration) Order 2008, Statutory Instrument No. 2645. The order was considered by the Lords Merits of Statutory Instruments Committee at its meeting on Tuesday.
Merger control in this country is regulated under the Enterprise Act and the European Community merger regulations, with the Office of Fair Trading and Competition Commission responsible for investigating UK mergers on the basis of their impact on competition in UK markets.
The Enterprise Act provides limited powers for the Secretary of State for Business, Enterprise and Regulatory Reform to intervene in mergers to protect legitimate public interests. Public interest considerations are currently defined under Section 58 of the Act as ensuring national security and plurality of media ownership. Section 58 also provides the Secretary of State with the power to specify additional considerations, when necessary, to protect the public interest.
As noble Lords will be aware, my right honourable friend John Hutton—my predecessor at the Department for Business, Enterprise and Regulatory Reform—announced on 18 September that he had issued an intervention notice in respect of the proposed Lloyds TSB group merger with HBOS plc. He also announced that he would place an order seeking the necessary power to enable him to take into account the vital public interest issues surrounding this merger.
Let me be clear. It is not that the merged bank would be sheltered, if the merger goes ahead, from competition law. Were there to be any evidence of market abuse at some future time—not that I expect any such behaviour—the normal powers will be available to the competition authorities to protect consumers.
The order specifies the maintenance of stability in the UK financial system as a public interest consideration under Section 58 of the Enterprise Act 2002—a new public interest consideration. This will enable the Secretary of State to intervene in those mergers in order to be able to make the final decisions based on the vital public interest of financial stability, alongside the competition issues.
As Secretary of State, I am unable to take decisions on this merger until parliamentary approval is received for the order. Subject to approval of the order by your Lordships, I will ensure that I receive all available advice and views before I make any decisions. This will include advice from the Treasury, the Bank of England and the FSA, which make up the tripartite authorities. I am sure that your Lordships would agree that swift, decisive action is needed to give investors the regulatory certainty that they need and to send a clear signal to the market about the proposed merger between Lloyds TSB group and HBOS.
The order will allow us to make careful and urgent consideration of financial stability an additional part of our assessment process, and as a result, support our work to help millions of UK businesses and families get through these very difficult times. It is a critical addition to the public interest considerations specified in the Act and I commend it to your Lordships.
Moved, That the order laid before the House on 7 October be approved (SI 2008/2645).—(Lord Mandelson.)
My Lords, on behalf of us all, I welcome the noble Lord to the House of Lords and congratulate him not only on his appointment as Secretary of State for Business, Enterprise and Regulatory Reform but on his very accomplished maiden speech.
He led us on a fascinating and absorbing journey through history. There are many lessons to be learnt from the events that he described. We also share his pride in his family's contribution in the past. We also thank him for the way in which he praised the width and depth of the experience of this place. We all value the contribution that he is going to make, given his impressive career to date. His tributes to colleagues, in particular to the staff, will be much appreciated and are reciprocated by us all.
As I was reminded by one of my more senior colleagues, the Minister, now that he is a life Peer, can be introduced only once in the House of Lords. Under the present system, we will all work together until death do us part. He has now indeed joined the aristocracy. Revisiting my well thumbed copy of his book, The Blair Revolution, which was published in 1996, I came across his reference to Joseph Chamberlain’s biblical allusion and comment on the aristocracy:
“they toil not, neither do they spin”.
Although the Minister may find it necessary to toil in his new post, I am sure that he will already have reflected deeply on the second part of that formulation, and so we look forward to hearing from him on many future occasions as we toil together in the public interest. We in this House assure colleagues in the other place that we intend to hold the noble Lord and his fellow Ministers fully to account in this place.
This is not the first experience that the noble Lord and I have of working together. I have many memories of our partnership 30 years ago when together we ran the British Youth Council. Here I declare my interests as set out in the Register of Members’ Interests. In the spirit of transparency, perhaps I should also declare a generous gift that he gave to me when I completed my term as president of the council. He arranged for me to receive a Toby jug, and I admire him for his forethought. This object now beams at me from my mantelpiece with the well known face of Neville Chamberlain. I do not think that I have ever thanked him enough. Although I greatly appreciated that gesture three decades ago, with all its nuances and subtexts, I assure him that, although we on this Front Bench will approach each issue on its merits and will not oppose for the sake of opposing, we shall not adopt a policy of appeasement.
