House of Lords
Wednesday, 14 January 2009.
Prayers—read by the Lord Bishop of Southwell and Nottingham.
Energy: Carbon Capture and Storage
My Lords, the Government continue to promote the development of carbon capture and storage technologies. The CCS competition remains on track, and we are committed to an operational project by 2014.
My Lords, does the noble Lord agree that carbon capture and storage has now moved centre stage having regard to the fact that many new coal-fired stations are likely to be constructed both here and elsewhere and, on the other hand, that we are committed to a 20 per cent carbon reduction by 2020 and 80 per cent by 2050? In these circumstances, should the Government not be expanding their efforts and testing out other aspects of CCS? Can he indicate what progress has been made in other EU countries, especially Germany?
My Lords, the noble Lord is absolutely right to draw attention to the importance of carbon capture and storage. My understanding is that the International Energy Agency estimates an increase in global coal demand of 73 per cent by 2030, driven mostly by China and India. Therefore, there is great potential in the UK developing and putting into practice technology not just for reducing carbon emissions in this country but as regards export opportunities. I know the noble Lord is concerned that we have selected one technology in the competition that we have started, but we have had to focus our efforts in a particular area. We think that the post-combustion technology that we have chosen is the right one because it is the most globally relevant.
My Lords, the climate change package that was agreed in Europe in December contains a specific commitment to invest the revenue raised from auctioning 300 million allowances in up to 12 carbon capture and storage demonstration projects. How will the UK Government take advantage of that in relation to the questions asked by the noble Lord, Lord Ezra, about diversified interests and investment?
My Lords, the noble Lord is absolutely right to report the outcome of the negotiations in Europe, which we believe were very encouraging and in which the UK played an extremely proactive role. Clearly, the next question is how the UK will take advantage of the allowances that will be made available. We already have a competition process in place. We have chosen a technology which we think is the right one.
My Lords, does the Minister accept the judgment of the International Panel on Climate Change that carbon capture and storage could account for up to 55 per cent of the global carbon reduction targets? It is a huge percentage. But does he also accept that there is growing impatience among industrialists in this country not only in the energy industries but in other high emitters such as cement and iron and steel at the painfully slow progress that seems to be being made in the Government’s policy in this regard? We do not even know who the winner of the competition is. When will we know that?
My Lords, I cannot give an exact date for that because we are in the competition process. There is no doubting the fact that this is very important: it is important in terms of this country meeting the hugely challenging targets to reduce emissions and in terms of UK jobs and skills. The Government are not at all complacent. The UK played a very important part in the successful outcome of the negotiations in Europe in December. We continue to invest energy and time in CCS and we are confident of a good outcome.
My Lords, does the Minister agree that there is a minimal chance of meeting the global targets for CO2 emissions reductions unless carbon capture and storage is widely adopted within 20 years and that it will be in the economic interests of the UK and the EU to spearhead the development of this technology with far more urgency than seems to be happening at the moment?
My Lords, I agree with everything that the noble Lord said except for his last few words. The Government are not complacent; we fully understand the importance of CCS. We will do everything we can to ensure that the UK is the leader in this field to our great advantage and that of many other countries.
My Lords, the noble Lord knows that an application is under consideration in Kingsnorth and that it would not be appropriate for me to comment. He is right to suggest that the electricity generating industry faces a stiff challenge in terms of sufficient supply over the next few years. He may be aware that a number of coal and oil plants may go out of commission over the next few years; we are very much alive to that. I can also report to the House that there is new energy production. EDF’s takeover of nuclear power stations in this country will also lead to investment in new nuclear processes.
My Lords, would it not be preferable if the Government made more effort in relation to carbon capture systems rather than spending a lot of money on wind generation? That provides power only when the wind blows whereas coal-fired stations and other kinds of power stations provide it when it is really necessary—in the winter, when the wind may not blow if it is very frosty.
My Lords, I do not agree with the noble Lord on that; we should look at all sources of supply. We are pledged to increase the amount of renewable energy that we use in this country but CCS is also very important. It is important that we have diversity of supply and that we redouble our efforts to ensure that we meet these very challenging targets on greenhouse gas emissions.
Jobcentre Plus: Dyslexia
To ask Her Majesty’s Government what action they are taking to ensure that every Access to Work team in a Jobcentre Plus office includes a member of staff with the necessary training to understand the needs of adults with dyslexia who are seeking work.
My Lords, Access to Work advisers are already able to call on expert advice from contracted providers or the Jobcentre Plus Work Psychology Service if they need help dealing with individual customers. Access to Work advisers also have access to disability employment advisers who have expertise in dealing with a range of disabilities, including dyslexia. Recently, Jobcentre Plus has been in discussions with the British Dyslexia Association about delivering dyslexia awareness sessions to Access to Work advisers during 2009.
My Lords, I thank the Minister for that reply. Does he not agree that the fact that we are actually in the process of making sure that this cover arrives raises questions as to why it was not there in the first place, especially considering the amount of attention that there has been from the Government to making sure that all disabilities, not just dyslexia, are covered?
My Lords, I first pay tribute to the noble Lord’s engagement and that of the British Dyslexia Association in this field. I do not accept that there has not been activity and support in this area, but it is a welcome development that we are working with the British Dyslexia Association. Half-day events have been organised for February in three locations, which will be focused on understanding what dyslexia is and the associated conditions, providing a specific idea of the kind of difficulties that the condition poses at work and an awareness of coping strategies, including and beyond IT, that can help as an adjustment.
My Lords, the Access to Work budget is a hugely important component of the Government’s support for disabled people. The budget has already been increased from £15 million in 1994-95 to £69 million in 2008-09, and we have agreed to double it. The proposal, I believe, is to do that incrementally through to 2013-14, by when it is anticipated that the budget will help some 48,000 people access and keep employment.
My Lords, will the Minister take this opportunity to repudiate the remarks, reported by the BBC today, of Graham Stringer, the Labour Member of Parliament, who says:
“Dyslexia is a cruel fiction … The sooner it is consigned to the … dustbin of history, the better”?
These remarks are deeply irresponsible and will cause great concern to many, many hundreds of thousands of parents throughout the country.
My Lords, the noble Lord makes a telling point and I am very happy to refute those comments that Graham Stringer made. The Government are very clear on that: dyslexia is a specific learning difficulty, and that is why it deserves the support it gets through special educational needs provision and the sort of employment programmes that I have spoken about.
My Lords, is my noble friend aware that his answers are helpful, but not adequate, because the Question specifically asked for a trained, skilled person to be in every jobcentre? Having “access” to an adviser can mean anything, but what we really need is someone specialising in dyslexia to be able to give guidance immediately, rather than calling them in at some later date. Will the Minister think again?
My Lords, there are three operational centres, which is the primary route by which claims customers can obtain Access to Work support, but there are specialists in each district and in most individual jobcentres; so information, access and support are available. However, this is also about making sure that not only specialist advisers but individual personal advisers at the coalface in jobcentres are aware of the issues around dyslexia. A whole raft of support needs to be given and, I believe, it is available; but we should never be complacent and we need to keep focused on this.
My Lords, having specialist advisers in jobcentres is one thing, but much of the Access to Work operation is done through contracts to outside bodies. Are the monitors of those contracts suitably qualified, so that, in the case of dyslexia or any other incapacity, we can be assured that the contract remains viable?
My Lords, I do not think that the noble Lord is right in his assertion that this work is largely contracted to outside bodies. Access to Work supports individual tailored programmes which affect individuals and individual employment opportunities. It is about special aid, equipment, adaptations to premises and equipment, support workers, communication support and travel to work support, helping individuals to access or stay in employment. In that respect, the system is not contracted out.
My Lords, given the Government’s stress on the importance of apprenticeships and the potential importance of apprenticeships as a route into the labour market for disabled people, will they ensure that the forthcoming apprenticeships Bill includes measures to promote diversity and accessibility for disabled people in the apprenticeships programme?
My Lords, is the noble Lord confident that all Jobcentre Plus staff understand something about dyslexia? If one in 10 of the population is dyslexic, that means that a lot of people who visit Jobcentre Plus offices do not really understand the forms and they may be pretending to fill them in without really knowing what they are doing. Therefore, is he confident that all the staff have some knowledge of dyslexia?
My Lords, the UK is offering to host a conference of the treaty-recognised nuclear weapon states, and we have supported an independent study of the requirements for a nuclear-free world. The Atomic Weapons Establishment is researching the verification of nuclear disarmament work, including working with Norway and the non-governmental organisation VERTIC. Furthermore, in designing the replacement assembly/disassembly facility at Burghfield, we are considering how we might help to facilitate the future verification of weapons dismantlement.
My Lords, I thank the noble Lord for that Answer. I have two follow-on questions. I had understood that part of the AWE’s role in this would be helping to expand the next generation of monitors for verifying the elimination of nuclear weapons on a multilateral basis. Is anything moving on that? Secondly, on 18 December, in the traditional way in which important but embarrassing announcements are slipped out on the last sitting day of Parliament, there was a one-paragraph announcement on the BNFL website that the AWE is now passing to majority American control. Does this have implications for Britain as a nuclear disarmament laboratory?
My Lords, with regard to the noble Lord’s first point, the AWE’s work is very much focused on developing methods of verification. As to whether we are training individual monitors, if I understood the noble Lord’s question correctly, I am not so certain and I shall need to look at that. However, we are working on the methodology of verification. On the noble Lord’s second point, I reassure him that, while the sale of a share of the AWE management company to an American owner is indeed taking place, control of our nuclear programme and sites and indeed strategic control of the management company itself remain in the hands of Her Majesty’s Government.
My Lords, perhaps the noble Lord can explain that further. I declare an interest in that I live in Reading on the Thames and discharges from Burghfield and Aldermaston are made into the Thames. People living in that area would certainly want an assurance that there will be no loss of government control and indeed that the controls that already exist will either continue or be improved.
My Lords, let me give the noble Lord the assurance that while the commercial details of the contract remain confidential for sensitive reasons, it is structured in such a way that it is a management contract to ensure the sale of a share of the company that deals with the management of the facilities, which in no way disrupts the British ownership of them.
My Lords, can the Minister say whether the perception that the grand bargain on nuclear disarmament has changed, leading to an effective abandonment of a commitment to disarmament, is accurate, and can he offer guidance on the current steps being taken by Her Majesty’s Government towards nuclear disarmament here?
My Lords, I very much hope that I can reassure the right reverend Prelate that the grand bargain remains. The issue of non-proliferation is at the core of the NPT—disarmament by the existing nuclear powers and the proper protected use of nuclear energy to be available to those who need it. Obviously the bargain needs refreshing in the light of the strategic changes that have occurred in the world, and the growing turn towards nuclear energy as an energy source by many countries. We are much more confident today than we were, say, 18 months ago that the next NPT review conference in 2010 will be able to renew that bargain in a way that will re-establish a framework of nuclear non-proliferation in the world in which we can all have confidence.
My Lords, now that the Secretary of State-elect of the United States has said that the new Administration will send forward the comprehensive test ban treaty for ratification, reopen negotiations for a fissile material cut-off treaty and begin talks with the Russians about how to handle a number of bilateral issues, surely it is time for either the Prime Minister or the Foreign Secretary to set out the British view on these crucial issues about how we move towards nuclear disarmament, in an overall approach similar to the one that the former Foreign Secretary used shortly before she left the Government.
My Lords, I certainly think that the Prime Minister and the Foreign Secretary in a number of statements have indicated our support for a much more ambitious non-proliferation agenda than in the past. The noble Baroness, Lady Williams, has made sure in her role of advising the Prime Minister that we do not lack ambition. It is probably correct that we now face the prospect of an open door that was previously closed, and it is enormously important that we press on it and work with the US as well as our other P5 partners to raise our game on nuclear non-proliferation and disarmament.
My Lords, let me assure the noble Lord that AWE sites and assets continue to be owned by the UK Government. The AWE management company is responsible only for the management and operation of the AWE but does it under contract to the MoD. This sale does not affect UK sovereignty or the independence of the UK’s nuclear deterrent. The UK’s strategic requirements and the deterrent programme will continue to be set by the UK Government and we are confident that the change in ownership of AWEML does not alter that in any way.
My Lords, while it is encouraging to hear the significance of 2010, as seen by the Government, and the hopes for it, does my noble friend agree that any international regime that we have so far on the control of nuclear weapons was originally based very clearly on the firm undertakings that the existing nuclear powers would work seriously and effectively for the reduction of their own nuclear capabilities? Can my noble friend assure the House that this will be a priority with the Russians, who have not been helpful of late in this respect, and with the new US Administration?
My Lords, on the latter point we believe that the United States in the statements of eminent former Secretaries of State and Secretaries of Defense has committed itself unofficially, through that defence and foreign policy establishment, to seek a final objective of a nuclear-free world. How that new thinking reflects itself in the position of the new Administration will have to be seen, but we have heard comment on the testimony yesterday of the incoming Secretary of State. Her rumoured appointment of the Under-Secretary in charge of that portfolio is deeply encouraging. There is much to be hopeful for. On the broader question of the P5, one reason that we are trying to get a P5 meeting this year on verification is to make sure that there are no laggards and that all the P5 are moving similarly towards the vision of very sharp reductions with the ultimate goal of a nuclear weapons-free world.
My Lords, we fully expect the efforts of the UN Secretary-General’s special representative to Somalia to advance the political process in that country as envisaged in the Djibouti agreement. The Security Council has reviewed the situation in the country on a regular basis. A current draft Security Council resolution is under discussion which envisages a UN peacekeeping deployment in future if there is sufficient progress on the political and security fronts.
My Lords, considering that the Djibouti process involves the expansion of the TFG Parliament to include the 275 members of the ARS, what arrangements will the Security Council make to bring the two factions of the Parliament together and to provide logistical and security arrangements that will permit them to hold their meeting peacefully in the absence of the Ethiopian troops who are departing at this moment? Secondly, will the UN engage with the authorities in Puntland to eradicate the pirate base on their territory and persuade them to give up their claims to part of Somaliland?
My Lords, on the noble Lord’s first point, the meeting of the Parliament, if that provision of the Djibouti agreement is confirmed and made operable, is a little way down the road. We first have to get the Djibouti agreement fully accepted by the different parties and everyone to come in. Obviously, security will be a problem in holding a large meeting of parliamentarians, but I give the noble Lord some reassurance. In these first days of Ethiopian withdrawal, the level of insecurity in Mogadishu appears to have fallen.
My Lords, in the light of events at the presidential palace in Mogadishu and the humanitarian disaster, with the International Medical Corps estimating 1 million people now displaced in Somalia, can the Minister share with the House something about the humanitarian problems that face the people of Somalia and also his reflections on peacekeeping in Africa generally? After his recent experiences in Darfur, in the east of the Congo, and now in Somalia, does he not think that there needs to be a more fundamental debate about how we go about peacekeeping and conflict resolution in Africa?
My Lords, the noble Lord will forgive me, but I do not want to overburden the patience of the House, so to his latter question I had better just say yes. There is need for a fundamental discussion of humanitarianism in the current context, especially in the very weak states of Africa. On the humanitarian situation in Somalia itself, we are the second largest bilateral donor. We planned and are well into an annual programme for 2008-09 of £30 million. We are trying to find effective ways to deliver humanitarian assistance into what the noble Lord is quite correct to describe as a situation of great insecurity and difficulty.
My Lords, within the failed state of Somalia is the former British protectorate of Somaliland, based on Hargeisa, which is a haven of relative peace and stability and is seeking to regain its independence. Does my noble friend agree that it should be supported by discreet British diplomacy and that we should seek to persuade members of the AU in that regard? To what extent is the aid he described going to Somaliland, where it can be used effectively, rather than to the anarchic state of Somalia?
My Lords, it has been a continuing feature of the situation, as my noble friend says, that Somaliland has been a relative haven of stability, although it too has been subject to tragic terrorist attack recently. The British Government’s position has always been to be sympathetic to Somaliland’s demand for independence but we feel, first and foremost, that this is a matter for the different components of Somalia to negotiate between themselves; and, secondly, that it is for the AU, which has shown a deep suspicion of any redrawing of African boundaries, to move on this and that any overt British support for this goal would actually set it back. We have to let Africa sort out this problem.
My Lords, as the Ethiopian troops began withdrawing only the day before yesterday—on Tuesday—does the Minister agree that it is possibly a little early to judge the security situation and the power vacuum that they leave? However, is it not clear that the al-Shabab Islamic extremists will have a much freer run for the moment, and that action internationally is required? Are we, the British, supporting the American draft resolution for a UN force to be in place by 1 June, if that is not too late?
My Lords, I take a very important correction from the noble Lord; it is too soon to say with any confidence that the security situation has improved. There has been a fundamental debate about the Ethiopian forces, whose intervention into the country we certainly understood the reasons for, and whether they have become more of a source of the conflict than a solution to it. Certainly, al-Shabab and the other hard-line Muslim elements in the country have essentially mobilised themselves against the Ethiopian presence, and if you read the language in which they have cast the Ethiopians as a proxy of the United States in Somalia, you can see that they have in some ways become part of the problem, not just part of the solution. We have to wait and see what impact the Ethiopian withdrawal will have on the security situation.
On the second point, we are working very closely with the Americans to secure a resolution. We are, however, taking care to make sure that there is no open-ended commitment of a UN peacekeeping force without political progress and sufficient conditions of security to ensure that that force could be effective.
Borders, Citizenship and Immigration Bill [HL]
A Bill to provide for customs functions to be exercisable by the Secretary of State, the Director of Border Revenue and officials designated by them; to make provision about the use and disclosure of customs information; to make provision for and in connection with the exercise of customs functions and functions relating to immigration, asylum or nationality; to make provision about citizenship and other nationality matters; to make further provision about immigration and asylum; and for connected purposes.
The Bill was introduced by Lord West of Spithead, read a first time and ordered to be printed.
Online Purchasing of Goods and Services (Age Verification) Bill [HL]
A Bill to make it a requirement for the providers of goods and services and the providers of specified facilities enabling the purchase of such goods and services to take reasonable steps, in certain circumstances, to establish the age of customers making such purchases remotely; and for connected purposes.
The Bill was introduced by Baroness Massey of Darwen, read a first time and ordered to be printed.
Torture (Damages) Bill [HL]
A Bill to make provision for actions for damages for torture; and for connected purposes.
The Bill was introduced by Lord Archer of Sandwell, read a first time and ordered to be printed.
Local Democracy, Economic Development and Construction Bill [HL]
Order of Consideration Motion
That it be an instruction to the Grand Committee to which the Local Democracy, Economic Development and Construction Bill has been committed that they consider the Bill in the following order:
Clauses 1 to 49, Schedule 1, Clause 50, Schedule 2, Clauses 51 to 58, Schedule 3, Clauses 59 to 61, Schedule 4, Clauses 62 to 80, Schedule 5, Clauses 81 to 114, Schedule 6, Clauses 115 to 140, Schedule 7, Clauses 141 to 144.
My Lords, my honourable friend the Economic and Business Minister answered an Urgent Question earlier in the other place. With the agreement of the usual channels it is being repeated in this place as a Statement, as is the practice. The Statement is as follows:
“I would like to provide the House with the details on the business support measures that the Chancellor announced in the Pre-Budget Report in November, which are going live today.
The crisis in the global economy is above all a credit crisis. Many companies are struggling to finance themselves because of the crisis in the banks. Their business models are not flawed, but the credit crunch has drastically reduced the amount of capital available and banks have tightened their lending criteria. Today’s package is designed to address the problem directly.
The support package that we are launching today builds on the commitments that we made in November’s Pre-Budget Report. It addresses the cash flow, credit and capital needs of businesses. We are offering specific solutions, not a blanket subsidy. We are delivering real help and targeting real needs. This will make a real difference to business, while preserving value for money for the taxpayer.
