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Volume 705: debated on Tuesday 4 November 2008

My Lords, I beg leave to ask a Question of which I have given private notice.

The Question was as follows:

To ask Her Majesty’s Government whether, following the proposals announced yesterday, they will urgently report to the House how they will maintain an arm’s-length relationship with the banks in which they have taken a shareholding.

My Lords, I am grateful to the noble Lord for his Question. Yesterday, the Chancellor provided the chair of the Treasury Select Committee with a written update on the financial stability measures introduced in October. The letter, now available in the House Library, provides details about UK Financial Investments, the arm’s-length body that will manage the Government’s investments in financial institutions.

My Lords, I am grateful to the Minister for the Answer. Will he explain why, in yesterday’s debate in this House on the economy, when we were given assurances that the banks would be dealt with at arm’s length, there was no mention of the setting up of this new high-powered body chaired by one of the most distinguished chairmen in the City, and comprising a senior Treasury official, two other officials and three non-executives? Is it not an affront to this House that when so many Peers asked deliberately about this issue we were not told? What is the explanation?

My Lords, I thank the noble Lord for his question. I am delighted that he has expressed such confidence in the choice of Sir Philip Hampton as chairman of UK Financial Investments. He will chair a board which will be primarily composed of private sector people with eminent and relevant commercial experience. No discourtesy was intended to your Lordships' House by not announcing the establishment of the arm’s-length body yesterday. It would clearly have been inappropriate for me to anticipate what the Chancellor of the Exchequer might say at the hearing being conducted by the Treasury Committee in another place. That hearing ran concurrently with our debate. I concluded my opening speech—quite an achievement given the number of interjections from the other side—before the Treasury Committee hearing began.

My Lords, we had an extensive debate that highlighted what this House is all about as it involved Members with world-class expertise, including three former Chancellors of the Exchequer. Our debate finished at 9.58 pm. The Treasury’s press release was dated yesterday. What stopped the Government circulating a copy of that release during the debate when so many questions were asked about this matter? The Government should be proud as the private sector and the public sector are working together. The Government would probably have been congratulated. Are they scared of being congratulated?

My Lords, I understand that it is the protocol of the House—when I made my maiden speech barely a week ago, I begged noble Lords’ indulgence as I became accustomed to the procedures and processes of the House—that written documents are tabled only at the beginning of debates.

My Lords, we are not criticising the noble Lord, Lord Myners, because we realise the sequence of his speech. However, when the noble Baroness, Lady Vadera, who unfortunately is not in her place, wound up the debate, she was supposed to be responding to some detailed questions on this point, but largely she did not seek to answer them. That is the discourtesy to this House.

My Lords, I thought my noble friend Lady Vadera made an extraordinary winding-up speech of great breadth and understanding of the complex issues arising from nearly seven hours of debate in your Lordships' House.

My Lords, I must apologise to the House for not being able to come to the debate yesterday. I had to be in court.

Don’t ask, my Lords. On the substance of the question, rather than the procedure, does the Minister accept that if it is an arm’s-length relationship, we need very short arms because these are effectively nationalised industries with many billions of taxpayers’ money put into them in order to keeping lending going to British business and British families? Does the Minister agree that we need experienced private-sector business people who have run real businesses through real recessions? I suggest that a minimum age of 60 would be appropriate.

My Lords, the noble Lord, Lord Oakeshott, brings great and relevant experience to this matter as well as youth. These are not nationalised industries; they are companies in which the Government are taking a shareholding. Those companies will be under the direction of their boards of directors. Those boards of directors will be responsible to all shareholders, including the Government. In some cases, we are taking steps with the boards of directors to strength the boards because it is clear that, in some respects, boards were among those who failed in their oversight of risk management and control of the institutions for which they were responsible. We are going to work with those boards to strengthen them. We will also ensure that UK Financial Investments Limited—the arm’s-length body that will have oversight of these investments on behalf of the country—will be appropriately staffed with a majority of independent directors under the chairmanship of Philip Hampton, who is one of our most extraordinary and successful businessmen.

My Lords, does my noble friend accept that his statement was widely accepted in the House, including his apology, but that the apparent discourtesy to the House pales into insignificance in comparison with the damage that has been done to this country by some of our banks and some of their directors and senior staff? Will he accept my congratulations on the measures that have been taken—albeit lately announced—to make sure that the public investment in our banking system is properly secured and defended?

My Lords, I thank my noble friend for his comments. I will convey his appreciation and thanks back to those in the Treasury and elsewhere who played the leading role in the recapitalisation of our banks in a truly innovative way, which has been admired and copied throughout the world. I am but a small bit player in that, but I will ensure that those who worked diligently and extraordinary well over many days and weeks are appropriately reminded of the appreciation of this House.

My Lords, in the absence of the noble Baroness, Lady Vadera, can the noble Lord explain her comments last evening? My noble friend Lord Forsyth asked at the end of the debate:

“My Lords, would the Minister deal with the specific questions which I asked her about the bail-out”,

and so on. The noble Baroness, Lady Vadera, said:

“My Lords, I have not dealt with a number of questions. I would be very happy to answer them”.—[Official Report, 3/11/08; col. 114.]

Then she picked out two. I asked her three questions, but not one of them was answered. That was surely an opportunity for her to say what had developed at the other end of the building.

My Lords, I thank the noble Baroness for her question. There were 47 speakers yesterday. In a winding-up speech, it was exceedingly difficult to capture every point and question raised. I remember well the final question of the noble Lord, Lord Forsyth. I believe that he was fixated with the issue of dividends and preference shares. We have addressed that issue in fully explaining, for the benefit of the noble Lord, Lord Forsyth—if of no one else—that preference shares can be refinanced, repaid and the banks will be able to pay dividends as soon as their tier 1 and core tier 1 capital is appropriate to meet their ongoing obligations to the Financial Services Authority.

My Lords, I am sorry, but the noble Baroness, Lady Vadera, had plenty of time; it was not a timed debate and we actually finished before the recommended time. There was time; 47 speakers did not ask 47 questions. If you go through the text of Hansard, you will find that there were not that many questions.

My Lords, if noble Lords go through Hansard, they will note that a number of Peers asked several questions, so it is not a simple matter of multiplication. My noble friend Lady Vadera made a full and complete explanation of the issues to the House. I stand here; if noble Lords have further questions, I stand here ready to answer them. Please ask your questions.

My Lords, I accept the noble Lord's invitation and ask him to justify yet again why the Government are dealing so badly with ordinary shareholders in the recapitalised banks and insisting that the preference shares must be redeemed before any dividend is paid.

My Lords, the Government have handled this with the interests of the shareholders to the forefront. In particular, we have insisted on a full right of clawback. There is no usurpation of shareholder rights. The shareholders of Lloyds TSB, HBOS and Royal Bank of Scotland can participate fully in the capital-raising of the ordinary shares. There is a full and unlimited clawback. That has been admired and appreciated by institutional investors, and it is our hope that many shareholders will so participate.

It is also a basic rule and principle—I look to the noble Lord, Lord James of Blackheath, as someone whose work in this area I have much admired—that preference shares stand in priority to ordinary shares. We have said that preference shares must be repaid or refinanced out of retained earnings, a new capital issue or disposal of the premium over book value, at which point ordinary share dividends will be payable. I can assure the noble Lord that that is absolutely standard practice in a refinancing.