There has been broad cross-party consensus, both here and in another place, on the Government’s response to the banking crisis. Although we on these Benches have repeatedly made it clear that we will not stand in the way of the Government’s efforts to deal with the crisis—this also applies to the order—a number of points and questions need to be raised. Although no one seriously queries the need for significant intervention in the banking sector at this juncture, we should pause for a moment before making our next foray into this minefield of moral hazard.
The Bank of England is the long-established lender of last resort and the provider of liquidity of last resort. By establishing Her Majesty’s Government as the owner of last resort, we have entered almost entirely uncharted waters. Implicit in everything that we are discussing today is a recognition that the levers that we had in place before this crisis have proved to be inadequate. This is probably the most fundamental point of all. The biggest and most pressing question today, therefore, is what convincing assurances, if any, the Government can give for the future. How can we now feel confident that the merged superbank that we are helping to create today will not abuse its dominant position in the market? It is implicit in the order that competition issues are being raised. What do we need to do in addition to what we are doing today? What will the management of this new entity be required to do to allay the legitimate concerns of Which? and a number of other bodies about market power?
In the Northern Rock case, we on these Benches, strongly supported by the Liberal Democrats, said that the Government should lay annually before Parliament a report on the impact on the competitiveness of the market in the UK of any merger that might proceed by virtue of that emergency legislation. We said further that it should report to Parliament as soon as it identified a significant adverse effect on the competitiveness of the market in the UK as a result of that merger. Our concerns are, if anything, greater in this case. The Minister referred to those concerns in his opening speech, but we need more detail.
The Explanatory Memorandum makes it clear that the order is intended specifically to address the HBOS/Lloyds-TSB case. However, the investments announced this week in several of our biggest banking names serve only to underline our wider concerns. It would be helpful if the Minister explained how the Government have addressed competition issues across the board. The Explanatory Memorandum further indicates that the new public interest consideration will not be available in the case of a merger or a takeover with a European Union dimension. Is it correct to assume that the specific ground on which the HBOS/Lloyds-TSB merger avoids breaching the regulation is the two-thirds rule? If so, will the Minister confirm for the record under which threshold the Alliance and Leicester/Santander transaction avoids such a breach?
The Government claim to have adopted the five principles of good regulation set out by the Better Regulation Task Force. I remind your Lordships that these are proportionality, accountability, consistency, transparency and targeting. Will the Minister describe the procedure that he has been through to ensure that the order complies with these principles? I emphasise accountability in particular. Accountability does not imply a one-off debate here or in another place; it must be ongoing. The departmental impact assessment of the order fails to provide concrete figures for one-off or annual costs either to UK plc or the public purse. We appreciate that time is of the essence, and I fully understand that the order has necessarily been drafted with considerable urgency, but will the Minister confirm that such costs are genuinely anticipated to be zero over the medium to long term, or at least negligible? It is by no means a negligible action to amend an Act of Parliament as the order does.
We all hope that this period of crisis management is coming to an end and the Government can establish themselves as the master of events, not the victim. Only then will we start to see confidence return to the market. If the most violent part of this economic squall is indeed over, we must all turn our attention to the well-being of the real economy, for which we hold the Government responsible. Against that background, the Minister now holds probably just about the most important departmental brief in government. The resilience of every firm in this country will be sorely tested in the months, and possibly years, ahead. In business, as in life, survival is all. A healthy banking sector is an essential foundation stone for our economy, but it is not the be-all and end-all. By buttressing the banks, we make it possible for British firms of every shape and size to survive now and flourish later, but we cannot make that inevitable. Most of the real hard work remains to be done, and our thoughts are with every individual and business, particularly our small businesses, at the present time.
As we seek to get the economy back on its feet, the order is not the end. To paraphrase a wise old statesman in another place, it is not even the beginning of the end, although it is perhaps the end of the beginning.