First, the working capital scheme is a direct response to the constraint on bank credit available for lending to ordinary-risk businesses with a turnover of up to £500 million a year. The Government will provide banks with guarantees covering 50 per cent of the risk on existing and new working capital portfolios worth up to £20 billion. The guarantee will secure £20 billion worth of working capital credit lines for companies, ensuring that they are safe from reduction or withdrawal.
In addition, the guarantee will free up capital which the banks must use for new lending as a condition of this scheme. This is lending that would otherwise not have been provided. No other proposed scheme of this kind would free up such additional capital or create new lending specifically for the use of UK companies. A charge will be made for the Government guarantee and, although the risk will be relatively low, the Government will make prudent financial provision of £225 million in case of loan defaults.
Secondly, through a new enterprise finance guarantee, we will support up to £1.3 billion of bank loans to companies with a turnover of up to £25 million. These will be smaller, viable, credit-worthy firms that are struggling to access the finance they need because of the additional risk created by the downturn. Under the scheme, businesses will be able to borrow a maximum of £1 million—of which the Government will guarantee 75 per cent—to cover working capital or investment. They will also be able to convert their overdrafts into loans to free up their existing facilities. Banks will have to certify that each loan is additional to what they would otherwise have offered. The scheme will operate on a first-come, first-served basis within the allocated portion of the sum for each participating bank.
Thirdly, we are establishing a new £75 million fund to help viable small businesses with high levels of existing debt to raise long-term finance. The capital for enterprise fund brings together £50 million of government funding with £25 million from major banks. Run by professional fund managers, the fund will provide equity investment to companies with viable business models that have exhausted traditional forms of finance. They will be able to use the capital to restructure their balance sheets and invest for growth.
Lastly, the Government want, if possible, to address concerns about the operation of credit insurance which have emerged since the Pre-Budget Report. This insures suppliers of goods to other companies against payment default by those companies for the goods provided. The Government are discussing with trade credit insurance providers a government scheme to help companies affected by reductions in their credit insurance. There will be a further announcement on this as we progress.
This overall package of measures offers not slogans but real targeted help from today to those firms that need it most, while ensuring that the banks are not insulated from normal commercial risk. It addresses the problem at the heart of the credit crunch; that is, credit for viable businesses. UK businesses are the backbone of our economy, so it is vital that the Government act now. We are absolutely determined to do everything we can to support viable companies through this global downturn and I commend this Statement to the House”.
My Lords, that concludes the Statement.
My Lords, there are two issues that we ought to consider. First, in welcoming the Secretary of State to the Dispatch Box, I feel bound to raise the important matter of the responsibility of Ministers to account to Parliament first. Not for the first time, after two days of briefings to the press and a number of television and radio appearances starring the noble Lord, in which he lobbed bombs at the opposition parties without their having any right of reply, the Secretary of State was not proposing to make any Oral Statement in this House. It was only after representations in the usual channels by my noble friends and by the Liberal Democrats, and after the granting in another place of an urgent Question by Mr Speaker to my honourable friend Mr Alan Duncan, that the noble Lord, just over two hours ago, signified that he would agree to come here today.
The current edition of the Ministerial Code states clearly:
“When Parliament is in session … the most important announcements of Government policy should be made in the first instance, in Parliament”.
Why, yet again, was this not done? Why is it that his colleagues observe the code and he does not? I remember that, in his maiden speech of 16 October, the noble Lord said:
“I will take very seriously the accountability that I have to Parliament through this House … at this Dispatch Box, I know where my duty lies”.—[Official Report, 16/10/08; col. 861.]
I say to the noble Lord, for whom I have a great deal of respect, that it is time he made serious efforts to live up to those sentiments. He is the Secretary of State; he is a Minister in your Lordships’ House; he must do his constitutional duty in your Lordships’ House first, without having to have his arm twisted. I am grateful for the efforts made by my noble friends and the usual channels to ensure that this Statement was made.
I turn to the detail of the Statement. The announcement is, of course, very important. However, as my honourable friend Mr Alan Duncan pointed out in the other place earlier, it is also a pale imitation of a policy put forward by my party just a few weeks ago. At that time, the Chancellor of the Exchequer said in another place that a loan guarantee scheme would be “an empty promise” and,
“would not help the British economy or the people of this country”.—[Official Report, Commons, 18/10/08; col. 1229.]
Our national loans guarantee scheme would have guaranteed up to £50,000 million of new loans to British business. It was endorsed and supported by numerous commentators and trade bodies. All Ministers did at that stage was rubbish the policy, yet here they are today, proudly announcing a wan imitation of it.
The Prime Minister and his colleagues have been merrily taking over banks for the past few months, and now they seem to be taking over policies as well. At the heart of this recession is the collapse of credit. Companies of all sizes are struggling as banks seek to protect their balance sheets and credit insurers withdraw from the marketplace, breaking the payment chain. The CBI says that businesses face the daunting prospect of refinancing to the tune of £100,000 million during this year. What number does the Minister put on the collapse in the volume of credit over the past year? How does this compare in scale with the scheme that he has announced today?
In more detail, how will the Government select the firms eligible for the £1,000 million of longer-term loan guarantees? Secondly, will the guarantees be available to foreign firms or just to UK companies? Thirdly, on what basis will the Government decide whether to buy the shares of any company? Fourthly, will the Secretary of State confirm reports in today’s Guardian claiming that the £10 billion of guarantees for working capital will be self-financing? Fifthly, what, if anything, does this package offer to larger businesses?
Earlier today, the noble Baroness, Lady Vadera, was on television speaking of green shoots in the economy. I did not know that spectacles could ever be that rose-tinted. Ministers have spent months showboating and burnishing publicity stunts—toiling on spin, one might say—during which time they have done nothing of substance to save the 6,000 small firms which, according to the Federation of Small Businesses, have gone under while we have been waiting. While the Government dithered, thousands of jobs have been lost.
When this Labour Government came into office in 1997, they inherited what they said at the time was a golden economic legacy. Sadly, we have had more than a decade of fiscal, economic and regulatory irresponsibility. Sadly, today’s announcement is simply too little, too late. This country deserves better.
My Lords, I welcome the Statement made by the Minister. To take the first point of the noble Lord, Lord Hunt of Wirral, the cycle seems to be that we see something on television or read it in the newspapers and then the two Opposition parties put down a Question to try and get the Minister to the House, whereupon he gives in and makes a Statement. I never had any doubt that the noble Lord would make a Statement—he clearly loves it so much here. Perhaps in future we need not go through that cycle to get him here.
I should like to raise two matters of detail before going on to the more general points of the Statement. The noble Lord, Lord Hunt, referred to CBI indications, coupled with comments in the press, that tens—indeed, hundreds—of billions’ worth of credit for major companies will have to be refinanced in the course of this year. Is the Minister saying that he believes that the working capital scheme will be sufficient to provide the finance to replace loans that will otherwise not be renewed or reduced, with the consequent effect on employment? Is that the Government’s solution to that problem, as highlighted by the CBI?
The second point of detail relates to the working capital scheme, the enterprise finance guarantee and, probably, the capital for enterprise fund, although not to the same extent. Those of us who have had experience over the years with the small firm bank guarantee which was in place for a considerable number of years will recognise that the banks have often proved extremely difficult to deal with through the bureaucratic systems that are in place. Certainly, up until the credit crunch, despite the Government guaranteeing a significant proportion of the loans, a number of clearers did not really want to lend money. Many small and medium-sized enterprises became mired in bureaucracy and eventually gave up and did not take the loan. What steps will the Minister and his Treasury colleagues take to ensure that that does not happen when these well meaning schemes are introduced?
Let me turn to one or two wider issues. Is the Minister saying that he believes that this is enough? Is he saying that these are the Government’s policies to deal adequately with the credit crisis and the restrictions on bank lending that we are witnessing? Will he not accept that there are two quite fundamental difficulties? First, there is the conflict between the Government and FSA policies that banks should improve their capital ratios, which is clearly inconsistent with pressure on the banks to lend more. Secondly, will he accept that with the collapse of the Icelandic and Irish banks there must have been a significant reduction of capacity to lend in the UK economy, so that even if all the banks, whether those under the Government’s control or the other UK banks, maintain their lending at levels similar to those of last year or the year before, there must clearly be a significant shortfall? How do the Government propose to cover that?
Will the Secretary of State indicate whether the Government are considering as we move into the spring what the Tories would call “printing money”, but what the economists refer to as “quantitative easing”? Are the Government contemplating kick-starting the mortgage-backed security market with any government guarantees? Are they considering the option of establishing a bank owned by the taxpayer into which all so-called “toxic” loans could be put, thereby freeing up lending from the other banks? It would be very helpful to your Lordships if the Government could indicate whether any of those options are being considered.
Bearing in mind that the Government now have 100 per cent control of at least one lender and majority control of two of the clearers, are they considering taking into 100 per cent majority control either HBOS or Royal Bank of Scotland to ensure that the taxpayer not only takes the risk on government policy but in due course obtains the reward?
My Lords, on the subject of being present in this House, I first say to the noble Lord, Lord Hunt, that it is very nice indeed to see him back—I know that he has experienced a period of bad health. We have missed him and it is very nice to see him back in his place.
It is true, however, that I really like this place, that I like being here and that I can barely be kept away from it, but, sometimes, colleagues prevail over me. I shall try to make sure that I am successful in resisting their blandishments in future and that I am here whenever I want to be.
My Lords, there is very little difference between the number of times your Lordships want me to be here and the number of times I wish to be present, because I take the responsibility of Ministers to this place very seriously.
In response to the noble Lord’s other charge against me, that I have spent the past 24 or 48 hours rubbishing the Conservatives’ proposal, I say that I would have found it very difficult to do that because I found it very difficult to pin down exactly what their proposal was. I knew that it had a name and had a very big figure attached to it, but, beyond that, I had not the faintest idea what it would do, what it was focused on, what it would target and whom it would help.
The noble Lord said that the measures that are going live today and which I have described in the Statement are too little and too late. I would prefer to describe them as being genuinely substantial and here in real time. I shall not detain the House by going through the lists of people and organisations who welcome them, including the Forum of Private Business, the Institute of Directors, which says that today’s announcements are admirable, the General Secretary of the TUC, who welcomes today’s scheme, and the Engineering Employers Federation, which says that it kick-starts the credit markets. Everyone, as far as I can see, has been extremely generous to and welcoming of the Government’s announcements today, with, of course, the predictable exception of the opposition spokesman from the other House, Mr Alan Duncan, who may be campaigning for a purpose other than to help small businesses in the UK economy. He has called again and again for a further, bigger, wider scheme, while demanding that it be kept simple. With all the hyperbole that has poured forth, a proposed guarantee of loans that would seem to encompass everything from Woolworths to BP could not be kept simple.
The noble Lord raised a number of specific questions. He asked how the Government will select businesses to qualify under the enterprise finance guarantee. The guarantee is open to all businesses with a turnover of less than £25 million. It is aimed at smaller and medium-sized businesses, and all can come forward and apply. A small number of sectoral exclusions apply—agriculture and coal—due to state aid restrictions, but the banks will make the decision of whether or not to lend, not the Government. That is only right: the Government will not be involved in making individual lending decisions.
The noble Lord asked whether the scheme will be available to foreign firms or to British companies. All schemes will be available to qualifying firms that are domiciled in the United Kingdom. However, banks will ultimately make lending decisions. This will inevitably take into account where the security, or otherwise, of a business might be.
The noble Lord asked on what basis the Government might decide to buy the shares of any company. The enterprise finance guarantee is a guarantee scheme for lending to SMEs. It does not involve the Government buying shares in businesses. For the capital for enterprise fund—the possibility for companies when restructuring their balance sheets to convert debt to equity—government money will go into a fund or funds, which will in turn invest into the company concerned. The fund will do the investing, rather than the Government directly. The Government will therefore not be buying shares of any company as a result of the fund’s operation.
The noble Lord asked whether the £10 billion guarantees for working capital will be self-financing. The Government have made a prudent provision, as I said in the Statement, in case of loan defaults. We have invited banks to present loan portfolios to us, and we will then negotiate a price with them on the basis of those portfolios’ risk. The pricing will be assessed portfolio by portfolio.
The noble Lord makes a good point about the prospects for larger companies. The attention and focus of many concerned about credit in the corporate sector will move from SMEs to bigger companies, many of which will be undergoing the renewal of credit and lending facilities during the course of this year. The working capital scheme that I have described provides guarantees on portfolios of working capital loans for businesses with an annual turnover of up to £500 million. We are not just talking about small businesses, but about sizeable ones with a lower risk than in the case of the enterprise finance guarantee for SMEs.
The noble Lord, Lord Razzall, asked whether all this is enough. The answer to that is: I do not know. I suspect not. I suspect that we are some way from the end of the road in navigating our way through the biggest and most complex shock that the global financial system has ever experienced. You just have to look at what President-elect Obama is proposing to bring forward in the United States. Incidentally, despite its size and scale, many American commentators are describing it as probably inadequate for the purpose. I am talking about $700 billion-worth of government intervention and stimulus to the US economy. During the course of this year, we will see that we are far from the end of the road in sorting out the crisis in the banks. Indeed, my right honourable friend the Chancellor, Alistair Darling, is currently talking to the banks about a number of further measures that will have to be taken and about a number of refinements of those measures that we have already introduced in order to see our way through this. However, I can say that, contrary to the advocacy that I heard on the radio yesterday by Dr Vince Cable speaking on behalf of his party, at the moment the Government do not have plans to implement one of their earlier manifestos and nationalise all the banks in the country.
My Lords, I welcome the Minister’s Statement. Over the months of this credit crunch and financial crisis, I have been calling for greater scale support from the Government. The £1 billion announced during the Pre-Budget Report was woefully inadequate, but today we are talking about serious sums, and I greatly welcome that.
Will the Minister address a major concern I have about the working capital guarantee scheme? My understanding is that if a bank makes a loan of £1 million under the scheme to a business, the Government will guarantee £500,000 of it. Can the Minister confirm that? In the early years when I started my business, I raised two loans under the small firm loan guarantee scheme. The problem was not the government guarantee of 75 per cent or 85 per cent but that the banks were not willing to take a risk of 15 per cent or 25 per cent—and that was in the boom times. In the current situation, the biggest problem is that the banks are not lending. They are not lending to each other, let alone to business. The Government are now providing a 50 per cent guarantee to the banks. Where are the banks going to take a 50 per cent risk? If that is the case, this £10 billion will not help and a 100 per cent well intentioned move by the Government will end up being half-hearted.
My Lords, the noble Lord, Lord Bilimoria, reflects the sentiments and concerns of many people about the way in which the banks are now treating risk in the economic conditions we are facing. He is right that we will be offering a guarantee of 50 per cent, but it will be on a portfolio of loans, not on individual loans. However, the essence of how he described the scheme is right. The point of the Government providing a guarantee against those portfolios of loans is to enable the banks to reduce the amount that they have to put aside against them. That freed capital can be redeployed either to sustain existing lending facilities or to make new lending facilities for other companies.
The scheme will operate on the basis of clear understanding, negotiation and conditionality between the banks and the Government. We will not be offering our guarantee or delivering our side of the bargain unless we are absolutely sure that there is additionality: a clear commitment to maintain existing credit that would not otherwise take place or to offer new lending as a result of the operation of this scheme. It is important for me to stress that this negotiation between the Government and the banks about the operation of the scheme will be followed in considerable detail.
My Lords, the working capital scheme I have described is designed to support £20 billion- worth of new and existing lending, which covers my noble friend’s second point. The enterprise finance guarantee will come into operation straight away—it is open for business. The working capital scheme kicks off today too, but with an invitation to the banks participating in the scheme to bring forward their portfolios of loans in order to start that “negotiation” between the Government and the banks to operationalise the scheme. That second scheme will require an amendment to the Banking Bill that will be introduced shortly. I expect the first £1 billion tranche from the working capital scheme to start flowing in about six to eight weeks’ time but, before that, there has to be considerable negotiation and business between us and the banks concerned.
My Lords, I welcome the measures taken by the Secretary of State, particularly the guarantee scheme. However, I return to the question of the scale of the measures. The Secretary of State said that the guarantee scheme would have set against it £225 million, which seems to be a bargain in return for releasing £20 billion-worth of lending. Could the scheme not therefore have been doubled to £40 billion at a cost of £450 million, as the CBI, not just the Conservative Party, has requested? Would that not be a much better use of money than the £1 billion spent on the fiscal boost?
My Lords, I do not accept the noble Lord’s last point. It is as important for us to do what we can to stimulate demand in the economy as it is for us to do what we can to create and extend credit. I am grateful for his welcome to what I have announced today. He asks a reasonable question: if the scheme is such a good idea, could it not have gone further and been mounted on a bigger scale? I would rather see how we go. We are designing a brand new monetary instrument of intervention, and I would like to see how it succeeds before we judge whether we can expand it further in due course.
My Lords, we have talked about starting the scheme and about the guarantees, but there is no mention in the Statement of the duration of the overall package. Has the Minister given any thought to that, or are the guarantees and loans essentially open-ended?
No, my Lords. The enterprise finance guarantee will operate for a year in the first instance. I would hope to see the working capital scheme, which covers short-term working capital, fully operational in the next six months or so. As I said in response to the noble Lord, Lord Lamont, we will be able to judge then how well it has worked, what might work better and differently and where we might go after that.
My Lords, I, too, congratulate the Secretary of State on a package that is at last talking about some real numbers and real help. On the eight weeks, to which he refers, to get it filtering into the economy, anything that can be done to get it in in February will be really helpful to business. There is a crying need for urgent help. I urge the noble Lord to go to his colleagues at No. 11 and be big enough to say that the VAT reduction attempt has failed, to put it back to 17.5 per cent and to use that money to increase this package by even more, so we can get even more help to small business.
I would welcome clarification right now on the noble Lord’s point that the cost of affording the guarantee would come at a charge to the banks, which was open for negotiation. If that is the case, will the banks pass that on proportionately when they extend their guaranteed lending; in other words, will they pass on the cost to the consumer, which is the business? If so, could the noble Lord assure this House that that will not be allowed in the case of the banks that we all own?
My Lords, I understand why the noble Lord is asking the last question. It is a reasonable question, but it is one to which I cannot at this stage give an answer, and I shall not attempt to respond on whether we can distinguish in pricing structures and the passing-on of charges between banks that have been recapitalised, in which the Government have a stake, and those in which we have not. I cannot answer that specifically, but I shall give him a response in due course.
With respect, I strongly disagree with the noble Lord on the subject of VAT. I tend to share the view of Mr Kenneth Clarke on this subject, who more than once has called for a fiscal stimulus to take the form of a reduction of VAT. He said that it was the fairest and quickest and likely to be the most effective way in which to deliver the fiscal stimulus, and I think that he was right. After all, a fiscal stimulus delivered in that form puts spending power into the pockets of both taxpayers and non-taxpayers. If you simply operated the stimulus by reducing income tax, not only would that take considerably longer to come into effect, it would not actually increase and enhance the spending power of those who do not pay income tax.
My Lords, I strongly welcome the creative way in which the scheme has been calculated by the Government. The noble Lord told us just now that the final decision on the loans will be made by the banks, on commercial grounds—I think those were the words he used. In other words, they will be arm’s-length transactions. Will there not be occasions, however, when many small businesses seeking loans will simply not be worthy of being given them? In those circumstances, can we assume that particular pressure will not be put on the banks to lend, even under guarantees of this kind?