My Lords, like the noble Lord, Lord Hunt of Wirral, I congratulate the new Minister on his appointment and on his elegant and eloquent maiden speech. I am sure that the Minister appreciates that he cannot avoid his reputation, which precedes him here. Indeed, such was his reputation when I made my maiden speech 11 years ago—at a time when it was rumoured that he had instructed every Labour Member of Parliament to wear a pager on which to receive his instructions—that I was considerably embarrassed when my pager went off in the middle of my speech. I was even more embarrassed when someone from the far reaches of the Cross Benches loudly shouted: “Oh my God, he’s got Peter Mandelson on the phone!”.
No one has commented on the welcome that the Minister received from the civil servants in the department upon his return after 10 years. It is very much an indication of the respect in which they held him at the time and which they obviously continue to hold. He has to be congratulated on that as well.
I agree with almost everything that the noble Lord, Lord Hunt of Wirral, said. There is a concern that the world has moved on, in terms of HBOS/Lloyds, since the order was first mooted. Had the order been brought in immediately after the announcement of the HBOS/Lloyds merger, the concerns now being expressed in this House and elsewhere would not have arisen. With the share-price variations of the two companies, we do not know whether the merger will take place. Assuming that it does, it will be in circumstances in which the Government will have taken a significant stake in both banks. That poses a problem for the Government, but it also gives them leverage to deal with a number of the competition and consumer issues causing concern.
It is not as if the banking industry has been noted for its non-competitive business practices. As the consumer organisations have drawn to everyone’s attention, over the years the banks have been in serious difficulties over practices such as ATM charging; the mechanics of the clearing system, whereby no one quite knows what happens to their money after it leaves one bank account and before it appears in another; and unfair overdraft charging, on which the banks have often been criticised. The merger is not taking place in what is, prima facie, a competitive environment. Two major high street banks—which on some reports will have 30 to 40 per cent of UK current account business—are being put together in a way which would never have been allowed were it not for the current circumstances of the economy.
The noble Lord, Lord Hunt of Wirral, raised a number of the concerns that consumers, consumers’ organisations and noble Lords will inevitably have. Due to their increased power with the banks, the Government have the opportunity to insist on rigorous conditions. For example, will they attempt to impose on the merged bank a similar restriction on the proportion of retail deposits that it can have? It is understood that such a requirement was imposed on Northern Rock, so that it could not have more than 1.5 per cent of the aggregate retail deposits in the UK. As a result, the week before last Northern Rock had to close many accounts because of a danger of breaching the 1.5 per cent threshold. Will the Government impose a similar requirement on this bank?
What will the Government do where there is a branch of Lloyds and of HBOS in the same street or the same town? Will closures be required? Will there be a restriction on the number of closures? Theoretically, these banks are competing with each other. What will be the Government’s position on closures?
Which? is concerned that the two banks will be allowed to maintain separate banking licences, thereby triggering separate calculations for purposes of deposit protection. If someone has £50,000 deposited with Lloyds and £50,000 with HBOS, will they have £50,000 protection for each deposit following the merger, or will they lose the protection in one of the banks?
This is an important moment for the Government and for regulation of the banking sector. This order will go through—only a lunatic would attempt to vote against it at this sensitive time—but the Government should at least look very hard at what undertakings they can extract in the HBOS/Lloyds merger in order to provide proper protection for the consumer.
My Lords, I offer my noble friend my heartfelt welcome to this House. Perhaps I may also say how pleased I am that we will have the benefit of his skills and talents in charge of this very important ministry, which will add to the tremendous skills already being displayed by the Prime Minister and the Chancellor of the Exchequer in tackling the banking crisis that we are facing.
I commend the order in the sense that I welcome the extension to this sector of the powers under the Enterprise Act to intervene in circumstances where the public interest is at stake. Financial stability is the paramount public interest issue. However, I am concerned about the Lloyds TSB/HBOS merger. I should draw to the attention of the House an interest: I advise another banking group. However, I feel able to speak on this matter because, a little while ago, when I was deputy chairman of the Competition Commission, I had the privilege of chairing the inquiry into the proposed Lloyds TSB/Abbey National merger, which was a much smaller merger. I commend to your Lordships the report into that merger. It gives a good insight into exactly what Lloyds TSB might do as a merged entity.
Other noble Lords have already referred to the merged entity’s large market share of current accounts and mortgages. In the business model of our high street banks, the current account is the entry product, if you like, because the business model is based on the need to cross-sell. Others have referred to some of the difficulties which the banks have gotten into by being forced to cross-sell, perhaps often inappropriately, because they make no money at all from current accounts. I ask the Minister to take careful note of the risks to consumers of this very large merged entity. At the moment, the cards are all in the air in the banking market. We may have part-nationalised banks, and we will have a very large merged entity. The competitive landscape in banking is uncertain. Given that, will the Minister take careful account of the risks to the consumer?
There should be more than simply a reliance on the existing powers of the OFT to intervene. For all its merits and strengths, that body moves rather slowly in this area. We need to be certain that this matter will be subject to careful scrutiny. Does the Minister propose to look at the situation after two years to ensure that there has been no market abuse? Can he explore the possibility of securing pre-merger undertakings from Lloyds TSB/HBOS?
My Lords, I congratulate the noble Lord on his appointment and on a super maiden speech. Having accompanied him in his previous role on visits to India, I look forward in my role as the chair of the UK India Business Council to working closely with him in the future.
The order before us concerns the global financial crisis, which we all noticed rapidly unfolding during the summer Recess. I could not help but think that to the world at large, we in Parliament may have appeared to look like Nero fiddling while Rome burned. I felt very frustrated and helpless. We have now been back for almost two weeks. Earlier this week the noble Lord, Lord Peston, asked why we have not had a major debate lasting a whole day on the global financial crisis. The noble Lord, Lord Davies, said that we have had three Statements and that Questions had been tabled. Yesterday, at the weekly meeting of the independent Cross-Bench Peers, this issue was brought up again. There was a unanimous request not just for one major debate lasting a day but for a series of regular debates. I ask the noble Lord to institute such debates.
One of the greatest strengths of this House is that we have experts in every field. What more could we ask for when considering global business? We have some of the world’s most famous economists, academics, captains of industry, entrepreneurs and chairs of banks, former Chancellors, Chief Secretaries to the Treasury and former Secretaries of State for Business. We are not tapping into all the expertise of this House enough. During a debate on just one of the Statements made last week, the issue of using preference shares to support the banks was raised. Three noble Lords instinctively, on the spot and without preparation, said that the Government might have to consider convertible preference shares and that they might have to consider equity. That sort of instant expertise is available in this House, so why do the Government not use it more?
The Government are to be congratulated on offering £500 billion-worth of support; indeed, the whole world is congratulating our Government and looking to them, which is fantastic. But I ask the Minister to use this House. Today in Switzerland, that bastion of financial stability, we heard that two of the most famous banks in the world require support. A debate that I tabled on the reform of global institutions has been waiting in the pipeline for months, while just this week the Prime Minister said that we need a new Bretton Woods. That suggestion should be debated right now. With unemployment rising and the possibility of a long and deep recession, what could be more important to this House than business? We have other matters to discuss, but this is the priority now, otherwise we in Parliament could be accused of being ostriches with our heads in the sand or of being in an ivory tower with tinted glass, and not looking out at the real world. At long last we have a Secretary of State for business who is a Member of this House. I urge the noble Lord as Secretary of State and all noble Lords to make the most of it and to put business at the top of the agenda.
My Lords, in making his speech a short while ago my noble friend indicated that it was on 18 September that his predecessor issued an intervention notice stating that a public interest consideration might arise in the case of Lloyds TSB/HBOS. That was nearly a month ago, and I thought I would start by making the point that during the past three or four weeks, we have seen a tremendous general intervention by the Government through the Treasury in the banking system. I am thinking particularly of the United Kingdom, but we know that similar events have taken place in many other countries as well. We know also that two of the banks to have received financial assistance are Lloyds TSB and HBOS. Given that, how urgent is this public-interest-consideration intervention into Lloyds TSB/HBOS now, in order to favour the merger, when it is already going to receive benefits under the so-called bail-out package that has been agreed? Has the level of urgency changed?