While I am about it, can I ask about the bureaucracy referred to by the noble Lord, Lord Razzall? Of course, it is understandable in one sense, in that you cannot just give people the taxpayers’ money. There has to be some form of bureaucracy or whatever you wish to call it. How will you get banks to lend in the good cases rather than simply refusing loans in the bad cases?
My Lords, I was remiss in not addressing the point made by the noble Lord, Lord Razzall, about the bureaucracy, as he termed it—I would not, of course, use that term—that surrounds the Government’s small firms loan guarantee scheme. I have heard many such complaints of the sort that he offered, and I think he may well have a small point. It will be our job to ensure that access to the enterprise finance guarantee does not involve the same sort of labyrinthine processes associated with the small firms loan guarantee.
I assure my noble friend that there will be no strong-arming on my or any other Minister’s part to place banks under duress to give loans to undeserving or uncreditworthy businesses. That is not our job and it is not their job to do that, and it will not happen.
My Lords, I very much appreciate the general terms in which the Minister has spoken this afternoon. I come back briefly to the question of the cost. Is it not clear that for many of the small or medium enterprise companies, which we all wish to help, the cost of the loan plus the guarantee will be of extreme importance? Can the Minister see, therefore, that now that the Bank of England interest rate has fallen so much, this is carried forward in the offers the clearing banks will make to their smaller customers, aided by and topped up by government guarantee? Otherwise, the scheme may not work too well.
My Lords, I agree strongly with the noble Lord, Lord Renton, on this. There would be absolutely no point in creating a system of this sort which operated such exorbitant charges as to make the scheme prohibitive for small firms to access. In the discussions we will be having about the pricing structures, we shall certainly reflect the concern that he has expressed, and which I share.
My Lords, people are still saving. Money is coming into the banks from savers. The interbank lending system is not working as it should because wholesale capital markets are less replete than we would like them to be and difficult to draw on; therefore, we have designed the working capital scheme to offer our 50 per cent guarantee against portfolios of loans to enable banks to free up their capital for subsequent lending. We have designed this scheme as we have precisely because we recognise the very issue the noble Lord raises, which we are seeking to address.
My Lords, does my noble friend agree that central to the scheme is the idea that the banks have resources to lend but are deterred from doing so by a perception of risk, which the Government are seeking to mitigate? Given the virtual collapse of the wholesale money market, which provided £700 billion to the British banking system last year, is he confident that the banks have the resources to lend and will therefore be suitably stimulated in this case?
My Lords, am I hopeful? Yes. Am I certain? No. My right honourable friend the Chancellor is currently discussing with the banks on a number of aspects of the instruments we introduced in the autumn to see whether they might be refined or adjusted to stimulate the creation of further resources for later borrowing. The Financial Services Authority believes it is operating its own capital requirements in a way that will make adequate capital available. I am sure that will be kept under constant review.
My Lords, how do we target these resources where they are most needed? Has the Minister seen the results of the Equifax data for year-on-year business failure? They show that in the south-east year-on-year business failures are running at 8 per cent above; in the east of England they are running at 18 per cent above; and in the north-east of England they are running at 57.8 per cent above. Is he aware that this differential needs to be tackled, and that this scheme is welcome? Could he therefore look at ways to publicise this, particularly in the north-east of England, to draw attention to small businesses there? Perhaps he could consider giving a role to Northern Rock in operating the scheme, so instead of repossessing the homes of local homeowners, it can turn its attention to saving local businesses and local jobs?
My Lords, Northern Rock is not a business lender. That is not to say that it might not conceivably ever be, but there are no plans for it to become one. However, I take the noble Lord’s point about the north-east, for obvious historical and sentimental reasons. If I can find a way of acting on his request I will, but that will not override the basic criteria of first come, first served or the judgment of the banks and their assessment of risk as regards the viability and credit worthiness of the businesses concerned.
My Lords, given the significance of this very important Statement, given that frequently in the past your Lordships’ House has had to interrupt its business to have repeated a Statement made by a Secretary of State in the other House, and that business managers in the other House can insist that an urgent question be made a Statement, why was the Secretary of State not able to insist that he made a Statement to your Lordships’ House first and that his junior Minister made a Statement later? Would that not be a much better way to deal with it? If we are to have a Secretary of State, a Cabinet Minister, in this House, should not he make a Statement to this House first?
My Lords, there is understandable rivalry or competition between the two Houses on these matters; but, to be perfectly frank, I have enough to do in my day job without taking on the role and responsibility of the usual channels in resolving these matters. I look to the usual channels to do so in the usual and normal way.
Committee (2nd Day)
Clause 10: Banking Liaison Panel
31: Clause 10, page 6, line 3, after “arrangements” insert “about—
I shall move Amendment 31 and speak to Amendment 32. Before I do so, we heard a few moments ago in the Statement repeated by the noble Lord, Lord Mandelson, that there would be an amendment to the Banking Bill. We were given no prior notification of that, which is the normal practice. Indeed, I have amendments in the Marshalled List that relate to loan guarantees. Will the Minister ensure that Members of the Committee are informed of the nature of the Government's intentions in relation to the Bill?
My amendments seek to extend the role of the banking liaison group. They seek two new functions or roles for the banking liaison group as set out in Clause 10(1). The first of these is to monitor the special resolution regime and its impact on markets. I have talked about unintended consequences already and some form of feedback mechanism ought to be written into the Bill. The second is to recommend changes to the statutory instruments referred to in the current function of the group.
As I have already said in Committee, the introduction of this clause in Committee in another place was welcomed by the banking community, as was the setting up of the forerunner, the expert liaison group. Without wishing to look a gift horse in the mouth, it has been suggested that the terms of reference should be extended. If the initial statutory instruments will be made shortly after Royal Assent, which I believe is the intention, it is difficult to see what function the banking liaison group will have until the Treasury decides that it needs to revise some statutory instruments, which could be some time away.
I hope that the Treasury has found that the expert liaison group has been useful and has allowed the Treasury to access practical knowledge that can be useful to it. I am well aware that Treasury officials are extremely able, but they do not necessarily know everything about everything in the outside world. It would be beneficial for the Treasury if the Banking Liaison Panel were to have a more proactive role than simply responding to statutory instruments that the Treasury chooses to put before it.
That is basically what my amendment seeks to set out. I do not expect that the panel would be in constant session or would even need to meet frequently, but it would provide a standing mechanism for the tripartite authorities to tap into the views and experiences of those actually operating in the bank marketplace. I beg to move.
As the noble Baroness has indicated, the panel has in a sense already been created; it is currently known as the expert liaison group and it will eventually become the Banking Liaison Panel. It is an important addition to policy development in this area and, as the Committee will know, it has already been very successful in informing the work taken forward on partial transfers as safeguards. In fact, Clause 10 was added following a request from stakeholders to provide a statutory basis for this group. Clause 10 therefore represents the Government’s continuing commitment to engagement with stakeholders on the development of the special resolution regime.
Clause 10 refers to the most pressing and important area of the special resolution regime and the primary focus of the expert liaison group’s work at present; that is the development of the secondary legislation under Parts 1 to 3 of the Bill, which underpins the special resolution regime. In particular, the current remit of the expert liaison group includes the secondary legislation that relates to safeguards for partial transfers.
The purpose of the second half of the amendment is to allow the panel to advise the Treasury on what changes should be made to secondary legislation made under Parts 1 to 3. As it will already have been appreciated by the Committee, I agree with the intention behind this part of the amendment. It is indeed right that the panel be involved not only in the preparation of the first set of standing legislation to be made under Parts 1 to 3, but in advising the Treasury in due course as to what changes may be needed to that legislation.
We do not see the role of the panel coming to an end when the Treasury makes the first set of standing secondary legislation that underpins the special resolution regime. The panel will have a continuing and ongoing role to provide advice to the Treasury as to the appropriateness of that legislation. However, the clause is clear that this is the case and is the Government’s intention and will, subject to the passage of the Bill, become law. Therefore, this part of the amendment is not strictly necessary.
On the other parts of the amendments, the primary function of the Banking Liaison Panel should be the secondary legislation that underpins the special resolution regime. The amendment would expand this remit to the operation of the special resolution regime, including the drafting of the transfer orders, and to advise on other legislation that may be relevant to the SRR. I do not see this panel as the appropriate mechanism to advise on the operation of the special resolution regime. It is chaired by the Treasury and its purpose is to inform the development of, or to review, standing policy. It would of course be impossible to consult the panel before drafting the transfer orders, due to the likely need to act quickly and the need for confidentiality, which I am sure the House respects.
For similar reasons, we do not believe that the panel should have a role in reviewing the drafting of a particular transfer order, even after it has been laid. It would be extremely difficult for the Government to engage in an active discussion on the effect of a transfer order for a particular organisation, as there is likely to be an active and ongoing compensation process and there may be additional litigation proceedings.
I do not think that the panel should have a statutory remit under the Bill to consider other legislation, as the amendments imply. Other groups have been set up to consider and review other legislation and I would not wish for this group to focus on such matters.
Having set out the reasons for the specific limitations of the group, and, therefore, why I shall ask the noble Baroness to withdraw her amendment, I would like to explain how the Government see the panel’s role on matters that go beyond its remit, as drafted in the Bill. When we announced the formation of the expert liaison group, we stated that it should have an ongoing remit to keep SRR powers and regulations under review, as practices in the financial markets develop over time. The panel, when it formally replaces the expert liaison group, should have that role.
It is right that we use the expertise of the panel to monitor the implications of the SRR powers on the financial markets and advise the Treasury on whether there should be any changes or developments in the special resolution regime. Such advice may, in the months and years to come, also touch on related matters in other legislation. While Clause 10 does not specify that exact purpose, there is nothing in the Bill to prevent it. The panel can be given tasks on other matters on a non-statutory basis. However, that is a mark of how important the Government see stakeholder input on the development of the standing secondary legislation under Parts 1 to 3, and the statutory remit of the panel should be focused in that way.
I am glad that the creation of this expert group has been widely welcomed—noble Lords have paid compliments to its work during our deliberations. The group demonstrates our ongoing commitment to stakeholder consultation, and has already made important contributions to policy on the special resolution regime. I hope that I have demonstrated why I have difficulties with the amendments. I also hope that I have provided some reassurance to the House on how we intend to use the Banking Liaison Panel in the months and years to come. On that basis, I ask the noble Baroness to withdraw the amendment.
I thank the Minister for that helpful reply to my amendments, and I am glad to hear him say that the expert liaison group has been helpful in policy development, which was the intended focus of my amendment. The Minister went to great lengths to say that it would not be proper or practical to involve the Banking Liaison Panel in transfer orders; I completely accept that—it was not the intention of my amendment, nor did I introduce that issue in those terms.
However, it was my intention to reflect on what the Minister has said can proceed on a non-statutory basis. My question is: why would the Government not want to enshrine in statute what they have admitted is a valuable process to date, and what they say will be the process to take forward? The banking community suggested this amendment to us to reflect what the Government had said in relation to the expert liaison group, and I am mystified as to why the Minister is sticking to his “resist” brief.
I need to think about this matter again before Report, and I also have an outstanding amendment which I moved on the previous Committee day relating to the role of the Banking Liaison Panel and the code of practice. We are building up a picture of a rather restricted role being written in for the Banking Liaison Panel, which in practice might be extremely restricted if there are no statutory instruments when the Government are saying something else. I do not think that Bills should be drawn up on that basis. As I said, I shall reflect on that between now and Report, and I beg leave to withdraw the amendment.
Amendment 31 withdrawn.
Amendment 32 not moved.
Clause 10 agreed.
Clause 11: Private sector purchaser
33: Clause 11, page 6, line 22, leave out “commercial” and insert “private sector”
Amendment 33 replaces “commercial” in Clause 11(1) with “private sector”. I hope that it is a straightforward amendment which the Minister can accept.
The Bill uses “private sector purchaser” in the early clauses in describing the stabilisation option. When we get to Clause 11, which is the first place where it is spelt out in detail, the clause is headed “Private sector purchaser” but subsection (1) says:
“The first stabilisation option is to sell all or part of the business of the bank to a commercial purchaser”.
The term “private sector” is very clear and has a clear reference point. So far as I can see, “commercial” is not given a particular meaning in the Bill, so we must try to see what it might be in ordinary interpretation. It is pretty clear that “commercial” is not synonymous with “private sector”. We may not have the full range of nationalised industries that existed before my party embarked on privatisation in the 1980s but there are still many examples of bodies that operate from within the public sector on wholly or partly commercial lines. Of course, the Government have added to their number recently by acquiring Northern Rock and Bradford & Bingley’s residual business and, more recently, by taking control of the Royal Bank of Scotland, which I believe has been classified to the public sector.
We agree with the Government that the first stabilisation option should be a transfer to a private sector purchaser but we do not think that this option is appropriate in order, say, to transfer a failing bank to one of the other banks that is now in public ownership, which would be commercial but not private sector. However, that is what Clause 11 would allow if the wording remained. If the Government want to increase the number of failing banks in public ownership, they should be prepared to use the powers in Clause 9 and meet the slightly tougher conditions set out there or, indeed, introduce separate legislation.
I expressed the hope that the Minister could accept the amendment and I hope that I am not mistaken. I beg to move.
I shall not be able to able to accept the amendment but I hope that my explanation will be a little more benign than the noble Baroness suggested it might be if I were in conflict with her on this. Of course, I understand her point that there is a discrepancy between the clause’s title and its wording. The title is a signpost; it indicates the area that is covered. Legislative primacy obviously relates to what is specified in the clause, where we are concerned with—
The noble Baroness seeks to pre-empt me, but I am not going down that path. I was merely giving background to the fact that it looks as if there is a discrepancy so I will indicate the nature of the difference between the two positions. I was establishing that we needed precision in the clause, which is the issue that takes legislative primacy. That will be the law of the land, not the clause heading.
The heading is there for signpost purposes. The phrasing is drawn widely to ensure that a range of transfers is possible, subject to the need to meet the public interest. For example, a healthy deposit taker in which the Government are a shareholder may be in a position to take on the business of a failing bank, or the commercial operation of a foreign state may be prepared to do the same. We would not want Clause 11 to prohibit that, so it refers to a “commercial purchaser” to take account of situations in which the transferee may not be totally private-owned. I hope that the Committee will recognise that the clause uses the heading “Private sector purchaser” rather than “commercial purchaser” for that sole reason. It is an issue not of discrepancy but of identifying what the clause is about and then being precise in the way in which it is meant to reach its objectives. Its objectives must be wider than might be suggested if we talked only in terms of a commercial purchaser.
I think that I am right in saying that the title of a clause has no legal significance, but none the less I am not clear whether the Government’s objective is to have a clause that is about a commercial purchaser but whose heading is “Private sector purchaser”, which is not the same. There seems to be some confusion in the drafting. If their objective is to extend the possible range of purchasers beyond those in the private sector to what may be governmental purchasers, the heading—if it has legal significance—is inconsistent. The Minister’s argument would suggest that the heading was inappropriate.
I hoped that it was not. In its details, the clause has to hit the objectives that we have for it, which cover more accurately the issue of the commercial purchaser because of the potential range. We are dealing with circumstances which none of us can foresee with great accuracy, but the role of the legislation is to make the public interest realisable against all foreseeable circumstances as best we can, and we certainly should not limit the legislation by drafting it too narrowly. The importance of the clause is in the phrase that it uses—“commercial purchaser”—in its crucial aspects. I shall not go to the stake over the question of the heading of a clause, but we regarded it as indicating broadly what the clause was about, and that is why it stands. If there is considerable anxiety about the wording and it is thought that it will cause great confusion, of course I will take away those representations and think about them before Report, but we should compare this with the issues that confront us in the Bill. I think that I have presented why the clause reads as it does and I therefore have great difficulty in going much further.
I certainly agree that this is a very small matter by comparison with the other issues involved in the Bill. Nevertheless, it is right to get it right. If the clause states “commercial” as its essence, why not put that in the clause title to avoid any possible confusion?
The Minister said that he will take the matter away to look at it. I therefore do not want to delay the Committee more than one more moment, but if he has in mind that the purchaser might include, for example, sovereign wealth funds, it would seem that the heading as it stands is not right.
The Minister has not set my mind at rest on how the Government might seek to use the concept of private sector purchaser. He has agreed to take the matter away, so we must let him consider it before Report but I do not think that it is simply a question, as my noble friend and my noble and learned friend may have suggested, of changing the heading to Clause 11. The issue starts in Clause 1(3), which states:
“The three ‘stabilisation options’ are—
(a) transfer to a private sector purchaser”.
The Bill may be spinning a line that that is about selling on to a private sector purchaser. We have had discussions on other parts of the Bill about whether it is using language that is open and honest. We may well have come across another example of that. When the Minister goes back to discuss it, I hope that he will not just discuss changing the heading to Clause 11, but discuss being honest about language throughout. Then we may have a more honest debate on the content but, for today, we have probably done it justice and I beg leave to withdraw the amendment.
Amendment 33 withdrawn.
Clause 11 agreed.
Clause 12 : Bridge bank
Debate on whether Clause 12 should stand part of the Bill.
Clause 12 is very important. It sets out the scheme for the second stabilisation option, that of a bridge bank. To date, at Second Reading and so far in Committee, we have not had much discussion of exactly what a bridge bank would be and how it would operate. “Bridge bank” is a new term of art. There is no such institution today, so we may rightly expect a full explanation of how a bridge bank will operate.
First, we must hope that bridge banks will be few and far between; indeed, it would be best if the Bank of England were never subjected to the challenge of owning and managing a failing bank across a bridge to re-enter the private sector, whether in part, in parts, or in whole. However, from experience to date, it would not be right just to think in terms of Northern Rock or Bradford & Bingley, both of which might have been bridge bank candidates. Their business model turned out to be unworkable in current market conditions, but their businesses were not in themselves complicated. Things could be very different if, for example, no private sector solution, enabled with funds from the recapitalisation scheme, were successfully put together for a bank such as Halifax Bank of Scotland.
Under the Act, a bridge bank, 100 per cent publicly owned by the Bank of England, would come into existence if option 1, triggered by the FSA, had not produced a rapid solution. I will not dwell on the threshold trigger, except to say that despite yesterday’s reassurances from the noble Lord, Lord Davies, the FSA handbook to which he referred is difficult to navigate and subjective in its approach to threshold conditions. The 2000 Act is faulty because it has given the FSA mixed and uncertain objectives. Nevertheless, when the trigger has been pulled, then, as the October regulatory impact assessment of the Bill says, the Bank of England can take,
“the opportunity to stabilise the bank, preserve franchise value and ensure consumers have continued access to banking services”.
This continuity of service to the public is the best available justification for what would otherwise be seen as over-hasty public ownership.
The regulatory impact assessment goes on to say that depositors would have access to their money and that the Bank of England would gain time to achieve a transfer or transfers to the private sector. However, there is a draconian price to be paid. The Bank of England effects its ownership by laying instruments under the Act, subject to no parliamentary procedure. The Delegated Powers and Regulatory Reform Committee has drawn attention to the Bank of England’s wide-ranging powers, and a government reply is awaited.
From here on, matters become more complicated. As Clause 12(3)(a) says, the Bank of England will need objectives—not too many, one hopes—as it facilitates sales to one or more private sector purchasers. In theory, especially if the failing bank were large, there could be a considerable number of purchasers, and over what period might they be expected to purchase? Paragraph 72 of the code says:
“It is envisaged that a bridge bank will typically exist for less than one year: it is intended to be a short-term operation”.
However, the code has already said, in paragraph 60:
“However, in situations where there is expected to be a lengthy period of time prior to a sale, the Bank shall”—
do certain things. Just as we have had a discussion of “temporary”, we could now discuss “lengthy”.