I want to ask my noble friend a basic question. Do the Government accept that a major takeover involving two of the five largest retail banks in the UK may well create substantial competition problems and consequent consumer disadvantage, as well as disadvantage to small and medium-sized enterprises? Under the present procedure set out in this order—assuming that it goes through, as I am sure it will—the Office of Fair Trading has to report to the Secretary of State that, subject to and absent the public interest consideration about the stability of the financial system, the takeover ought to be referred to the Competition Commission. If the Office of Fair Trading says that, absent the public interest consideration, the normal competition concerns should prevail, will the Secretary of State retain an open mind on whether he should rule that that public interest consideration should trump the competition concerns that may be identified by the Office of Fair Trading?
I also want to ask my noble friend whether, if he is minded in due course to allow this takeover to go ahead, which is the point of the order before us, he feels able to impose any conditions on the lines suggested by my noble friend Lady Kingsmill to ensure that the new enlarged bank does not abuse its market position? Bearing in mind my noble friend’s recent transition from Brussels to London, I hope he will recall the statement made last week by the relevant EU Commissioner, his former colleague Mrs Neelie Kroes, that,
“competition policy has a constructive part to play in this crisis”.
I hope that he agrees with it.
Finally, does my noble friend agree that it might be a good idea to state that he would welcome an investigation by the Office of Fair Trading in either two years’ time, as my noble friend Lady Kingsmill suggested, or, as I would suggest, in 12 months, to see whether the abuses that can arise from the new dominant bank among other banks in this country are sufficiently serious to disadvantage the consumer?
My Lords, I join in the congratulations being offered to my noble friend the Secretary of State and give him a warm welcome to this House—long overdue, in my opinion. In his long history, there was a point when my noble friend worked for me. It was a somewhat notional arrangement, as I recall, but nevertheless we were all deeply impressed by his talent, and his career since then has borne that out.
As others have said, my noble friend has made an elegant speech. It is of course the tradition of this House that we make non-controversial maiden speeches. Not long ago, a speech which effectively promoted the amalgamation of two giant banks accompanied by a substantial degree of partial nationalisation would have been regarded as a touch on the controversial side, but it seems to have met with general consensus around the House and in another place.
I also welcome my noble friend’s reappointment as Secretary of State in the current department. I do so because he is not only the Secretary of State for business but also the Secretary of State for consumers. I declare an interest which I have not declared in its present form in this House as yet because my new organisation, Consumer Focus, was formed by the merger of the National Consumer Council, energywatch and Postwatch only a fortnight ago. We are now the major nationally-backed consumer organisation in the country.
In that context, I echo some of the concerns about the banking merger. Given the turmoil in the financial markets and the international situation about which we are all deeply concerned, it is inevitable that we should go down this road. However, once things have settled down, longer term issues in relation to individual consumers and, in particular, small businesses will arise. As the noble Lord, Lord Razzall, said, there are many flaws in the retail banking system and the banking system as a whole, but the combination of some degree of intervention by regulators, the Government’s commendable activity on financial inclusion and competition within the banking sector has extended banking and credit facilities to a swathe of the population and vastly increased their quality of life as a result.
The fact that we are now merging, with government funding support, into an organisation which will control about 30 per cent of the retail banking system and about 30 per cent of mortgages must give us cause for some degree of concern. I have written to my noble friend on this issue and suggested that, from a consumer point of view, a number of concerns need to be addressed. I echo the words of my noble friends Lord Borrie and Lady Kingsmill that when things have settled down the OFT needs to have a longer-term look at the operation of competition within the banking sector. Within the mortgage sector, particularly given the equivalent turmoil in the housing sector, it is important that the OFT is specifically committed to looking at the mortgage sector in its next annual plan and at how it extends mortgages to both individual consumers and small businesses.
Also in this context is a hotchpotch of different regulatory activities for what most people regard as normal banking. If you go for a loan, it is one sector; if you go for a mortgage, it is another; and if you go simply for the normal retail banking functions with a current account or a deposit account, it is a third set of regulations—the OFT, the independent banking code and the FSA. Consumer interests and consumer understanding of the situation are not necessarily best served by this confusion. Given the change in the structure and the Government’s involvement in the banking sector, this is an opportune point at which to look again at the whole structure.
The noble Lord, Lord Razzall, also referred to the local situation. Clearly consumers, by and large, both business and individual, operate in their locality. If there is a restriction of competition as a result of this merger in certain localities, particularly in the more remote localities, that will be an issue which the Government and the competition authorities will have to address. I hope the OFT will also at some point, whatever the timescale, look at that dimension as well.
Finally, and somewhat cheekily, I suggest that consumer institutions ought to be represented in the newly-merged bank. It would behove the management of the new bank to establish internally a proper and authoritative consumer panel representing both individual and business interests. That would give a lot of reassurance to consumers and to all parts of this House.
My Lords, I welcome the Secretary of State to his new role and thank him for his excellent speech. I shall be brief—I wish to raise only one issue—but I hope I will not put my foot in it as I characteristically do sometimes. As the Secretary of State may recollect, shortly after his departure from his second role in government he entered a lift in which I was going upwards, as it were. I said to him, “Are you going up?” He said, “I wish I was”, and his characteristic humour came through. I thought that was very good and I shall try not to put my foot in it again.
The Secretary of State knows of my long-term interest in small businesses and I am in touch with his department on a number of issues. I hope that under the present circumstances of the merger and the influence that the Government have through the banking sector we will see small businesses being treated fairly and helpfully. The small business sector provides an awful lot of work and that is why it is extremely important. Small business could suffer and big business is suffering. I welcome the Secretary of State in his role as a champion for business—which I know he will be—and I hope he will also be the champion for small business.
On that note, I hope I will hear back from his department shortly on a number of points that I have raised.
My Lords, in joining the welcome to the Secretary of State, I should like to go back 50 years—he went back 50 years—and describe to him my experiences in the Grand Hotel, Hartlepool, where I frequently found myself negotiating the annual wage round with the local unions. I remember that one of their strongest arguments was the need for wellington boots for their many children.
I follow the noble Lord, Lord Borrie, in his argument. He, quite significantly, used the word “takeover”, and it is important for the House to remember that there is really no such thing as a pooling of interests merger—or it is very rare. In all essentials, what we are looking at is the takeover by Lloyds TSB of HBOS. I also remember that when I was for a time a deputy chairman of the Monopolies Commission—the predecessor body to the Competition Commission—I had to behave myself very well whenever in the presence of the noble Lord, Lord Borrie, because the OFT had a certain status in relation to the Monopolies Commission.
I declare an interest. I have been for a number of years a small shareholder in Lloyds TSB; of course, now I am a very small shareholder in Lloyds TSB. I am a member of the Merits Committee and it might be useful if I describe the experience of that committee in considering this order.
The order was laid on 7 October. At that time the solution to the banking crisis was being taken along institution by institution. On 8 and 13 October, we received the overall plan, which covered the eight leading banks to start with and then was to be spread to the whole sector. In the regulatory impact assessment before the Merits Committee, only two solutions were proposed. This was written on 3 October and came to us, unsigned, via the Minister, although, of course, I assume the original copy in the records will have a signature on it. It proposed two options: one was to do nothing and the other was to lift competition law restrictions. But, by the time we came to consider the order on Tuesday of this week, there was a third option—that the two banks should remain independent as they are both eligible to be recapitalised under the new scheme. Indeed, there are agreements in the Library, signed by the Treasury but not signed yet by either Lloyds TSB or by HBOS, which provide for £6 billion of preference and open offer ordinary shares to Lloyds TSB and about twice that to HBOS. Around £17.5 billion has been committed. But these agreements stand up independently, as they have been written; they are not dependent the one upon the other. So the Statement made to this House which said that the acceptance of these agreements by the banks and the confirming of them by the Treasury was dependent on the merger has not been followed in the structure of the arrangements that have been made.