Clause 12(3)(d) reads:
“different arrangements for management and control at different stages”—
this implies that they will be required—and the code comments on this in paragraph 51:
“the Bank shall take steps to manage its relationship with the bridge bank at arm’s length. However, an arm’s length arrangement may not be appropriate if a bridge bank is only in existence for a short period of time (as is intended and envisaged)”.
In Clause 12(3)(e) there is “eventual disposal”, which does not sound like a quick and successful sale. Paragraph 81 of the code goes to and fro again on this, as do many of the paragraphs in the code. It says:
“In some circumstances it may be appropriate to transfer some or all of a bridge bank’s business to a public-sector transferee, either a company wholly owned by the Treasury or an onward bridge bank … However, this would only occur if it best met the bridge bank objectives”.
All this is set against the plea of the Government that flexibility is needed. These paragraphs show considerable flexibility. The problem is that flexibility is deeply at odds with certainty, and the market needs certainty. More thought than has been given so far is needed about the procedures that the bank will have to follow and how it would know that it had been successful. The language of the code is perhaps best summed-up by saying, “Now you see it, now you don’t”.
This is all subject to Clause 79, which states:
“The Bank of England may not take action in respect of the bridge bank without the Treasury’s consent if the action would be likely to have implications for public funds”.
That seems to be a contradiction in terms. You cannot have a bridge bank without it having implications for public funds. So, throughout whatever is done, the Bank of England has to give its agreement.
Finally, under Clause 12(4), transfers from one Bank of England company to another will create an “onward bridge bank”. Why the Bank of England would want to complicate its life further with both bridge banks and onward bridge banks I do not know. We need a full explanation of these matters. Meanwhile, given the drafting of the Bill, particularly the drafting of the code, we live in the hope rather than the expectation that there will never be a bridge bank.
It is something of a relief to get away from discussing individual amendments in order to have a clause stand part debate. One should be grateful to the noble Viscount for giving notice of his intention to oppose the Question that Clause 12 stand part of the Bill. Clearly, the second option is very important. The noble Viscount raised a number of questions which I hope the Minister can clarify. In particular, I am not quite clear what will happen if part of a business, rather than the whole of it, is transferred to a bridge bank. Would the bank concerned effectively be split into two parts, one of which remains in the private sector and one of which would become a company owned by the bank? We are told that the code of practice will set out a number of things, including the content of the articles of association, which will obviously be very important, and the objectives. Perhaps the Minister should give us an idea of what the objectives will be. Will it not simply operate as a normal, commercial bank? If it is to have objectives beyond that, will it seek to facilitate, for example, the extension of lending when we know that considerable controversy has arisen because the Government have given large sums of money to banks which have failed to lend it on? Will there be objectives of that kind?
Like my noble friend who has just spoken, I am somewhat mystified by the concept of an “onward bridge bank”. It is not at all clear why, if it has been set up as a “bridge bank”, it will need to be transferred to a different company. What will be the difference between the initial bridge bank and an onward bridge bank? In that context, the code of practice is said to be important in setting up the objectives, the articles of association and so on for a bridge bank, but does not, apparently, fulfil the same function in relation to the onward bridge bank? It would be helpful to have clarification of that, which, as my noble friend has said, is apparently a completely new innovation and a concept we have not had on any previous occasion.
I am grateful to both noble Lords, in particular the noble Viscount, Lord Eccles, for asking me to spell out what Clause 12 represents. It is a tall order, as I am sure he will recognise. One feels more comfortable when one has specific amendments to which one can address responses. Covering the whole clause would delay the House for an inordinate amount of time. However, I will give as full an explanation as I can, consistent with respect for parliamentary procedure.
I begin by responding to the noble Lord, Lord Higgins. The noble Viscount, Lord Eccles, asked the same question, which is important to this clause: “What is an ‘onward bridge bank’”? I will tackle that first. The concept of the onward bridge bank, which is as new as that of the bridge bank itself, is that the Government are seeking a high degree of flexibility to allow the Bank of England to carry out any necessary restructuring. After the initial transfer to the bridge bank, it is possible that the Bank of England may wish to transfer some or all of the bridge bank’s business to another company that it owns. It might wish to do this, for example, if it wishes to split up the business prior to selling it. Under subsection (4), if property, rights or liabilities are transferred in this way, the new company is called an “onward bridge bank”. That is the concept behind that particular term.
I hope that noble Lords will recognise that we are talking about difficult circumstances for the Bank of England. I will deal later with the time constraints under which we are working, and how open the procedure is. The House will appreciate how the Bank of England, when it takes over a failing enterprise, must then create circumstances where it can meet the criteria of the rubric that the Opposition constantly enjoin upon us, and which the Government also accept—that there is no intention to take banks into public ownership, except when they are in such serious difficulties that that is the only possibility. Therefore, when the Bank of England takes responsibility for a bank, it must be able to make arrangements for disposing of it in due course, and returning to the private sector that part of the operation that may be viable and for which people will bid.
The concept of the bridge bank is fundamental to Clause 12.
I have gone as far as I can in explaining the onward bridge bank. It is where the Bank of England has a potentially disposable asset that it wants to transform into one that in fact does meet the requirements of the market. We must give the Bank greater flexibility to effect this. The onward bridge bank is only an addition to the provision of the bridge bank, preparatory to the Bank making arrangements for the return to the private sector of some of the assets—if it cannot effect what would be most desirable, which is the return of the totality. That is what the concept is.
I hope that the noble Lord will interpret that answer as broad agreement with what he is asking.
On the more general issue, the clause embraces the second of the stabilisation options—the bridge bank. The option gives the Bank of England the ability to take control of part or all of a failing bank’s business. Once the Bank of England has control of this bank’s business, it may stabilise it, restructure it as necessary, and sell the bridge bank. If it is successful in doing so, the concept of the onward bridge bank does not come into play.
The bridge bank option will give the Bank of England the opportunity to stabilise the bank, preserve franchise value and ensure that customers have continued access to banking services. It will provide the Bank with time to pursue a private-sector solution where this could not have been immediately arranged, for example by allowing potential acquirers the time needed to carry out essential due diligence on the business.
The bridge bank option is very important, which is why the noble Viscount, Lord Eccles, has focused on it. It enhances the possibility that the authorities will be able to facilitate onward sale of the bank to a private sector purchaser, which, I repeat, is the Government’s favoured option for the resolution of banking difficulties.
Bridge banks are intended as short-term operations, and the aim is for a swift onward sale to a private sector purchaser. Under Clause 80, the Bank of England must report to Parliament about the activities of a bridge bank after one year.
As with the previous clause and the private sector purchaser tool, Clause 12 establishes that where the general special resolution regime conditions and the specific conditions for the bridge bank stabilisation option are met, the Bank of England may transfer all or part of the business of a bank to a bridge bank. Transfer to a bridge bank may be effected through a transfer of the bank’s property, rights and liabilities, and is executed by one or more property instruments made by the Bank of England. The Bank of England has the power to choose which parts of a failing bank’s business to transfer. Hence, as with the private sector purchaser option, partial transfers are possible. I shall provide a detailed treatment of partial transfers when we debate the property transfer clauses.
Unlike the private sector purchaser tool, the bridge bank can be effected only through the use of the property transfer power, and not by share transfer. This is because a bridge bank is a new entity, especially established to carry on the banking business transferred to it. Property transfer powers offer a number of advantages, in particular the fact that they permit a partial transfer, which may be the best solution in some circumstances.
It is important that bridge banks are managed in the right way; the noble Viscount made that quite clear when he introduced the debate. The Government consider it appropriate to set out how this will work in practice in greater detail. To this end, the code of practice, to which the noble Viscount made copious references, which is provided for under Clause 5, will cover matters relating to the governance and management of bridge banks. The published draft code makes draft illustrative provision on these matters.
The Bank of England will not profit from operating a bridge bank. The Bill’s provisions for compensation provide that a “bank resolution fund” must be established when a bridge bank is created. The fund provides the failing bank with a contingent economic interest in the resolution. The bank resolution fund is a scheme under which the failing bank becomes entitled to the proceeds from the sale of some or all of a bridge bank’s business, less any deductions necessary to reflect the use of any public funds in the resolution, including the placing of public funds at contingent risk, or any other costs of the resolution. On the winding-up of the failing bank, the net proceeds of the resolution will flow to the creditors—and shareholders, should creditor claims be satisfied in full—of the failing bank.
The bridge bank stabilisation option will help the authorities to resolve the issues surrounding a failing bank, enhancing the chance of a successful sale of the bank to a private-sector purchaser. That is the concept behind the bridge bank. I hope that I have explained the additional dimension of the points on which the noble Lord, Lord Higgins, in particular challenged me. I hope that the noble Viscount, Lord Eccles, will think that the combination of the proposals in the clause and the code to which he has made reference is explicit about how the Bank of England will manage this part of the resolution procedures, which are very important.
If the option exercise involved the Bank of England establishing a bridge bank, the Bank would take into account the nature of the institution that it was taking over. The straightforward answer to the noble Lord is that it might take over any bank in any circumstances which fulfilled the criteria. The answer to his question is therefore yes.
That is not really what I was looking for. It is clear that a number of banks are having problems and nobody knows how many toxic assets they hold. That is one of the fundamental issues. One solution might be if banks could get rid of their toxic assets and make it clear what their proper balance sheets were. Would it be possible for the Government to use this process to take hold of those toxic assets for a period and move them on in better times?
The answer is yes, but I think that the noble Lord will recognise that, in terms of the public position, the Bank of England would exercise real judgment in using the option in such circumstances. That is why we are in very difficult waters and need more than one vessel to navigate them, of which the bridge bank is one.
Let us be clear. When the Minister said that a bridge bank could take on toxic assets, am I right in thinking that it could do so only in the context of Clause 8—namely, that the bank from which it was taking the toxic assets was in such difficulty that either the stability of, or maintenance of public confidence in, the financial system was at risk or protection of depositors was required—and that it could not take on the toxic assets of a bank that was doing reasonably well? Could it take on toxic assets only in cases where the conditions for the stability regime to come into play were met?
Of course, that is right. That is why we have great difficulty anticipating all circumstances for which the Bill is intended to allow the authorities to act effectively. I am grateful to the noble Lord, Lord Newby. Just as the Box raced a note back to me saying, “Quote Clauses 7 and 8”, which are the conditions under which the authorities act, the noble Lord expressed them with great accuracy and clarity.
If I have understood this situation correctly—and I would like the Minister to say if I am right—an onward bridge bank is just a bridge bank. The relationship between that bridge bank and the first bridge bank really gives rise to the definition of “onward”. The onward bridge bank could be a bridge bank already in existence to take on the assets of another failing bank. It might be thought a good idea to amalgamate some part of the assets of one failing bank with the assets of the second, and put them into a bridge bank which would be an onward bridge bank in relation to the first and just a bridge bank in relation to the second. Then the whole thing could be sold off to the private sector as a bridge bank if that was feasible. Is that correct?
Sometimes I feel that ministerial replies ought to consist of one sentence, so that everyone can then put their gloss on it. We learn more from the contributions around the Committee than we sometimes do from the notes on which I base my replies.
The noble and learned Lord is of course right. The onward bridge bank is for circumstances where, in preparing for a purchaser, it is clear that there is not the potential for the sale of the entity for which the Bank of England became responsible, but that it may have parts that can effectively be made ready for the market. First, there may be several different such circumstances and, secondly, it is quite difficult for us to envisage just how such circumstances can be defined. However, the concept is exactly as the noble and learned Lord suggests.
My noble friend Lord Wade mentioned the taking-on of toxic assets. It is worth clarifying that the Bill in no way creates a facility to take toxic assets out of banks that are not otherwise in trouble. The Bill therefore does not provide a mechanism for that, should the Government choose at any point to go down that route. The Minister might like to confirm that the Government do not intend to take legal powers to do that.
I am extremely grateful to the noble Baroness. The noble Lord, Lord Wade, introduced the concept of toxic assets. I was seeking to establish that the Bank of England may take on a bank, parts of which can readily be described as “toxic”. That is why we have the concept that it is perhaps able to sell on only a part of itself when it has analysed its position. The noble Baroness is absolutely right. The Bill is not about dealing with toxic assets, but with banks that fall into the clearly defined areas of Clauses 7 and 8, where they present dangers to the financial system and, therefore, to the public interest.
On that last point, is the Minister saying that the Bill, when enacted, would not allow another Bradford & Bingley? In that situation, the viable parts of the business were immediately subject to a successful private-sector sale. The non-viable, or much more doubtful, parts of the business were taken into public ownership. There was an absolutely clear decision to cherry pick: dispose of the good thing immediately and take the less good thing into public ownership. As I have read the Bill, I see nothing to prevent the Bank of England, once it has the right approvals and the FSA has pulled the trigger, doing a Bradford & Bingley: immediately selling the deposit-taking part of the business and taking on the not-so-good book.
Is it not the case under this clause that the Bank of England could take over a particular bank and make it into a bridge bank but, under the provisions for onward bridge banks, it could indeed pass on the viable part of it—the Minister seemed to imply that that would happen—but get left with the rump, including the toxic assets? To that extent, the Government would be taking over a degree of toxic assets and retaining them, even though the best part had been sold on. It is the same point as that which my noble friend Lord Eccles is making.
We all have to recognise that the Bank of England will not be involved in these circumstances any more than the Financial Services Authority or the Treasury. None of them will get involved in these circumstances unless a bank is in such trouble that it is presenting a threat to the financial system and to the public interest. When the authorities act, it is not the case that they are dealing with the world in perfect viability; far from it, they are dealing with crisis and institutions in crisis. There is bound to be an unfortunate dimension—even a toxic one—as far as such institutions are concerned. The issue we are trying to resolve in Clause 12 is whether this structure is a valid and valuable option for a solution to such difficult circumstances. That is why the clause should stand part of the Bill.
The Minister has not dealt with one point made by the noble Viscount, Lord Eccles, that a bridge bank is by definition in the Bill wholly owned by the Bank of England; the Bank of England is wholly owned by the Treasury; therefore, a transfer to a bridge bank under this clause is, in effect, a transfer into public ownership. Should the instruments that effect that not be subject to some kind of parliamentary procedure as the Delegated Powers and Regulatory Reform Committee asked?
I shall try to settle into the position that concerns me. I understand the need for flexibility and, in times of crisis, nobody would wish that there were no flexibility. On the other hand, it is at odds with certainty. If you are looking at assets that you wish to sell, it is much better that the market has a degree of certainty about what you are doing and the way that you are doing it. The Minister said that this was being done by asset transfer. That is more convenient than share transfer because share transfer brings all the liabilities while assets come as they are and you have a chance to value them. With share capital, you do not know; there may be 16 pieces of litigation in the United States about which you know nothing when you acquire the shares. That is a benefit and makes the Bank of England’s task somewhat simpler.
In my career, I have been involved with many businesses that were in trouble, mostly in the third world, and not banks, with one or two marginal exceptions. It is important that when you enter a rescue you know how you will exit and the rules about what you are expected to do in order to create an exit. When people used to ask me about this, I said, “Please read Hamlet. The exits are much more exciting than the entrances”. Polonius had a rather unhappy exit, but the exits are many and various. They can involve writing things off and throwing them away, as in house clearances. The good assets are easy to deal with—the children want them—but who is going to clear out the bad assets?
We are looking at a situation of that kind. The code of practice is hopelessly woolly, and the Government’s thinking about what they are going to ask the Bank of England to achieve is also not sufficiently worked out. I am convinced that the author of the code of practice had a pretty desperate time deciding how to qualify some of the paragraphs that I have read out, and I sympathise with them in that matter. I urge that between now and Report some careful thought is given to this. I could, and possibly would, table some interesting amendments. I did not think that was the right thing to do in Committee because we simply did not know what we were talking about, and it is difficult to amend something when you do not know what it really means.
There were interesting points in the Minister’s reply. He told us about reports. That is right, the code says that the arrangements are not expected to last for more than a year, and you only have to make a report if they last for more than a year. That is one of the contradictions here.
I would like to believe that by Report we shall know a great deal more about bridge banks and onward bridge banks. An onward bridge bank is clearly intended at the moment for bad assets, not good ones. The possibility is then envisaged that the Bank of England will be able to persuade the Treasury to take this lot of bad assets off its hands into full public ownership—it says that in the code of practice.
There are many things about the position of the Bank of England and its duties and obligations under the Bill that should be clarified before Report. Meanwhile, I withdraw the suggestion that Clause 12 should not stand part.
Clause 12 agreed to.
Clause 13: Temporary public ownership
34: Clause 13, page 7, line 24, after “management” insert “, including board membership,”
I hope that with this amendment we are moving into somewhat less opaque territory. It would amend Clause 13(3), which deals with the provision in the code relating to the management of banks taken into temporary public ownership. We spent a considerable time yesterday talking about how banks in public ownership might operate, and I do not want to repeat those arguments today. I will merely paraphrase the noble Lord, Lord Sawyer, whom I am pleased to see in his place, when he spoke on this issue in the debate on the Queen’s Speech. Talking about mutuals, he said:
“When customers are owners, they are given a very different model of customer engagement”.—[Official Report, 8/12/08; col. 218.]
My view is that when citizens are owners, there needs to be a different model of engagement. That is why we spent some time yesterday trying to tease out from the Government what management of a publicly owned bank under these provisions might mean.
The amendment is relatively specific; it says that the code should include within its provisions the question of board membership. The reason for wanting that provision there is that in our view the board members who are appointed by the Government will play a significant part in the way in which the bank operates, particularly in circumstances where the Government are by far the single largest shareholder. It is important who those members are and that they should not all be the same kind of person. They certainly should not all be from a banking background. They need to represent the other stakeholders in the bank, of whom customers, not least business customers, are one and the taxpayer is another. Therefore, we want to ensure that the composition of the board, in respect of those members placed on it by the Government, is diverse and reflects the diversity of interests that the Government’s stake itself reflects.
If my noble friend Lord Smith of Clifton were here, I am sure that he would make again the argument, as eloquently as he has done in the past, for having a proportion of women among the Government’s nominees. I remind the Minister and the Committee of his example of the Norwegian requirement that 40 per cent of board members should be women. It would be extremely welcome if the Minister could say that 40 per cent of government appointees to the board of the bank would be women. If he cannot do that, I hope that he will at least give some assurances that the Government, in making those appointments, will try to ensure that they reflect the diversity of stakeholders with a genuine interest in the bank and that the bank, as reflected by its directors, might be slightly different from a bank not principally in public ownership.
I very much support this amendment. The issue of diversity is central to what we are trying to do in this set of circumstances. There is general public disappointment about the performance of directors of banks. Certainly, Northern Rock is a good example: it had a star-studded board of directors yet, at the same time, its business model failed. We must ensure that we have people on the boards of our banks—or banks with some public ownership—who can take a wide and diverse opinion and bring different skills sets, ideas and backgrounds to the bank’s governance.
Part of the problem is with FSA regulation. Obviously, anybody who is appointed as a director of a bank must be approved by the FSA. Of course, it is commonsense and very important to have people on the boards of banks who understand banking—but there are far too many bankers among directors of banks. Other people in the community, with skills from the economic and marketing sectors and from all walks of life, would make a valid and relevant contribution to the governance of the bank.
Customer representation—or, in this case, taxpayer representation—is very important. On the boards of banks, it is the shareholders who need primarily to be satisfied, but there is also the customer input. When the Government take up an issue such as this, it is important that the position of the customer of the bank is reflected in the diversity of the board. I hope that the Government will be able to give some reassurances that they are prepared in these circumstances to do some new thinking and, perhaps, to do some things that have never been done before. Perhaps they could challenge some of the old ways of thinking about the appropriateness of different types of directors and widen the pool of people who are able to take up these appointments.
Can the Minister clarify the nature of board membership in this situation? It is important that we understand whether the directors appointed through the public sector to represent the public sector interest will be classed as independent directors, or whether they will be connected persons who are representing directly a particular shareholder interest—that is, the Government. In a normal corporate situation, when directors are appointed by a significant shareholder, whether a minority or a majority shareholder, the presumption is that those people have an interest that is specific to that shareholder and that, when matters arise before the board in which a minority shareholder has an interest that diverges from those of other shareholders, those directors would exclude themselves from that decision, so that the independent directors can properly represent the views of the shareholders at large.
I am not clear, and it would be very helpful if the Minister could clarify, whether the intention is that shareholders appointed by the Treasury or by the holding company from the Government are there to represent the Government. If that is the case, will the Government accept all the implications of that: not only exclusion from certain decisions but the confidentiality of information passed to those directors and the implications for those whom they pass it to in terms of their use of it in decision-making? Again, there are quite strict rules on that.
Alternatively, is the intention that the directors are truly independent? If that is the case, there should be an important set of provisions making clear that they are not there to represent the Government’s interests but those of shareholders at large, even where they diverge from the Government’s interests. Again, there are very strict rules about not passing information back to the shareholder executive.
I have not been clear what category these directors must fall into. Before they are appointed, the terms on which they are appointed and the way in which they use their position and information must be very clear.
I have absolutely no problem with requiring the code of practice to include sensible provision about the situation of directors. In particular, on the point just raised by my noble friend Lord Blackwell, some clarification would be very helpful. In fact, it would be necessary before anybody took up the role as a director of one of these companies.
I should like to raise a point parallel to that raised by the noble Lord, Lord Newby, about what the code of practice should contain in this regard. There is a discrepancy between the wording of Clause 13(3) and that of Clause 12(3). Clause 12(3) states:
“The code … must include provision about the management and control of bridge banks”,
whereas Clause 13(3) refers just to the “management of banks”. I was brought up when looking at draft legislation always to ask questions if there were discrepancies in the wording between apparently similar situations. It is not clear to me why it is necessary for the code to cover control of bridge banks but for it to be omitted from Clause 13(3). There are many common features between temporary public ownership and control by a bridge bank. I should be grateful for clarification on that.
The noble Lord, Lord Stewartby, has made a most important point following on from points made by others in this short debate. It would be helpful if the Government could explain the justification for the difference between Clauses 12 and 13 that the noble Lord has drawn attention to. I imagine that, if the current amendment to Clause 13 were carried, “management, including board membership”, would indeed cover both management and control, and would helpfully align Clause 12 with Clause 13.
The noble Lord, Lord Blackwell, asked an important question with regard to the directors of a bank in temporary public ownership; namely, will they be independent or will they be government representatives? The answer to that should be that they will be independent. Today and yesterday the Government have frequently emphasised the need for an arm’s-length relationship for good or ill. Therefore, it is surely evident that the directors should be independent and act in the public interest and in the best interests of customers and the company as a whole. They should certainly not be appointed at the behest of the Government to fulfil government requirements.
Noble Lords raised the important point of diversity. My noble friend Lord Sawyer emphasised the need for a wider range of background experience among bank board members than has been customary. It is almost inevitable, and justifiable after the disasters—that is not too strong a word—that have occurred in British banking in the past year, that noble Lords and others should favour a much broader brush approach as regards selecting suitable independent directors. I would not dream of suggesting that there should be positive discrimination in favour of women, as some have proposed. I agree with the suggestion of the noble Lord, Lord Newby, that there should be more diversity than there has been. However, it would be most unwise to go down the route that has been suggested by his noble friend Lord Smith of Clifton of having a certain percentage of women on the board, as is the case in Norway. Above all, merit and value must be the key factors to be taken into account when appointing directors.
In some ways I support the amendment to Clause 13 tabled by the noble Lord, Lord Newby. Indeed, it could usefully be included in Clause 12 to clarify the code of practice with regard to what the Bank of England or the Treasury intend to do about the board membership of the organisations that they take into public ownership. I hope that the Minister will respond to the very important point that my noble friend Lord Stewartby raised about the different wording of those two clauses. However, I should not like my support for clarification about board membership to be included in the code, which would be helpful, to be taken as indicating my party’s support for social experimentation such as gender balancing with regard to that membership. Like the noble Lord, Lord Borrie, I believe that diversity has a role to play but that appointing the best man for the job—if I can use a politically incorrect phrase—is the right approach to board membership for the reasons that he outlined. I had understood from the noble Lord, Lord Myners—I think he said this yesterday but I am losing track of time—that that was the Government’s approach to board membership. It would be helpful to put that in the code of practice to make it clear beyond peradventure that the Government will not appoint placemen to the board, or use it for social experimentation. However, as I say, the amendment of the noble Lord, Lord Newby, makes a useful point.
I am grateful to all noble Lords who contributed to a rather lengthier debate than I had anticipated. I am also grateful to the noble Baroness for emphasising that these issues need to be looked at in terms of the code of practice, which is where a great many of them are properly located. I listened carefully to the debate. I assure the Committee that we intend to revisit the draft code of practice and that we expect changes to be effected. Debates of this kind help us in terms of the redefinition that may be necessary in the code of practice. Therefore, I am grateful for all the contributions, which indicate that more thought needs to be effected in these areas. In particular, we will look further at the point made by the noble Lord, Lord Stewartby, and we will come back on it. It is an important point, and I do not have a ready answer at this stage.
I emphasise that we understand the concerns that both my noble friends emphasised; that one should be concerned about the nature of management and who is effective in management. I assure the noble Lord, Lord Blackwell, that the Government’s view is that the directors of a company will be independent. They have a company law duty to the company; they are not appointed to represent particular interests but to develop and effect the strategic plans of the company to its good. The Government stand by our constant reiteration that that is how we define the role of directors. That is part and parcel of the point that my noble friend Lord Myners emphasised earlier this week, when we talked about the arm’s-length relationship in these terms. I offer reassurance on that point.
On the more general point of whether those who are appointed to the board should be more diverse in their backgrounds, interests and factors of that kind which were brought up in the debate, of course those are matters that ought to be considered. They are appropriate for the code of practice and, as I indicated, we are still in the process of developing that code after the initial consultation exercise and the initial draft. I say to the noble Lord, Lord Newby, that we do not think that the Bill needs to be changed. His concept under his amendment is somehow to indicate that there is some difference between directors and management. Our point is clear; the board of directors is part of the concept of the management of the bank or the company.
I hope that he will therefore recognise that the Government are not at all excluding any of the considerations that we are enjoined to take into account through the representations this afternoon by staying with the clause’s wording and not accepting his amendment. That is not because we are against his intent or his concerns about greater diversity of representation on the boards, but it is simply because the Bill enables that to take place if, after consultation, the code of practice in any way reflects these necessities. It is not necessary to have it in legislation in circumstances where the Bill already includes the concept of directors when it refers in this clause to management.
Therefore, I hope that the noble Lord will recognise that he has had a most fruitful debate as a result of moving his amendment, but that his amendment would not in any way strengthen Clause 13. Therefore, I seek to protect the clause as it stands, and I hope that the noble Lord will withdraw his amendment.
I am grateful to noble Lords who have spoken in the debate. The Minister has yet again produced a definition that cut across my view of what the word meant. Yesterday, we were arguing about the definition of other words. I thought that the Government were at great pains yesterday to make a distinction between management and the board of directors. If management in this context does not mean management in the normal sense, but in a broader sense regarding every way in which the bank is managed, that is one thing; but the Government have been at great pains to point out, as the Minister has today, that the directors appointed by the Government will be distinct from management and independent. Therefore, the wording that I propose in the amendment clarifies matters and should remain.
Regarding appointing people on merit, while I agree with the noble Lord, Lord Borrie, that everyone appointed to the board needs to be able to do the job well, and I am not a great fan of quotas, in every circumstance that I have seen when there has been pressure for greater diversity, the status quo has been defended on the basis that appointments had to be made on merit. However, many people who do not fit the status quo, but who would do a very good job on the board of a bank or in many other positions of authority, would not be appointed if you simply looked at their conventional history. This issue is causing problems across the public sector, because head hunters who produce appointments for directors and other senior people look for their definition of merit and appoint people who are exactly the same as the people who are already doing the job. I am very keen to avoid that in this case.
This has been an interesting debate. I shall take away the Minister’s remarks and consider whether I wish to return to the issue on Report. In the mean time, I beg leave to withdraw the amendment.
Amendment 34 withdrawn.
35: Clause 13, page 7, line 25, at end insert—
“( ) The Treasury shall report to Parliament on an annual basis on the activities of each bank which is taken into temporary public ownership for as long as the bank remains in public ownership.”
The amendment adds a new subsection to Clause 13. This is a probing amendment for the Committee. The parliamentary accountability of banks that are in some kind of limbo within the special resolution regime troubles me, and, on reflection, the amendment itself is not sufficient to allay my concerns. I shall, therefore, take the opportunity to raise issues that have not been dealt with in the Bill that are relevant to dealing with the accountability of failed banks more generally.
Under Clause 80, the Bank of England has to report to the Chancellor each year on the activities of a bridge bank, and that report must be laid before Parliament. However, in the Bill there is no equivalent provision for reporting to Parliament in respect of banks taken into public ownership. My amendment is intended to be a mirror of the Clause 80 provisions and repeats the annual report formulation in Clause 80, but I should like the Minister to explain why it is appropriate for Parliament to be kept informed about the affairs of a bridge bank only on an annual basis. Parliament should be kept informed about bridge banks and those in temporary public ownership on a more regular basis than annually. In each case, the status is not intended to be permanent, and Parliament should receive information at a frequency that is appropriate to the temporary or transient status.
I can quite see that organisations that become a permanent part of the public sector—which is not, I believe, what is intended—might report annually, because that is what most public sector bodies do, but not these temporary creatures. My noble friend Lord Eccles, when he opposed the Question that Clause 12 stand part of the Bill, said that if a bridge bank was not held for a whole year, there would be no report at all to Parliament. That could equally be a criticism of my amendment, which is another reason why it is a probing amendment for today.
I looked at the code of practice for further help, but received very little. Paragraph 98 refers to the reporting arrangements for bridge banks, and paragraph 99 states:
“As and when appropriate, the Chancellor of the Exchequer shall report to Parliament about the activities of the bank”.
I am not entirely clear whether paragraph 99 is intended to refer to a bridge bank or a temporary public ownership bank. Either way, leaving it to the Chancellor’s discretion is at the very least a discourtesy to Parliament, and I believe that we need to see much clearer rules, preferably set out in this statute.
When the Minister replies, I invite him also to cover the position of the banks that have been acquired under the Banking (Special Provisions) Act 2008. I believe that that Act contains no reporting requirements and, to that extent, it is deficient. That Act is about to expire and it seems to me that this Bill should therefore cover the parliamentary accountability of the banks in public ownership when this legislation takes over from the previous Act.
More recently, we have also had a case of a controlling interest in the Royal Bank of Scotland, and I should be interested to know how information about that bank will flow to Parliament. In addition, the Government have set up UK Financial Investments as a holding vehicle for their growing banking conglomerate business. Although that seems sensible, it raises questions about that body’s accountability to Parliament. I am sure that the Government did not need a statute to set up UK Financial Investments but that does not excuse them from regularising the accountability of such a body at the first natural opportunity, and it seems to me that the first natural opportunity that presents itself is this Bill.
I accept that all these banks need to be run on commercial lines and that they should not be subjected to minute inquiry or interference—something that applies as much to government as it does to Parliament. However, very large sums of public money have been invested in these bodies, directly and indirectly, and more stands contingently behind them. Indeed, if the powers of the Bill were used, more public money would be involved. These bodies are not simply the playthings of the Executive; Parliament has a right to information and a duty to keep these bodies under review in terms of information flows to Parliament. Therefore, it is right and proper that there is a defined regime of information flows so that Parliament can be clear about what it is entitled to receive. It seems to me that the Bill is a good place to start, although it is deficient because not only does it not deal with the situations created by the Bill but it does not deal with the situations created by last year’s Act either. I beg to move.
I support Amendment 35 moved by my noble friend Lady Noakes as a mirror image for bridge bank reporting in Clause 80. This seems an eminently sensible measure, as taxpayers’ interests need to be safeguarded. This method seems to be the most practical way of doing so and of reinforcing the code of practice clause.
I am grateful to the noble Baroness and the noble Lord. The answer to the noble Lord, Lord Northbrook, is that the arrangements in Clause 80 are for a bridge bank controlled by the Bank of England, which of course is not directly answerable to Parliament. That is why those arrangements are spelt out in the way that they are. However, this amendment concerns the Treasury. The Treasury is answerable to Parliament, and Parliament can ask Treasury Ministers to report on the activities of a bank in temporary public ownership whenever it wants—on an annual basis, if it wishes. Therefore, the question is: do we need this amendment to the Bill to provide what obviously already exists as an opportunity for the Treasury to be answerable for any bank in temporary public ownership? The Treasury is already answerable for that and Parliament will take its opportunities.
By way of an indication of good faith on this matter, I should say that when Northern Rock was taken into public ownership, it was contended that it should be obliged to provide a business plan, which it did. It did not do so quite as quickly as noble Lords and some Members of the other place might have wished, but I make it absolutely clear that that happened not a year but a matter of months after Northern Rock had been taken into public ownership. The Government were constantly urged to make it a requirement for Northern Rock to provide a business plan and it was duly provided.
The noble Baroness raised the matter of UK Financial Investments. We are reviewing the arrangements for how it will operate and how it will be answerable. We do not foresee there being a legislative requirement in that regard; we think that it will come within the framework of the code of practice. However, I emphasise that we recognise that the authority should be directly responsible to Parliament, just as authorities such as the Treasury are obliged to be answerable at any time. There is a different structure for the Bank of England in relation to the bridge-bank concept because the Bank is not directly answerable to Parliament.
I am not in any way gainsaying or seeking to disavow the importance of public answerability for the institutions for which public authorities have responsibility. We made it quite clear how we intend to deal with that so far as concerns the Bank of England, and there are further discussions to be had in that regard before our deliberations on the Bill are concluded. However, so far as concerns the noble Baroness’s amendment, the Treasury is of course answerable and can be made answerable at any time. Therefore, the amendment is unnecessary and I hope that the noble Baroness will be convinced that that is so.
I thank my noble friend Lord Northbrook for his contribution and I thank the Minister for his reply. It will not surprise the Minister to hear that I found his response disappointing. It seems to me that it is not sufficient simply to say that the Treasury can be asked for information by Parliament at any time—although the mechanisms for that are quite difficult to tease out—and that nothing needs to be provided in statute. If the Bill were setting up a body, there would be no question but that we would draft into it quite extensive accountability arrangements, including an annual report, annual accounts and the ability of the Secretary of State to direct the organisation to provide whatever information he or the Treasury desired. In my experience, the Treasury insists that those provisions are put into Bills produced by other departments because they are an important element of the financial accountability of those bodies. However, when we get to the Bill that the Treasury writes for itself, it tears all that up. The Treasury will just provide whatever Parliament chooses to get out of it if it can find a mechanism for doing so, or Parliament will get the Chancellor to report “as and when appropriate”, to use the words in the code of practice. That does not seem appropriate for bodies which are not just in public ownership for a few months. Let us not kid ourselves—we had a debate on temporary public ownership on our first day in Committee—we are talking about significant periods of time and significant organisations with large amounts of public money invested in or standing behind them. This Bill, almost uniquely among statutes, creates no accountability arrangements, except the very barest that are found in Clause 80 in relation to bridge banks. I cannot begin to say how pretty unacceptable the Minister’s answer was.
I said that it was a probing amendment because on its own it is nothing like good enough to deal with the accountability requirements that come out of this Bill and the hangover from the actions taken under the Banking (Special Provisions) Act 2008. I believe that all those need to be dealt with. As it is a probing amendment I will not divide the House, but I will look at it again and will probably bring back a more comprehensive amendment reflecting a proper approach to parliamentary accountability that the Treasury might expect of other departments in a similar circumstance. With that, I beg leave to withdraw the amendment.
Amendment 35 withdrawn.
Clause 13 agreed.
Clauses 14 to 16 agreed.
Clause 17: Effect
36: Clause 17, page 8, line 29, leave out subsection (3)
I shall also speak to Amendment 61. These are probing amendments to Clause 17, which deals with the effect of share transfer orders or instruments, and to Clause 34, which deals with the effect of property transfer instruments.
We have no fundamental problem with the clauses but seek clarity on their extent. In each case the amendments would delete subsections (3) of the relevant clauses, which state:
“A transfer takes effect despite any restriction arising by virtue of contract or legislation or in any other way”.
The subsections were debated in another place but I am not clear that there was an unambiguous meeting of minds during those exchanges, so I will have another go. The debate in the other place centred on the meaning of “in any other way” and the interaction between the subsections and European law and the ECHR. My honourable friend David Gauke argued that “in any other way” must mean common law because there was nothing else beyond contract and legislation. The Minister said that the Government did not want to get into any arguments about what subsection (3) might mean but gave no illustration of what “in any other way” might mean if it was not common law. Can the Minister today go any further than that, or does the extent of “in any other way” relate to common law?
Will the Minister say whether the subsections override European law and the ECHR, or will any transfer remain subject to challenge if it is asserted that a transfer is in contravention of EU law or the convention? I think that in Committee in another place the Minister said that the Bill was compliant with both because it was proportionate and so on, but that has no bearing on whether the actions taken under the Bill will be immune from challenge under EU law or the convention. Will the Minister confirm that notwithstanding the wording of the subsections the Bill does not override EU law and convention rights?
Some confusion has arisen because the Government have chosen to make an explicit reference to EU law in Clause 35, but have chosen not to do so in Clauses 17 and 34. I hark back to what my noble friend Lord Stewartby, who is no longer in his place, said earlier—that you always look for differences between different parts of a Bill and try to tease out whether the differences are intended to be substantial and convey meaning. It has been put to us by one of the major law firms that the refusal by the Government to universalise Clause 35—by referring to EU law—to the rest of the Bill is a recipe for legal doubt and uncertainty. I hope that the Minister will clarify that.
Will the Minister also respond in terms of competition law? Do the Government intend that these subsections could override domestic competition law? We know that they have had to take special powers to allow the takeover of HBOS by Lloyds TSB, notwithstanding the objections of the Competition Commission. Do these subsections allow a sale to a private sector purchaser in defiance of competition law? Do they avoid the need for the Government to do what they had to do in the case of Lloyds TSB, which was effectively to rewrite competition law in those instances? The Minister will appreciate that the full meaning of these clauses may be important if transfers under this Bill are made in due course so it is important to have clarity of meaning. I hope that the Minister can enlighten the Committee. I beg to move.
Before addressing Amendment 36 I shall touch on a couple of other points. The noble Baroness told the Committee about her loss at the odds of 25:1 in a horserace yesterday. As things are quite quiet at the Treasury I had the chance to look at the runners in yesterday’s races, in which a number of horses lost at 25:1. I concluded that the horse she probably backed was called Present Orientated, which fell at Folkestone in the Westenhanger handicap chase.
I am not sure that I can use that horse’s name to lever into my next point so I shall stick with Present Orientated; I do not have the smoothness and skill of my noble friend Lord Mandelson, of Foy and Hartlepool. The noble Baroness asked a question in the light of my noble friend’s Statement earlier in which he mentioned the Bill and its amendments. I believe that he was referring to a group of amendments that I tabled on Monday starting with that numbered 174A in the Marshalled List, which will modify Clause 225 to enable the scheme that he announced.