The most important point that we are asking the Secretary of State to consider is not whether we should pass this order but whether he will ever use the powers that he will be granted under it. That is the crucial question. The noble Lords, Lord Razzall and Lord Borrie, asked him to think again about whether he should exercise the powers which no doubt Parliament will grant him.
The Secretary of State said that he would take very careful note of what the Treasury, the Bank of England and the FSA had to say. I should like formally to add the OFT to that list. It is due to make a report to him at the end of next week—on 24 October, I think—and this order cannot come into effect until 24 October. I should like the noble Lord to confirm to the House that he will wait until he has studied not only the advice from the present players but the report from a new player about this proposed takeover of HBOS by Lloyds TSB.
In the mean time, I offer a little thought. It is said by the Secretary of State’s department that both banks want to continue with the talks. I would think that Lloyds TSB is a lot keener than HBOS—certainly the reports indicate that. Did the HBOS leadership put up a white flag and just depart or was it pushed? It is not very clever for the leadership of HBOS to have departed. It is rather like the captain leaving the bridge when the boat is sinking.
The fundamental question then becomes: is it wise to continue with what is being proposed? If we take short-term considerations into account, Lloyds TSB is among the stronger of the banks at this troubled time. It has some problems of its own. HBOS has, under the Halifax title, what I believe to be a very sound mortgage book. Under the Bank of Scotland, it has a lousy commercial loan book. I may be wrong about that or I may be right; I am going on analysts’ reports. Past experience of takeovers is that the majority do not deliver what is promised at the time that they are proposed. In fact, the great majority deliver significantly less, and quite a large number are failures. In my view, Lloyds TSB’s ambition should give way to common sense. It should not risk its own position, and it is very much against the public interest that it should do so. We need it, and we do not need it to be tied up with a highly complicated task which may indeed prove to be insurmountable in the problems that it brings.
If we look at the matter in the longer term, I should like to think that the rescue plan for the banks—their recapitalisation—will work. I think we are all optimistic, and it is a good sign that out of the eight to which the proposals were first made, only three have taken up the opportunity. If this recapitalisation is a success, in the longer term I do not think that anybody would support a fully investigated takeover of HBOS by Lloyds TSB. We should not just be focused on the short term. Let us hope that the solution to that is well in progress. We should still think about the longer term.
My Lords, I thank the noble Viscount, Lord Eccles, for his kindly reference to the Grand Hotel in Hartlepool. He will be interested to know that it has undergone a tasteful refurbishment since he last visited, and I am sure that there will be a welcome there for him.
Let me say to the noble Lord, Lord Razzall, that I am only too well aware that my reputation precedes me. Should I ever forget it, I know that my friends in the press will be there to remind me. And to the noble Lord, Lord Hunt, I say that I am very well aware that I am here to toil, not to spin. In that context, I will take very seriously the accountability that I have to Parliament through this House. I will extend that accountability in ways to the other place, but at this Dispatch Box, I know where my duty lies.
I commend to the noble Lord, Lord Bilimoria, the article I presciently wrote for the Guardian, before I realised that I was going to be standing at this Dispatch Box, on the need for a new Bretton Woods. I stand by every word of that article which, I am glad to say, coincides with the views of the Prime Minister.
I say to my noble friend Lord Whitty that it is true that the relationship between a director of campaigns and communications and a general secretary in a fraught general election campaign can be a little fraught. The campaign to which he was referring was the famous “Red Rose” campaign of 1987, which was subsequently described by Private Eye magazine as “Labour’s brilliant election defeat”. Funnily enough, I turned up a note that my noble friend left me at the end of that campaign in which he wrote, if I recall it correctly, that, “If at times it might have appeared otherwise, I would like to place on record my appreciation of your role and contribution to the result of this election”. It could have been interpreted as a little double-edged, given that the result was a Tory majority of well over 100. I think we gained a princely 28 per cent of the poll on that occasion. But, as history records, we lived to fight again.