I shall return to the matter in hand. Clauses 17 and 34 make provision in relation to the effect of a share or property transfer instrument or order. The purpose of the clauses is to ensure that a transfer of property is effective in law and takes place in spite of any restrictions that might otherwise exist. The subsections of each of these clauses which the amendments would remove are drafted in deliberately broad terms. As the noble Baroness said, that drew some discussion when the clauses were reviewed in another place.
Once the authorities have decided to intervene in the public interest to resolve a failing bank and the necessary general and specific conditions have been met, the Government consider it appropriate that a transfer should take effect despite any restriction. That is to maximise the chances of a successful resolution, in so far as is appropriate and feasible. For example, a counterparty’s contract with a bank may stipulate that the counterparty needs to provide consent for the contract to be transferred from the failing bank to any other person. In normal commercial conditions this is a sound provision. However, bearing in mind the conditions in which the authorities may need to exercise the transfer powers, it would be impossible for all the necessary consents to be gained before the transfer. As such, it may not be possible to transfer the contract on which the transferee may need to rely, which would undermine the authorities’ ability to resolve a failing bank in the public interest.
Similarly, without the provisions, private sector transferees may be deterred from seeking to acquire a failing deposit taker, as they may perceive there to be a significant execution risk attached to the transfer. Indeed, a transfer to a private sector purchaser will not be possible unless commercial counterparties are certain that they will obtain complete control over the property, rights and liabilities transferred to it. Thus it is vital that provision can be made to make clear that a transfer takes effect notwithstanding any restrictions in contract or legislation, or in any other way, and that the transfer may, if specified in the instrument or order, take effect free from any trust, liability or other encumbrance. I believe that that answers the questions posed by the noble Baroness.
I remind the Committee that the Government are putting in place a suite of safeguards to protect counterparties, and these of course still stand. In particular, Clause 48, which we will debate in detail in due course, provides for protections for set-off, netting and security interests. For those reasons I hope that I have demonstrated the importance of the provisions, and that the noble Baroness will feel able to withdraw the amendment.
I hate to disappoint the Minister, whom I thank for his attempt at a reply, but he did not answer a single question, so I do not know how he could possibly think that he answered my questions. He set out the purpose of the clause which, as I said in my opening remarks, I support and understand, but I raised some specific points about subsection (3), which he did not address.
The three points that I raised were, first, whether the words “in any other way” in subsection (3) had meaning beyond common law. Secondly, I raised the issue of EU law and the European Convention on Human Rights and pointed out in particular that Clause 35, but not Clauses 17 and 34, referred to European law. I referred to the view of a leading law firm in the City of London that that is a recipe for doubt and uncertainty and asked specifically for a statement on the interaction with EU law and the convention rights. Thirdly, I asked about the impact on competition law. I am sorry to say that the Minister did not answer a single one of those points. He simply read out a speaking note that assumed that I was going to say something else.
Then let me endeavour to be more specific and granular. The purpose of the phrase “in any other way” is primarily to include common law, but there are other examples—for instance, the terms of a trustee arrangement. On EU law, I confirm that the Bill cannot override Community law and a transfer in breach of the convention rights could be declared unlawful on judicial review. Thirdly, on the issue of competition law, the clause could not of itself be used to override competition law, but that may be necessary in certain situations, and we will return to those issues in the debate on Clause 75, on which noble Lords have already said that they intend to focus later in Committee.
I am very grateful to the Minister for responding to my specific queries. Perhaps he could also respond on why Clause 35 makes specific reference to European law, but neither Clauses 17 nor 34 do? That is the particular point that has been put to us by a City firm of lawyers: that the non-reference in Clauses 17 and 34 is a recipe for confusion, so why not universalise the reference?
I would like to give the noble Baroness a clear and detailed answer. With her agreement, I will do that in writing and therefore ask that she withdraw the amendment on the basis that when she comes to consider the matter ahead of Report, she will be informed by my response to the point that she raised, having had it drawn to her attention by a leading City legal firm.
I am most grateful for the Minister's reply and of course accept that assurance. I think that this is the first time that we have had an exchange when he has said that he will write to a noble Lord to explain a point. Perhaps I may be clear that we are on a very tight timetable between Committee and Report, so it requires the Minister to be tough with his officials in getting answers out quickly.
Amendment 36 withdrawn.
Clause 17 agreed.
Clauses 18 and 19 agreed.
Clause 20: Directors
37: Clause 20, page 9, line 33, at end insert—
“( ) No action by the Bank of England or the Treasury under subsection (1) or (2) shall have the effect of removing or modifying existing contractual rights of directors.”
Amendment 37 adds a new subsection to Clause 20, which deals with directors. I can completely see why Clause 20 is thought to be necessary. It will save a lot of fuss and bother if directors of a bank which is dealt with by the Bank of England by way of a transfer to a private sector purchaser or a bridge bank, or by the Treasury taking it into temporary public ownership, can be got rid of or their terms altered by one simple instrument. My amendment is designed to limit the impact of such changes. It states that an action by the Bank or the Treasury under the clause does not remove or modify existing rights.
It may be easiest if I pose some questions to the Minister to see whether my amendment is necessary. What happens if the Bank of England or the Treasury decides to remove some bank directors using Clause 20? Are those directors entitled to make claims against the bank for breach of contract, including any early termination provisions included in those contracts? What happens if the Bank of England or the Treasury decides to change the conditions of a bank director, so that he is paid less or loses an entitlement to a bonus? Would the director still be entitled to pursue a constructive dismissal case in appropriate instances and, if he proved his case, could he be awarded damages? Could bonuses that have been earned in accordance with existing contracts be removed before payment without any right of action against the bank?
I am aware of the public anger directed towards banks as a result of the credit crunch. Much of that anger is justifiable, but public anger should not be allowed to affect legal rights. In many instances, agreements will have been reached with directors—we have seen instances of that in recent times—but that will not always be the case, especially if one or more directors is aggrieved by what they perceive to be premature or unnecessary action by the tripartite authorities.
In addition, if the clause could overrule existing contractual rights, there is the little matter of European law and the Human Rights Act, which does not allow rights to be taken away just like that. In that context, I note that the noble Lord, Lord Myners, has signed the customary human rights declaration for the Bill.
I have put some specific questions to the Minister to try to discover how Clause 20 interacts with pre-existing rights. On that basis, I beg to move.
Without wishing to cast myself in the role of the representative of public anger, I very much hope that the clause indeed allows directors who, for example, had very significant bonuses attached to their contracts of employment not to receive them if they have driven the bank for which they were directors into the ground and it has been forced into public ownership.
On the basis that I was rather slow in getting to the point on the previous amendment, perhaps I may try to make amends by saying that I think that the noble Lord, Lord Newby, will be pleased with my answer when I get to it.
Clause 20 provides that a share transfer instrument or order may enable the Bank of England or the Treasury to appoint or remove directors. It also provides that the instrument or order may confer on the Bank or the Treasury the powers to vary or terminate the service contracts of directors. Such provision gives the authorities the necessary power to put appropriate management into place once control of the failing bank has been transferred. It is, of course, critical that the deposit taker has a board of directors with the appropriate expertise to manage the business. However, in the period immediately preceding the transfer, members of the board may have resigned, the existing board may not have the necessary expertise, or it may no longer be appropriate or suitable to run the bank. The conditions that have occurred prior to the clause becoming relevant surely give rise to questions about competence, appropriate skill and the worth of these people to the bank.
The noble Baroness’s amendment seeks to specify that a share transfer instrument or order may not make provision in relation to the terms of existing contracts relating to directors. However, the Government consider that this is an important power to have. Let us suppose that the Treasury takes a failing bank into temporary public ownership. It may be appropriate to amend the provisions of a director’s contract—for example, by changing the length of his tenure or remuneration arrangements—or, to provide another example, to amend the notice period for a director’s dismissal. Such measures may be necessary to put appropriate management arrangements in place.
The breadth of the powers under the clause was noted in the other place. While I acknowledge that this is a broad power, I repeat the reassurances offered by the Economic Secretary. As he noted in the other place in Committee when this clause was debated, the terms under which former directors were employed are a matter for the previous board. He also stated that those terms would be governed by normal contract law. This is the case because they would have been determined before the bank needed to be resolved: hence there would be no property transfer instrument. He went on to say that any amendment to a director’s service contract would be governed by contract law. This is also the case.
While the clause provides a power for the Bank or the Treasury to alter a director’s service contract as part of the resolution of a failing bank, any modification made using the powers would be treated as part of the contractual arrangements between the director and the bank and would be governed by normal contract law. Moreover, of course, any power under the clause could be used only once the general and specific conditions were met, and would have to be exercised in a way that is compatible with the European Convention on Human Rights and with Article 1 to the first protocol in particular.
In answer to the noble Baroness’s question, the intention of the clause is to allow the authorities to have the ability, should they believe it to be appropriate, to terminate a contract without compensation, to modify a contract without compensation and to remove any entitlement to bonuses that have not been paid. Those are right and proper powers to have in place in the circumstances which this Bill contemplates. Therefore, I ask the noble Baroness to withdraw her amendment.
To clarify, the Minister says that the Government want the power to terminate without notice. Does that mean that the director concerned would be denied access to the employment tribunal to argue his case, or indeed to the courts generally—access which he has under existing rights? I understand how the Government might want to do this as a technical act, but does that mean that they can in effect write out rights that already exist? That is the important distinction that I am trying to tease out. I have not objected to the clause per se; I seek to see whether the clause in effect denies individuals rights of recourse to law that would otherwise exist. In another failing organisation where a chief executive is taken out at no notice, it is up to him whether he tries to pursue a case for wrongful dismissal or for payment of contractual rights. Are we taking ourselves out of the normal situation and creating wholly new sorts of rights or denying rights to people?
The clause as worded does not mean that directors could not take legal action in pursuit of their contractual rights, but the authorities would rely on the clause to say that, in the particular circumstances of directors of banks, the clause overrode any contractual rights and entitlements that they had. We want to be absolutely clear that we are talking about people who are responsible for failed banks. The failure of a bank is associated with the need to put a bank into a special resolution regime, which should not be taken lightly. That said, a claim to the European Court of Human Rights for compensation may exist if a European Court of Human Rights right has been interfered with, but, other than that, the clause specifies quite clearly that the authorities have the power seriously to amend and revise contracts.
I find this rather depressing, because although I have no problem with the action being taken, it appears that the Treasury’s judgment is now being imposed—the only right of recourse being to the European courts, which is a rather difficult right for individuals to take. I had feared that this is what the Government intended by the clause. The Treasury might well judge that an individual was responsible for failure, as happens in other business situations, but it is not right then to say that the Treasury’s judgment means that it can completely wipe out virtually all rights of recourse to the normal avenues available in this country. That gives the Treasury, or indeed the Bank of England, a power that is disproportionate to the situation, because it is a question of the Bank’s or the Treasury’s judgment of that individual and not of the court establishing the correct position. However, the Minister is clear that that is the intention. I see that he is being passed another note. Does he want to add anything?
The note that I have been handed was not relevant to what I was going to say. Nor will it lead me to deviate from what I was going to say.
Anyone who assumes the position of a director of a bank should do so with due and careful consideration of their public responsibilities. The nature of banks, their critical importance to the economy and the fact that a failed bank can place burdens on society should require particular focus and application by a director to rise to the very highest standards. Abject failure by bank directors is not a circumstance in which compensation is necessarily appropriate.
The noble Baroness uses the term “disproportionate”, and I envisage that the authorities, when looking to these clauses, will have regard to proportionality, as indeed we have in some of our discussions with banks in circumstances where we have intervened. A number of directors have left those banks, and in one or two cases the directors volunteered to surrender certain rights that they had under their contract, for which I commend them. In the circumstances, that was an honourable and good thing for them to have done. Proportionality is important.
The note that I have received advises me that it is possible to litigate the convention rights in UK courts under the Human Rights Act. They do not have to be taken to a court outside the boundaries of this country. On that basis, I invite the noble Baroness to withdraw her amendment.
I accept the clarification that on European rights we can use the Act to litigate in the UK, but I am not sure what effect that would have. The Minister refers to abject failure, but not all cases will be abject failure and not all individuals will abjectly fail. The point is that they are being denied the normal route of asserting their rights or of having them not accepted, with the Treasury or the Bank of England just saying their opinion. That causes me huge concern. I was minded to divide the Committee on this issue, but I shall reflect further on the availability of remedies under the Human Rights Act. I accept that ultimately it is an issue of whether the Treasury and the Bank of England act reasonably or proportionately.
I am deeply concerned that it is found necessary to have this little warfare against directors of banks. In most ordinary circumstances the law would allow them to achieve effectively what they want in the bad cases and by agreement as may have been reached. This seems to be a bit of public posturing against directors. I am not here to defend all bank directors because many of them have not behaved responsibly or honourably in all cases. But I believe that, given these very wide powers which would allow on the basis of Clause 7 the triggering of the special resolution regime on not necessarily serious grounds and certainly not transparent grounds, we might be into using Clause 20 in circumstances that the ordinary law would not approve or support, but which the Treasury could use for its own purposes. I shall think about this again before Report and I beg leave to withdraw the amendment.
Amendment 37 withdrawn.
38: Clause 20, page 9, line 37, at end insert—
“(5) An appointment under subsection (1)(d) or (2)(d) may be made in connection with an appointment under section 164A (Remuneration committee).”
First, I should like to pass on the apologies of my noble friend Lord Wedderburn to the Committee. Unfortunately, he is ill and cannot be here, although he was looking forward to our debate on this issue. Amendment 38 is a paving amendment for Amendment 145, to which I shall also speak. The aim of new Clause 164A, which is proposed under Amendment 145, is to enable the Treasury, with the agreement of the FSA and the Bank, to have a limited power in order to intervene and prevent irresponsible remuneration being paid to the executive directors of a bank. The order would normally be made where public funds have been provided for a bank. The huge remuneration paid even to a failing bank’s top executives has been much criticised in the past.
The proposed new clause adopts a mechanism to which responsible bankers can hardly object; that is, a voice on the remuneration committee which sets the levels of such rewards. The Companies Act 2006 requires a report to the shareholders’ meeting on directors’ remuneration only in the case of quoted companies. That shareholders’ vote is only advisory. The clause would enable parallel provisions to apply also to all banks, quoted or unquoted. The mechanism adopted is to enable the Treasury to appoint a member to the remuneration committee or any parallel body with suitable immunity under the Bill, but subject to the ordinary general fiduciary duties of a director—for example, to act in good faith in the interests of the bank and the community—so that the voice of the public interest can be heard in its deliberations. It may be doubted whether a responsible bank would defy that voice by paying enormous and irresponsible remuneration where that was contrary to the public interest and the interests of shareholders. The established City principle “comply or explain” would clearly be applicable.
The new clause would enable the Treasury, with the FSA and the Bank, to act generally in this manner, but it would be expected to make clear its intention to adopt this mechanism in cases where public funds had been provided to a bank as part of the deal. The provisions of Part 1 and Part 3 are relevant to such cases.
If banks are to be supported by taxpayers’ money, it is important in the current climate that there should be some sort of accountability with regard to the salaries and bonuses paid to senior executives. It is common knowledge that very large sums have been paid, even in situations when the decisions for which such executives have been responsible have resulted in catastrophe. Many ordinary employees who have been completely innocent of the decisions at senior level are now facing redundancy, often in areas where alternative work is not readily available. One can understand what resentment will arise should the senior executives who share a substantial part of the responsibility for the present crisis walk away with large sums.
I am sure the Minister is aware that many completely innocent people will suffer in the crisis we face—not only are former employees facing unemployment and impoverishment, interest rates are the lowest ever and are likely to go down still further, perhaps to zero. Effectively, prudent people will have to pay for the imprudent. This is a transfer of money from savers to borrowers. Many elderly people will see their income diminished at an age when they have no chance to make good their loss. That also is bound to cause resentment if at the same time the people deemed to bear a major responsibility for the crisis are still able to secure large sums of money for themselves. The principle involved in these two amendments is simple: public money involves public accountability. I hope that that is accepted. I beg to move.
My noble friend Lady Turner of Camden has spoken with some eloquence on this matter. It is of considerable interest to the Committee that she has raised the whole subject. In the course of the debate on the previous amendment, the Minister spoke with some eloquence too on the responsibility of those who are directors of banks. I hope that I have not misunderstood him when I say that the impression he gave me was that in his view the responsibility of the directors of banks is of a somewhat higher grade than the responsibility of company directors generally. It seems to me that my noble friend Lady Turner of Camden has made a very strong point in talking about the value of having a public interest voice in the discussion of the remuneration of executive directors.
We all have experience, whether with banks or other companies, of the way in which remuneration is dealt with whereby even the independent, non-executive directors who are supposed to keep a special eye on the remuneration of executive directors are themselves executive directors of other companies and therefore are somewhat disinclined to vote down the proposed executive directors’ remuneration in those companies where they are merely non-executives.
This detail of this amendment would ensure that, in circumstances that the Treasury thought appropriate, and having consulted the Financial Services Authority and so on, an appointment could be made of a non-executive director who would have the special role of keeping an eye on the remuneration of executive directors and of trying to ensure that remuneration packages were not as excessive as some have been in the past. Because of being involved in the debates on this Bill today and yesterday, it strikes me that the Government’s ground for opposing this amendment may be that, even when they have part ownership of a bank, they wish to keep at arm’s length and not get involved with detail, certainly not the detail of the remuneration of executive directors. That may be the basis for an objection to the amendment.
There is tremendous public interest in remuneration. There has been much public sentiment on this issue in the past six to 12 months when the directors and boards of so many banks have failed in the kind of responsibilities that the Minister was talking about in the debate on the previous amendment. There is a much clearer view now among the general public that the public interest should be maintained at a high level. When other Ministers were in charge, not so very long ago but before the crisis in banking, I recall Questions being asked in this House of the noble Lord, Lord Jones of Birmingham, whom we were delighted to see earlier this afternoon. His present role seems much more suited to him than being a Minister in Her Majesty’s Government. When he was a Minister, he stated that any questioning of unduly high remuneration in banks or other companies was quite wrong, that this was a matter for the companies alone and that any suggestion that it should be otherwise was a bad idea. I hope that that view is not so commonly held in government circles today.
I also hope that the Minister will support this modest amendment, which allows the Treasury so much flexibility in addressing the particular circumstances of any bank. The amendment proposes a remuneration committee in exceptional circumstances. I hope that Ministers will realise that it is a valuable change to the Bill.
I congratulate the noble Baroness on introducing a debate on this subject. It is a matter of significant public concern that directors have paid themselves excessively in the past, and that this payment has not been linked to the success of the enterprise and in many cases has gone on at excessive levels when the enterprise has underperformed. We are not talking just about banks: this is a general problem. One reason for it, given by the noble Lord, Lord Borrie, is that you have a charmed circle of executive and non-executive directors, all of whom are setting each other’s pay. Thus very often the incentive for downward pressure towards realistic levels of pay is missing.
The question raised by the noble Baroness is one aspect of the more general debate we have had on the Government’s role as regards their stake in largely or wholly owned public banks. The answer that the Minister has given is that it will be an arm’s length relationship. We talked earlier about the role of directors, who will be independent. If you go down that route which the Government clearly are going down the outcome that the noble Baroness seeks is achieved by ensuring that the independent directors, as I argued earlier, are a diverse lot and do not come with a vested interest in keeping salaries and bonuses high. If some of the directors do not come from a traditional bank—bank directors, as it were—that will be a good way to keep the pressure on.
This is an important issue, but no more important an aspect of the management of the bank than other things that we have discussed in this and other debates, such as the way in which the bank lends to small businesses and the attitude that it takes towards repossessions if it is conducting mortgage business. Therefore, while this is important, it does not warrant separate legislative provision. We will have to rely on directors appointed by the Government to exercise their judgment and wisdom in reflecting a wide range of views about how banks should be governed, and that must include executive pay.