I thank noble Lords for their consideration of this very urgent and necessary measure and for today’s frank and useful debate. I should like to offer one wider observation arising from something that the noble Lord, Lord Hunt, said, and also offer an important caveat. The wider observation is about the general economic situation that we face. I believe very strongly that we should neither exaggerate nor downplay the wider economic consequences of what has happened internationally in the banking system. It will be a struggle for us, there is no doubt at all about that, and there are no overnight quick fixes to the challenges that we face. Equally, the UK economy has some innate strengths, many very strong companies—as I know, because in my previous job I was championing them as well as those across the European Union—and we have among those companies some excellent positions in overseas markets. I hope that no one, whatever their political affiliation, will be tempted to play politics with the banking crisis in order to make out that things are worse than they are, because that will help no one. So I welcome the noble Lord’s remarks in that context.
The caveat is this: the order that we considering is brought forward to allow for the careful consideration of financial stability as part of our assessment of the proposed merger between Lloyds TSB Group and HBOS. This debate, therefore, is not about the assessment, which I have yet to undertake. I will do so following receipt by me of the OFT’s recommendations on the competition and public interest issues which are due by 24 October. I have an open mind to both the competition and the public interest considerations.
The noble Lord, Lord Hunt, asked two specific questions. The first concerned the regulatory cost of the order. There are no direct costs on business as a result of the amendment, because it simply introduces a fresh public interest consideration. Secondly, the European Commission has approved the Santander takeover of Alliance & Leicester. That arises because two-thirds of its turnover is outside the UK and the competition issue is dealt with by the Commission, which is not the case with Lloyds/HBOS.
The failure of a bank or building society could leave individuals and businesses unable to access savings, raise finance or meet their day-to-day financial obligations. That reality places on us as a Government the real and urgent obligation to take the actions that we have. Such failure has the potential to spread to other parts of the financial system, threatening the jobs of employees and wider communities, the trust and confidence of global investors, and the future success of our country. That much is at stake, which is why we have had to take the actions, supported by all parties on both sides of this House, that we have taken.
Financial services account for all but 9.5 per cent of UK GDP, while HBOS plc alone manages around one-fifth of residential mortgages in this country, holds one-fifth of all UK current accounts and employs tens of thousands of people. In such circumstances, the Government have a responsibility to act. This Government are committed to do all they can to ensure that our banking system functions effectively for the stability of our economy and good of our society.
A dynamic economy needs open, flexible markets. This Government remain absolutely committed to ensuring a regulatory framework that promotes competition, improves productivity, drives innovation and protects the vital interests of businesses but also, I say to my noble friend Lord Whitty, of consumers as well.
It is critical now that Governments work together across the international system to assure stability and responsible risk-taking in their own economies and the global financial system as a whole. Therefore, the actions that the Government have taken and measures that we have put forward are the end of the beginning; they are not yet the beginning of the end. There is plenty more that Governments have to do, but plenty more in particular that Governments have to do together to put in place the international regulatory systems that we have learnt from this crisis are essential to be created.
In addition to the measures currently being implemented at an international and national level, the powers set out in this order will enable quick and comprehensive action to be taken in the assessment of proposed mergers that could bolster financial stability in the UK economy. The order will allow the Secretary of State for Business to base final decisions on the vital public interest of financial stability, alongside competition issues. There is no question of putting aside or disregarding competition issues. They will continue to be monitored, and any abuse carefully assessed and acted upon. I emphasise, and do so in particular to my noble friends Lady Kingsmill and Lord Borrie, that all normal powers remain available to the competition authorities to protect consumers now and in the future. I understand the concerns that have been expressed and we will be vigilant. I do not, however, want to anticipate any time limit on that vigilance. Therefore, I do not envisage a one, two or a three-year review following whatever decision I take on the merger in due course. I will not be drawn on conditionality in advance of my decision, but I assure your Lordships that, should a decision be taken for the merger to go ahead, we will not relax our vigilance at any time when it comes to the proper protection of consumers. I am sure that the prospective management of this potentially merged bank will have heard the suggestion of my noble friend Lord Whitty of the creation of a consumer panel.
The powers contained in this statutory instrument will be reserved for these exceptional circumstances where vital public interest issues are at stake. Now is such a time and we must take the action that we are proposing. I commend the order.
On Question, Motion agreed to.