I associate myself with many sentiments that the noble Baroness, Lady Turner, has articulated through this amendment. However, I cannot support it, for a couple of reasons. I draw attention to my interests in the Register: I work in a bank and sit on remuneration committees. The way that the noble Lord, Lord Newby, characterised remuneration committees is not one that I recognise. On both the remuneration committees on which I sit, there are no serving executive directors from other companies, for precisely the reason that he stated. The people are all entirely independent and there is no charmed or magic circle. I suspect that most professionally run companies these days take the same view.
The principal reason that I resist this amendment is because I think that to interpose a separate individual on a remuneration committee, outwith the normal governance that we would expect through the Companies Act, would be quite wrong. An individual on a remuneration committee who is not a member of the audit committee or of the company’s board, and who somehow has a completely separate set of objectives, would be in an invidious and difficult position, and it would be simply wrong. For all the reasons articulated yesterday by the Minister, we cannot put government-appointed directors on boards and expect them somehow to operate independently of their responsibility to the shareholders of a bank. If that argument is right for the board as a whole, it is doubly right in the case of remuneration committees. It must be right that members of remuneration committees are also independently appointed members of the whole board and take part in all the governance of a bank, and not just part of it.
I do not believe that the amendment, as drafted, would achieve the ends that the noble Baroness wishes, laudable though they are. Although I have sympathy with them, we must rely on the independent members appointed to the boards to discharge all of their governance functions, including remuneration, rather than distinctly as members of a remuneration committee.
I associate myself with almost everything that the noble Baroness, Lady Ford, said. She articulated very clearly the right approach to remuneration. My only doubt is whether all remuneration committees have complete independence from other remuneration committees. There may be some travelling still to be done by some remuneration committees. There are problems in the working of remuneration committees, in particular the ramping up that comes from pay consultants who are good at keeping the machine going. In my experience of remuneration committees, independent directors take their responsibilities very seriously and find it a hugely difficult task. That is not to say that it has worked well, and not to say that it has worked well in banks. However, the approach that the noble Baroness espouses is the right one.
I wish the noble Lord, Lord Wedderburn, a swift recovery to full health. I too lend my support to the sentiments expressed by my noble friend Lady Ford, as endorsed by the noble Baroness, Lady Noakes, subject to one or two qualifications that I will mention in a moment.
The amendments are not clear about whether the Treasury’s power should be available with respect to any bank, or only with respect to a bank once the stabilising options that are the subject of Part 1 of the Bill have been exercised. I shall take it that they are to apply only once stabilisation has taken place; I invite my noble friend Lady Turner to correct me if I am wrong.
I shall start by summarising the stabilisation and the degree of governance which the authorities will be able to exercise in each. The temporary public ownership stabilisation option gives the Treasury the power to take control and ownership of a failing bank through transfer of shares to a nominee of the Treasury or a company wholly owned by it.
As set out in the published draft code of practice, the articles of association for a bank in temporary public ownership will provide for the relationship between the Treasury, in its capacity as shareholder, and the directors of the company. The Treasury, through its nominee or wholly owned company, will be able to exercise normal shareholder rights. Immediately following the transfer of securities, the Treasury may need to take a hands-on role in managing the affairs of the bank in order to address the immediate problems causing the bank to be at risk of failure. However, once the bank has been stabilised, the Treasury will seek to introduce corporate governance arrangements in line with best practice as soon as is reasonably practicable.
In practice, of course, a bank may be in public ownership for only a very short period. In such a case, it is clearly unnecessary to appoint a new board or make other changes to corporate governance arrangements. However, if a bank is likely to remain in temporary public ownership for a longer period, the draft code of practice makes it clear that the Treasury will set out the directors’ objectives for how the bank should be operated. I argue, therefore, that the Treasury already has sufficient powers in relation to a bank in temporary public ownership; it is not necessary to have an explicit provision in the Bill empowering the Treasury to appoint members to a remuneration or analogous committee.
To draw a comparison with Northern Rock, which was taken into temporary public ownership under the Banking (Special Provisions) Act 2008, the shareholder relationship framework sets out the structure of how the day-to-day governance and shareholder relationship between Northern Rock and the Government will work in practice. Under that arrangement, the Treasury has appointed a chairman of the board and two independent non-executive directors, in consultation with the chairman, who must also give consent for the appointment of any other board members. Directors’ remuneration is determined by the remuneration committee of the board of the company, but under the shareholder relationship framework document, the Government have a right to approve the terms.
Where the bridge bank stabilisation option has been exercised, the owner of the bridge bank will be the Bank of England. The Bank of England will therefore have the powers of the sole shareholder of the bridge bank and be able to put in place an appropriate governance structure, including relating to matters of remuneration. This is set out in more detail in the published draft code of practice. Again, I argue that it is clearly not necessary to have an explicit power to appoint members of a remuneration committee by order, given these circumstances.
Finally, the private sector purchaser option gives the Bank of England the power to transfer a failing bank’s property or shares to a private sector purchaser. Although such a transfer will take place outside the normal commercial transactional mechanisms appropriate for a sale, one private entity will be purchasing the shares or property of another. I believe that it would clearly be inappropriate for the Government to intervene in such circumstances in matters of remuneration, including through the making of appointments to a remuneration committee.
I have so far discussed remuneration as it relates to the stabilisation options. I hope that I have persuaded noble Lords that the amendments proposed by my noble friends Lord Wedderburn and Lady Turner are not needed.
Let me turn briefly to the question of remuneration more widely. Generally speaking, pay for directors and employees must be a matter for the banks in question, as it is with any company. I appreciate, however, that there is the specific question of whether executive pay regimes in the banking sector have led to a risk-taking culture that has contributed to the financial crisis. That is why the FSA is looking at remuneration structures in the institutions that it regulates.
The FSA has said it will take remuneration structures into account in risk assessments of financial institutions “with increased intensity”. Its chief executive, Mr Hector Sants, has noted the need to consider the implication of remuneration structures to a greater extent when judging the overall risk of individual institutions.
I agree with my noble friend Lady Turner regarding the attention she has drawn to the social consequences within banks and elsewhere in the economy as a result of bank failures here—social consequences which are being felt elsewhere in the world where banks are experiencing similar difficulties.
My noble friend Lord Borrie suggested that I was conveying the sense that being a director of a bank was of a higher order than it was for other companies. I do not want to diminish the seriousness and responsibilities of a director of any company, but I think that directionally he is correct in conveying my sentiment. Nobody should contemplate lightly the challenges and responsibilities of being a director. With regard to our earlier discussion, it might be wise for banks to incorporate in their director appointment letters and employment contracts reference to Clause 20 to make it absolutely clear to directors of banks that certain rights exist and are vested with the authorities. That seems a wise and sensible thing to do in the interests of shareholders and, quite frankly, as a way of showing some recognition of social consequences.
I am grateful to my noble friend Lord Borrie for reminding me that the noble Lord, Lord Jones of Birmingham, was a member of this Government. From my limited time in this Chamber, I have to say that it is not always obvious that he was. My own views are rather different from his, and they go wider than just the banks. I share the view expressed by the noble Baroness, Lady Noakes, that the power and influence of the external comparator—the benchmark, the remuneration consultancy—has become too dominant. Boards of directors should look at not only external but internal comparability. They should look at the structure of remuneration in their company and not limit themselves to those of the directors. They should have a clearer understanding of the intention of the company’s overall remuneration policy, the cultures and values they seek to encourage and the behaviours that they seek to discourage. I find remuneration reports of many public companies seriously deficient in conveying a sense of what the company is trying to do. They are long on language and detail—the language is often opaque—and they fail in many cases to convey those simple and straightforward messages which are so important.
With reference to some of the points made by my noble friend Lady Ford, while the primary responsibility in a remuneration committee rests with independent directors, I do not excuse executive directors from responsibility. Executive directors should be setting the example of behaviours that they wish to see reflected throughout the organisation. It may be rather old-fashioned, but tone from the top and restraint are appropriate in many cases.
I am grateful to my noble friend for her comment. I certainly was not suggesting that that was her view. However, it is often argued in the media that the responsibility for remuneration is an issue for the independent or non-executive director. I do not think that this is an issue where the executive directors are excused responsibility, because they tend to set the broad framework for remuneration throughout the company.
I would hazard to suggest that in a number of our banks there may be 20, 30 or 40 people who are paid more than the highest paid director. There are issues here which go beyond remuneration of the directors. I have gone on for rather longer than I should, for which I apologise, but they are matters which are of some concern to me, as I think noble Lords might see. I urge the noble Baroness, Lady Turner, to withdraw the amendment, but not to do so believing that the sentiments that she expressed are not shared by some on the Front Bench.
I thank the Minister. I am of course disappointed by the Government’s reaction to the amendment, because, as my noble friend Lord Borrie said, it was modest and not particularly radical. Before it became operational, there would have to be an order, which would have to be approved. The Treasury would be responsible for making the remuneration order or recommendation; it would have to agree it with the FSA and the Bank of England; and then a draft would eventually have to be laid before, and approved by resolution of, each House of Parliament. So quite a procedure would have to be followed before it could be put into operation anyway, which would be only where there were problems which meant that the situation would have to be dealt with in that way.
I say to Members who have opposed what I have suggested that we are no longer in the situation that has prevailed in past years; we are unfortunately in an economic crisis, about which many people are very concerned. It has social effects, which I tried to indicate when I moved the amendment. I was glad to hear the Minister say that the amendment was not needed, which I presume means that something is being done about the matter, because the FSA has the responsibility, I gather, to look at remuneration. I suppose that that is at least something.
In the mean time, I shall examine carefully what has been said by our Front Bench, because public as well as social problems are involved. The large sums that have been paid to senior executives have resulted in a fair amount of unfavourable publicity. It is clear that a lot of people have become worked up about it, particularly employees who suddenly find themselves facing redundancy. They are not responsible for the decisions that have landed us in these problems—those have been taken higher up. Ordinary employees now face redundancy, sometimes in areas where other employment is not readily available. There will be enormous resentment if people are allowed to take large sums of money when they are felt to be responsible for some of the difficulties in which others find themselves. In the mean time, I beg leave to withdraw the amendment.
Amendment 38 withdrawn.
Clause 20 agreed.
Clause 21 agreed.
Clause 22: Termination rights, &c.
39: Clause 22, page 10, line 15, after “means” insert “a Type 1 or Type 2 default event provision as defined in subsections (1A) and (1B).
(1A) A Type 1 default event provision is”
I shall also speak to the other amendments in this group. My contribution will be rather lengthier than is normal with government amendments as they are on the whole regarded as technical. These amendments have their technical qualities, but, as we all appreciate—the noble Baroness, Lady Noakes, has tabled amendments to this clause as well—some interesting issues arise, to which my remarks are addressed. I shall consider the opposition amendments when they are moved fairly shortly.
Clauses 22 and 38 set out certain provisions in relation to events of default. An event of default clause in a contract gives a specified right to a counterparty if a specified event occurs. For example, a contract could stipulate that a counterparty has the right to terminate the contract if a bank’s credit rating changes or if there is a change of control of the bank. These clauses are important since most modern contracts make heavy use of them.
The exercise of property or share transfer powers under the special resolution regime may in future be characterised as an event of default, which would give counterparties the right to terminate or modify contractual arrangements in the event that the authorities exercise the transfer powers. It is clear that any termination of key contracts could significantly reduce the likelihood of the deposit-taker being able to continue as a going concern. It could necessitate renegotiating contracts, potentially with new counterparties, with no guarantee that similar terms could be arranged. In extreme circumstances, for example, if the majority of a bank’s counterparties sought to rely on termination rights, the bank would be unable to continue its operations. In addition, the very act of counterparties terminating their contractual arrangements with the deposit-taker would send a strong signal to the market that other counterparties should not do business with the bank. Thus, a number of counterparties closing out their contracts could lead to a wider counterparty flight from the deposit-taker, which could have severe consequences for the success of the resolution.
Clauses 22 and 38 therefore make provision to address events of default which could impede resolutions under the special resolution regime. The most obvious example would be the authorities making provision for a share or property transfer instrument or order to be disregarded when determining whether a default event provision applied; in other words, such default event rights may be disapplied in relation to a transfer of control by way of a share transfer order or instrument.
Having established the significant context of Clauses 22 and 28, I shall speak to the government amendments. We have tabled a series of amendments to alter the definition of a “default event provision” for the purposes of Clauses 22 and 38. The amendments do two things: first, they extend the scope of the definitions used in the clauses; secondly, they provide for the fine-tuning of which default event provisions are modified in a particular resolution.
I shall now describe in greater detail the purpose of the amendments. The changes give further effect to the principle underlying the default event provisions by seeking to limit the extent to which banks and their counterparties can seek to “draft out” of the special resolution regime. The amendments seek to extend the scope of the provisions in a technical way to address drafting devices which would have a similar practical effect to the situations already covered by the Bill. As I have already explained, it is crucial that the authorities can take appropriate action with respect to events of default and termination rights. The risks of a significant number of a bank’s counterparties exercising such rights could be severely detrimental to the resolution and therefore certainly not in the public interest.
Since the Bill was introduced, it has come to our attention that the definitions in Clauses 22 and 38 may not be broad enough to deal with a device known as a “condition precedent”, which is already in commercial use and which could easily be substituted for a termination right. For example, a contract may provide for B to perform an obligation in favour of A, but only where one of a number of specified events has not occurred. These events will typically be similar to events which would entitle a party to terminate a contractual arrangement; for example, non-performance by A of his obligations to B or matters relating to A’s creditworthiness. The crucial point about a condition precedent is that the performance obligation will arise only at such time as the condition precedent is satisfied.
It is the Government’s view that there is some ambiguity about whether these events would be captured in the existing definitions of default events in these clauses. Given the risks involved, the Government consider there to be a strong case for amending the clauses.
The failure to cover adequately events of default could allow counterparties to restructure transactions in a way which would enable them to evade the application of the powers of the special resolution regime. This would subvert the objectives of the regime, including maintaining financial stability and protecting depositors. Any ambiguity is likely to be relied upon by commercial drafters seeking to subvert the intention behind these provisions. In particular, the effectiveness of these clauses is likely to be tested in litigation arising in relation to transfers. As a result, any ambiguity in the governing primary legislation of course needs to be removed. This is particularly important in the case of a transfer of banking business to a private sector purchaser, which is likely to be the authorities’ preferred resolution option, as we have discussed earlier in Committee. As such parties tend to have a low level of risk appetite in respect of transactions, uncertainty about the effectiveness of transfers under the special resolution regime would have the capacity to undermine the potential to achieve such a resolution.
The amendments seek to prevent formalistic drafting devices from being used to evade the regime more generally. For example, a person might try to use drafting devices to characterise an event of default as something other than that. The amendments, particularly proposed new subsection (1C) in Amendment 43, make it clear that it is the substance of a provision that matters, rather than its form. This is a common approach adopted where legislation creates distinctions between different types of contractual arrangements.
The second matter addressed by the amendments is that they make technical changes to enable these provisions to be fine-tuned to particular resolutions. For example, they can apply differently for different purposes or different circumstances.
I apologise for the length of this introduction to government amendments, which in previous Bills I have always enjoyed as relatively limited. However, this is a complex area. The Government are making these changes due to representations made to them. Accordingly, I beg to move.
We have received no representations about these amendments, but the Minister will appreciate that they have not been on the Marshalled List for long, as they were tabled relatively recently. I hope that we will not need to return to this matter on Report, but I certainly have nothing to raise in connection with them at the moment. I leave the issue open to return to on Report if one of the lawyers with whom we are in contact produces something that we wish to debate at a later stage.
I greatly appreciate that response. I apologise to the noble Baroness for the limited time she has had, but the Bill is operating against a limited schedule. The Government have tabled these amendments in good faith to make effective these crucial clauses. Of course, the noble Baroness may well raise issues on these matters at a subsequent stage, and we will make our responses accordingly.
Amendment 39 agreed.
House resumed. Committee to begin again not before 8.25 pm.
Women in Prison
Question for Short Debate
My Lords, I am grateful for this opportunity to hear from the Minister how plans for the different treatment of women offenders—the Corston approach—are progressing. I am also looking forward to hearing the contributions of other noble Lords speaking this evening, all of whom bring important expertise to this debate. My own background as chairman of an inner London juvenile court for over 20 years, and a member of the Parole Board, has left me with a firm belief in prioritising two aspects of penal policy that are of particular relevance to the way in which we treat women offenders: first, prevention—that is, early intervention—with deprived and/or chaotic families, where the potential for children offending is obvious; and, secondly, for those children that we have already failed, and who are already in prison, rehabilitation.
It is precisely for these reasons that the proposals in the excellent Corston report are so important. Corston makes it clear that the dominant male ethos of prisons is particularly inappropriate for women offenders. This theme is equally emphasised in no fewer than six other reports on this subject over the past 12 years, including two from my noble friend Lord Ramsbotham. He will no doubt refer to these in his speech.
Women still comprise a small percentage of the prison population; 20 per cent of known offenders, but no more than 6 per cent of the actual prison population. What is alarming, however, is the fast growth of the number of women in prison. Between 1992 and 2002, the male prison population grew by 50 per cent, while the female prison population increased almost four times as fast, by 173 per cent. Increasing prison overcrowding has meant women offenders being housed even further than male prisoners from their families, at least 60 per cent of them outside their home region with an average of 58 miles for families wishing to visit.
Then there are the different characteristics of this growing number of women prisoners that, again, call for urgent action. For example, there are acute mental health problems, often resulting from a background of violence—physical, emotional and/or sexual abuse—endured as children and continued when older by a current partner; 50 per cent of women offenders fall into this category. Unsurprisingly, 40 per cent of women prisoners self-harm. In Styal prison alone, self-harm has leapt in the past five years from 376 to 1,324 incidents.
Then again, 70 per cent of women imprisoned are in for short sentences of less than 12 months because the vast majority are convicted of non-violent crimes, such as theft and handling stolen goods. Theft accounts for 60 per cent of female offending, but only 34 per cent of male offending. However, short sentences—even remands in custody, of which there are far too many—do harm enough. Two-thirds of women who enter prison, remanded or otherwise, are mothers. A third have children under five years of age. No less than 40 per cent of women offenders lose their accommodation while in prison, which destroys not just their homes but those of their families as well. The Children's Commissioner for England reported that only 9 per cent of children whose mothers are sent to prison are cared for by their fathers, with only 4 per cent remaining in their own homes. How can we then be surprised at the resulting, almost inevitable, cycle of deprivation that this will activate in their children? Corston herself estimates that at least 17,000 children a year are affected in this way.
I have mentioned only a few of the important issues that Corston sets out in supporting her overwhelming case for an entirely different road for the majority of women offenders. Essentially, that requires locally provided community and/or community payback sentences for the vast majority. Crucially, however, this must also be combined with treatment and help for a range of problems: mental health, drugs and drink, housing and parenting skills, and, not least, education and training to enable flexible working when their children reach an appropriate age.
I have at least four areas on which I hope the Minister will be able to provide some answers. The first is equal treatment for male and female prisoners. Is it now accepted, as Corston so clearly argues, that the gender equality duty allows different treatment for men and women prisoners? I ask because during our debate last year there appeared some hesitation about adopting the Corston route in case it was in breach of the Sex Discrimination Act. It is my view, speaking as a non-lawyer but as the first deputy chairman of the EOC, that the Sex Discrimination Act's legal concept of indirect discrimination could more than adequately justify the Corston route. Perhaps the Minister will be kind enough to confirm that that is so.
My second question is about the various pilot schemes that are now under way. The Together Women projects were commended last February by the noble Baroness, Lady Corston, as having potential for providing a route back into the community for women offenders and reducing reoffending rates. Moreover, they are certainly value for money with the cost of a place at one of them—the Asha centre—costing no more than £750 a year compared to the £77,000 cost of a prison place. Can the Minister tell us how many of these Together Women projects will be operational on a local basis by the end of 2009 and how many more Together Women or similar projects are planned and within what timescale?
The Ministry of Justice published a Corston progress report a month ago with some promising initiatives, but timescales, numbers and priorities are harder to find. I have to agree with the Howard League for Penal Reform’s briefing which states:
“The visionary, radical proposals at the heart of the Corston review have either been sidelined or completely abandoned”.
Can the Minister update the House on what priorities and timescales for implementation the interdepartmental ministerial group for women has identified and is working to? What about the women’s offending reduction programme—WORP—set up in 2004? What role does it now play? What priorities was it working to before it became part of the ministerial group and are they still the Government's priorities? With all these schemes, is there a planned and guaranteed budget to ensure these plans materialise? On 10 December, the Minister in the other place stated:
“The Ministry of Justice is committed to providing additional resourcing in the new year”.
Can the Minister tell us how much it is and assure us that it is indeed extra resourcing?
Lastly, acknowledging the cost of what is proposed and the likely impact of the economic disasters we face, how do the Government now view the Titan project? Many parliamentarians and penal experts well beyond these portals have expressed grave concerns, which I certainly share, about government proposals to spend huge sums on building untried Titan prisons. The vast majority believe it would be far better value for money and more effective to modernise the existing capacity and, when and if necessary, build small local prisons. Surely, the time must now have arrived, not least in light of the current economic crisis, when the Government seriously have to reconsider their hugely expensive Titan prison programme. They would certainly have backing across all political parties and none if they decided to abandon that plan altogether. If not, at the very least, the noble Baroness, Lady Corston, and all her supporters need to be reassured that any Titan prison—I believe the Minister prefers to call them prison clusters—will definitely not include a women's prison unit within its site. Again, this was a reassurance that she asked for in your Lordships' debate in February last year. Can the Minister please give the House that answer tonight?
I end by paying tribute to the invaluable support and briefings supplied by the many charities and voluntary organisations as dedicated as your Lordships to achieving Corston's recommendations and especially to Juliet Lyon of the Prison Reform Trust. They can rest assured that this House will continue to keep the pressure up.
My Lords, this is an important debate with a large number of speakers. I remind noble Lords that if they stick to the time limit of three minutes, which is when the clock hits three, it will allow all noble Lords an equal opportunity to speak within the hour.
My Lords, it is a great privilege to follow the noble Baroness, Lady Howe. Her commitment is second to none and her effectiveness in debate is similarly powerful. I add a tribute not only to the voluntary agencies but to many prison staff who are doing fantastically difficult work in very challenging circumstances. I always find it significant that such prison staff have told me how they are disturbed by the inadequacy of the system. They despair of what progress can be made and talk challengingly about the need for a completely different approach and for support for women when they go back into the community. That point cannot overstressed. As they often put it, they think their work is to protect these women for at least a short time from the intolerable pressures that ruin their lives outside. One hears so often that these women’s lives are chaos.
It is against this background that the report by my noble friend Lady Corston was so important, and it is necessary to look at how the Government are responding. Trying to look at it dispassionately—I can sometimes look at this issue dispassionately, but I do not usually feel dispassionate about it—it is encouraging. There has been action on strip-search. It is difficult to think of anything that was more humiliating for women. It also had disastrous psychological overtones for staff and prisoners alike and was crudely used as a method of control. That the Government have acted on this is laudable.
The Government are firmly resolved to move forward on one-stop shops to divert women from prison. That is positive news. I support the noble Baroness in saying that we now need evidence of the resource muscle behind all this. Precisely how much will be provided? Will it be additional? Where will it be used? What are the priorities? When will it all happen? I hope my noble friend can enlighten us this evening.
Whether we are talking about women or anybody else in prison in debates of this kind, we ought to ask ourselves what is the purpose of penal policy. It is surely to save society from the cost of reoffending—hence rehabilitation is at the top of the league—and to see these women as people, as women with great potential trapped in appalling social circumstances. The need is to release that potential and let it become stabilising and constructive. Think of the effect on already dysfunctional families of women experiencing prison and being separated from their children. If rehabilitation is to be achieved, I am convinced that it has to be done in small, purpose-built units. Smacking women into impersonal prisons gives no basis for moving in the right direction. I hope we can have reassurance from my noble friend on that this evening.
My Lords, the noble Lord referred to being dispassionate. I do not feel remotely dispassionate on this subject; I feel passionate about it. I commend the noble Baroness, who has always identified a just cause, for bringing this matter to the House in the footsteps of many other distinguished Members. Long ago, we served together in the juvenile court in Camberwell and Lambeth, and even then the level of disadvantage, deprivation and social exclusion of all those appearing in court was all too evident. Our behaviour with regard to the criminal justice system and women is simply to compound the problems that these already frequently damaged women have and ensure that their children suffer even greater trauma and distress. The situation is simply not acceptable and there must be action, as the noble Baroness says, in 2009.
The evidence has been repeated time and again that 60 per cent of these women are mothers. There are 8,000 children a year affected by their mothers’ imprisonment. It is clear that, for the most part, male prisoners can expect the other parent to care for the children, but women’s children often go into care or are cared for by friends or neighbours—and we understand that many come from families and social networks that are far from ideal. We know that many of them lose the home that they were renting or buying. The damage is unacceptable.
At the department of criminology at the University of Hull, where I have the privilege to be chancellor, Dr Liz Walker has been doing some extraordinarily interesting work on offending fathers and the price they pay—the shame, the humiliation and the embarrassment of their children as well as the collateral economic damage, such as the loss of income and the cost of visiting. If that relates to fathers, how much more does that evidence apply to mothers?
I would like the Minister to report to us in particular on the report by the noble Lord, Lord Bradley, on offender health. It was good news in 2006 when the NHS took over healthcare in the Prison Service. The outline of the consultation made it all too clear that women in contact with the criminal justice system,
“suffer an excessive burden of disease, experience poor health and have restricted access to healthcare and social services whilst possible simultaneously being single parents, possibly carers for older people and/or someone with a disability. The risk of suicide in prison is much higher for women and self harm is a huge problem and 56 per cent of all recorded incidents were in women’s prisons”.
We were promised a response by 2008. The Government have set up pathways, guidelines and much else besides, and I believe that if joined-up government is to work we can use that lever.
Finally, I draw attention to one practical project that brings hope. At Send prison for females, the Watts Gallery has a wonderful programme of encouraging the inmates to become involved in the work of George Frederic Watts, a socially reforming artist, concentrating particularly on homelessness and the exploitation of women. The evidence of that small project is a light in a wilderness, and we need far more such lights. We need action, and we need it this year.
My Lords, I declare an interest as the current president of the Howard League for Penal Reform. I congratulate the noble Baroness, Lady Howe, on securing a debate on this important and, in my view, neglected subject. I agree with every word of her excellent speech. This subject is neglected not because we speak of it rarely—some of us speak of it a great deal—but, unfortunately, because real action by Government is in inverse proportion to the sound advice that they receive.
In opening this debate, the noble Baroness referred to the huge increase in the number of women in prison over recent years. With that increase in his mind, I ask the Minister to ask himself the following five simple questions and answer them to this House. Has the increase to which the noble Baroness referred led to a decrease in crime? Has it led to greater public confidence? Has it led to a more constructive prison regime? Has it led to less recidivism? Has it led to more rehabilitation? In reality there is a gloomy answer—no—to every one of those questions. If I am right that the answer is no, what next?
It is noteworthy that a number of women in custody, 64 per cent in 2007, have been serving sentences of less than six months. I ask the Ministers to tell the courts the truth: that very little is achieved by these short sentences other than the increased social exclusion of those who serve the sentences and, perhaps even worse still, their children and other members of their families.
I urge the Government that paramount attention should be given now to implementing the key recommendations of the Corston review that have already been referred to, particularly that prison for women should be limited to serious and seriously violent crimes and that women in prison should be dispersed, as the noble Lord, Lord Judd, suggested, to local prison centres in a new women’s prison estate, with small prisons near to their homes.
I turn to a specific issue, and I apologise for the short notice I gave the Minister on this earlier this afternoon. None the less, he has had a little notice. It relates to the public inquiry gained by the Howard League into the treatment of a young woman called SP while in custody and into her background. It is an unusual case because SP survived. This is therefore not an inquest but an opportunity to hold a public inquiry, which has been decided upon, where SP can give her own account of her life and times and what happened to her in local authority care before and after prison. She is articulate—I have met her—and she is a very abused young woman.
In June 2008 the Prisons Ombudsman, Stephen Shaw, resigned as the nominated chairman of the inquiry. He made it quite clear why he resigned: his intention as to how to run the inquiry, he complained, had been interfered with unacceptably by the Prison Service, and he felt that he could no longer conduct an independent inquiry. So what did the Government do? I do not know the person concerned and I dare say that he is a splendid man, but they nominated as the new chairman of the inquiry a career senior Prison Service manager whose last job was running no fewer than 10 prisons in his area to be the so-called independent chair of the SP inquiry. He may be thoroughly capable of being independent, but it really looks appalling.
I invite the Government to recognise that this new appointment has been thoroughly insensitive and inappropriate and will devalue what could be an extremely useful inquiry. The credibility of their commitment to reform is undermined by that appointment and by the three-year delay that has resulted from wrangling, mostly by the Government, over the inquiry. We ask the Government to demonstrate their commitment to reform of the women’s estate in the round by accepting what has been said already by most speakers in this debate, and in particular by appointing a new and entirely independent person to chair the SP inquiry.
My Lords, like other speakers, I thank the noble Baroness, Lady Howe, for giving the House this opportunity to review the progress being made following the historic report by the noble Baroness, Lady Corston. The progress reports from the Government in June and December last year contain a wealth of detail, but closer inspection raises questions about the scope of the changes that are under way. In the brief time I have, I shall give two examples.
At the heart of the noble Baroness’s report was a strategy to replace existing women’s prisons with small custodial centres providing a range of services. The working group that examined this recommendation accepted the principles behind it, but held that the units of 20 to 30 would not be workable because they would not achieve economies of scale, and that the prisoners who would be most suited to them would be better dealt with in the community. Instead, we have the proposal to test the model of smaller units in larger prisons by means of a 77-place wing at HMP Bronzefield, which is still to be opened. The June 2008 report concluded:
“In the longer term, we will utilise any headroom gained from increased community provision to re-configure the prison estate if necessary, and if resources allow, so that women’s establishments are of optimum size and specification for meeting women’s needs”.
That sounds to me like an admission of defeat.
The problems identified by the working group need to be explored, and it may be that better proposals are needed. However, to accept the principle of multifunctional provision while rejecting its implementation through smaller self-standing units risks sinking the alternative strategy and reabsorbing vulnerable women into the failures of the current system.
The second example is women prisoners’ mental health needs. These are central to their vulnerability and must be tackled by any reforms. The noble Baroness, Lady Corston, made a number of recommendations for an integrated approach to health and well-being led by the Department of Health, embracing community health services as well as prison health. It is clear that these matters overlap with the review on the diversion of mentally ill people being conducted by the noble Lord, Lord Bradley, and it is reasonable that they should be dealt with in the emerging offender health and social care strategy for women. However, there must be anxieties that, as with the noble Baroness’s report, bold plans for a new approach will shrivel before the organisational complexity and force of radically redesigning services.
The noble Baroness’s report gives the opportunity for far-reaching changes to provide holistic, individual treatment to women offenders. However, unless painstaking attention to detail is backed by a bold strategy and firm leadership, the opportunity for change will die the death of a thousand qualifications. That would mean that women would continue to suffer unnecessarily, with damage not only to themselves but to their children, their communities and the whole of our society.
My Lords, I, too, congratulate my noble friend Lady Howe on obtaining this important debate. If noble Lords detect traces of anger and frustration in tone of my contribution, they are absolutely correct. The much welcomed and rightly applauded Corston report is not the first but, as my noble friend said, the sixth report on women in prison since 1997, all of which have said much the same thing. Nothing happened to any of the others, because the Government appear to listen only to what they themselves commission.
In their recent National Service Framework: Improving Services to Women Offenders, the Government stated that the intention was to put in place a long-term and sustainable system to deliver a co-ordinated approach to addressing the issues identified in the Corston report. But if anything is to be sustained, it must be consistently directed and led, and such direction and leadership of those responsible for such a system remains something that the Government and the Prison Service seem stubbornly to resist introducing. I admit that this is a song I have been singing since I first went into a women's prison 13 years ago, finding not only that women were routinely chained while in labour, but that there was no way of ensuring that good practice in one prison somewhere could be turned into common practice everywhere.
Unless the Government adopt the common practice of every organisation that I know of in the world, with the exception of Her Majesty’s Prison Service, nothing short or long term can be put in place, let alone sustained. It is not the job of Ministers, champions or otherwise, however well intentioned, to exercise the 24-hour, seven-day-a-week, 365-day-per-year direction and oversight of the treatment of, and conditions for, women in prison that is required. The reason we are here tonight, debating yet again a situation that could and should have been resolved years ago, is that the Prison Service is simply not structured to deliver what the Government say they desire. Implementing Corston requires not just commissioning services but, above all, consistent leadership, direction and resourcing of those people who have to work with and for women prisoners. What, in the continued absence of anyone responsible and accountable for actually ensuring that things happen, makes it more likely that we shall see more reforms in the treatment of women in prison in 2009 than in any of the other 12 years during which they could have been introduced?
My Lords, I, too, congratulate the noble Baroness, Lady Howe, on her determination to keep this matter on the agenda so that the Government are never in any doubt that they still have a lot to do.
I have just looked at Dame Anne Owers’s report on Peterborough prison for women. It looks as if nothing much has changed since the Corston report. The same sort of women are in the same sort of prison with the same sort of problems—but at least the strip-searching on arrival has been stopped, and we must all welcome that.
I shall use my time to show the House what can be done, through the example of a women’s prison in Perth, Western Australia, which I visited three months ago. It holds about 60 women, which is a quarter of all the women in prison in Western Australia. It was set up after an analysis of the shortcomings of women’s prisons in Western Australia, which reached many of the same conclusions as the noble Baroness, Lady Corston. The women there live in one-storey houses with a large garden; in each house there is a living area with a kitchen, five bedrooms and two bathrooms. Each of the women has a single bedroom and some of them have camp beds, which they can pull out for their children up to the age of 12 to stay the night. Those who have small children living with them—and there were 12 at the time—have bigger rooms.
The women are responsible for seeing to all their own cooking and eating. In the administration building there is a small supermarket; the women get five dollars a day for food, which they have to pool with the others in the house. The supermarket is run by a number of women prisoners who are undertaking a course in retailing. In the main administration building, there is a restaurant used for eating out when families come to visit, and for training in restaurant and bar work.
The children who live in the prison with their mothers go each day to outside daycare while their mothers work. The library is like a small public library, with a children’s corner and lots of children’s books. The health centre is, similarly, like a very good health centre in a small community, and the reception area is like the reception of a small, quiet hospital. On arrival, there is no strip-searching; there is a waiting room—a sitting room—where the women who have arrived sit while various people come and talk to them and explain what it will be like to be there. There is a stringent selection procedure for staff and those who apply must go through a fairly intensive process before their names even go on a list of those eligible to apply.
I give the House this information to make the point that women’s imprisonment can be reformed. You just have to want to do it.
My Lords, this debate demonstrates how well my noble friend Lady Howe serves society, both through this House and outside. I want to address, briefly, the drug and alcohol programmes for these women and a Cardiff-based programme for community integration of offenders.
Overall, there is ongoing inadequacy of medical services for women in prison, including mental health, and inadequate links to other appropriate specialist services. Within the criminal justice system, women with alcohol-related problems are about five-fold in number of those with problems from drugs, yet the need to deal with the consequences of alcohol addiction is largely ignored. Primary care trust funding for targeted alcohol and drugs services is poor. Programmes run by the Rehabilitation for Addicted Prisoners Trust have proven highly effective on evaluated outcomes. After seven years of staying in touch with offenders the re-offending rate is almost zero, representing a huge economic saving to society overall. That applies to women, not just men, prisoners. So why are the numbers progressed through ineffective programmes taking preference for funding over those programmes with proven outcomes?
I also want to mention the Cardiff-based Women's Turnaround Project, funded by the Ministry of Justice and hosted by Safer Wales, which provides practical support to women offenders as well as those potentially at risk of offending. The service is focused on the specific needs of women, aiming for a sustainable reduction in women's offending and a reduction in incarceration of those who pose little threat to society. This is particularly important because the biggest problem for women offenders is separation from children and family, particularly small children. Separation undermines any parenting that is beginning to be undertaken and undermines the self-esteem of the women who already usually have very low self-esteem.
The project, now in its second year, has served around 250 women. It neither applies a “one size fits all” policy to the women, nor forces them into rehabilitation programmes. Rather, the project aims to deliver simple, practical, often low-tech solutions to the real problems faced by the women. I shall give an example. Yesterday a project officer received a phone call from one of the women as she needed to collect her crisis loan payment by 4.30 pm, but had no transport. So a helper at the Women's Turnaround Project lifted her into town to collect the money.
About 65 per cent of women re-offend upon their release from prison, so resources should be focused on schemes that help women to pull themselves out of the criminal downward spiral. I look forward to hearing how the Government will ensure that resources are targeted at efficacy of outcome, not just at processing numbers.
My Lords, I want to come at this issue from a slightly different angle. To that extent, I may be thought to be adding what is essentially a footnote to the central thrust of the debate, so it is perhaps appropriate that I should be speaking immediately above the gap. I hope that what I have to say may not be without importance, none the less.
When we discussed the Offender Management Bill some 18 months ago, I moved an amendment to subject the prisons to the specific disability equality duties. At the time, the treatment of prisoners with physical, sensory or mental disabilities was governed by a Prison Service order, PSO 2855. It left a good deal to be desired, as did the treatment of disabled prisoners.
In April last year, the Prison Service published a new and much enhanced version and, if practice follows policy, things will improve. The new Prison Service order was the Government’s alternative to my suggestion of imposing the disability equality duty on the prisons.
There are also PSOs dealing with race and, coming to the present topic, gender. These are all areas where the Prison Service continues to struggle and where it can seem that the only way to get equal treatment is through the courts. Later this year the equality Bill will be introduced, which will eliminate the current gender, race and disability equality duties and create a new single public sector duty. The question is, does it make sense for the Prison Service to continue to deal with the issue under separate and disparate frameworks rather than be subject to the new duty and able to take an integrated approach?
If we take PSO 4800, entitled Women Prisoners, we find sections dealing with race, age and disability. That is welcome, as multiple discrimination is hard to tackle. However having distinct policy frameworks for the different areas does not help. Furthermore, the requirements of that order and of PSO 2855, which covers disabled prisoners, are quite different. Yet each is meant to reflect the equality duty. Although I cannot demonstrate this in detail, it seems fairly clear that when the equality duties are harmonised one or both will be out of step with the new public sector duty. Therefore, I should like to ask the Minister whether the Government are now prepared to recognise that the new single equality duty, which offers the best legal framework for implementing the recommendations of the Corston report, will effectively supersede the system of Prison Service orders and apply that duty to prisons.
During the passage of the Corporate Manslaughter Bill, the Government accepted the principle that prisons should not be exempted from the provisions of that Act. It seems hard to maintain that they should not be similarly subject to the public sector equality duty.