This is a probing amendment that seeks to delete Clause 58(4). The clause deals with resolution fund orders, and we have no fundamental problem with the concept. However, subsection (4) states that the resolution fund,

“may confer a discretionary function on—

(a) a Minister of the Crown,

(b) the Treasury,

(c) the Bank of England, or

(d) any other specified person”.

My amendment would delete this to find out what it is really about.

I cannot see that any other comparable provision has been made in the case of compensation orders or third-party compensation orders, and as usual the Explanatory Notes offer little or nothing about this subsection. When this was debated in another place, the Minister did reasonably well in explaining why the first three paragraphs were dealt with, although he did not explain why similar provisions were not necessary for the other kinds of order. I hope that today the Minister will be able to explain that. However, the Minister in another place ran out of steam when he came to explain why the phrase “any other specified person” was necessary. He started off by saying that it was to cover independent valuers, even though they are already mentioned specifically in the clause. He went on to talk about having an independent auditor of resolution costs, or a monitor of fees, although it is quite unclear why it is necessary to “confer a discretionary function” in order to purchase common or garden services.

The Minister then took refuge in an argument along these lines: “We don’t really know what we might need to do, so we are legislating to give ourselves enough cover to do whatever we come across”. That is the old excuse to cover up draft legislation that has not really been thought out in advance. I invite the Minister to place on the record a somewhat more convincing justification for subsection (4), particularly why it is contained in resolution fund orders but not compensation or third-party compensation orders. I beg to move.

The Minister in the other place might have run out of steam, but quite clearly the noble Baroness has not. Let me summarise briefly the purpose of the bank resolution fund. It is to provide either the failing bank or its shareholders, depending on the nature of the transfer power exercised, with a contingent economic interest in the net proceeds of the resolution. The fund is thus a proxy for compensation.

A resolution fund order can provide for which parties will be entitled to a share of the proceeds, and how such proceeds will be calculated. Importantly, the proceeds may be calculated net of any resolution costs. Those costs could, for example, include any financial assistance including loans or guarantees provided from, or backed by, public funds or any other administrative expense incurred by the authorities during the course of the resolution. The provision is necessary to ensure the taxpayer receives a suitable return for public funds that have been invested, or put at risk in the bank, during that resolution.

I understand that the purpose of Amendment 99 is to remove the ability of the Treasury to confer, in a bank resolution fund order, a discretionary function on a Minister, the Treasury, the Bank of England or any other specified person. In summary, I do not agree with the amendment, as it is essential that the Government should have the ability to confer functions on persons to ensure that the appropriate level of compensation is paid to appropriate persons. The bank resolution fund order may specify a role for a number of persons: an independent valuer, an independent auditor of the resolution costs, or a monitor of the fees could, for example, be appointed to perform certain roles. Therefore, instead of listing all persons that may have discretionary functions conferred on them, subsection (4)(d) allows the Treasury to,

“confer a discretionary function on … any other specified person”,

in the bank resolution fund order.

I recognise that this discretion does not appear in the clauses on the compensation schemes or third-party compensation schemes order—the noble Baroness is quite correct in that observation. This is because the bank resolution fund is a new device, specific to this Bill. It is possible, therefore, that we find that various individuals will be required to perform ad hoc functions. Clearly, those cannot all be specified in advance in the Bill. I hope my explanation of the importance of this power reassures the Committee and I therefore beg that this amendment be withdrawn.

I told the Minister at the outset that I was probing the content of subsection (4), not challenging its position within the Bill. I said that I had accepted the case for the resolution fund. However, the Minister gave no new information whatsoever, other than falling back on that tired old reason, “We don’t really know, so we are going to legislate for things that we might come across”. I shall think about what the Minister has said; it added little to what was said in the other place, and I feel we have taken this no further forward. I beg leave to withdraw.

I shall speak also to Amendment 102. The amendments seek to delete subsections (6) and (7) of Clause 58 on a probing basis. The subsections give permissive powers for the order setting up a resolution fund to include provision for a bridge bank or temporary public ownership to require the Bank of England or the Treasury to maximise the proceeds available for distribution subject to various things which are specified. My question is: why is this permissive?

Is it not the case that, as property is being taken from the shareholders of the bank or the bank itself, the Bank or Treasury must seek to maximise the proceeds, subject to achieving the special resolution objectives? If it could ever be argued that proceeds maximisation was not a proper and essential objective, that makes the draconian powers in the Bill start to verge on the unacceptable. It may also cause conflict with the European Convention on Human Rights.

Apart from this basic challenge to the underlying premise in the two subsections that proceeds maximisation might not be appropriate, will the Minister explain how an order can both specify the maximisation of proceeds and, as in paragraphs (b) of the subsections, specify its extent? Surely maximisation is a little like pregnancy—one cannot be a little bit pregnant and one cannot maximise a little bit either. I hope the Minister can shed some light on this. I beg to move.

I should inform the Committee that if this amendment is agreed I cannot call Amendment 101 by reason of pre-emption.

The amendment raises a number of interesting issues concerned with a bank in temporary public ownership. We find ourselves in a situation in which it is difficult to realise exactly what is going on because much of it is so radical that we have no previous experience of it. Effectively, we have had a situation where a huge percentage of the UK economy is dependent on financial services for its whole prosperity to a large extent. We are now moving into a situation where the returns from that will clearly be substantially less than they were before.

Much of the banking sector will be run, effectively, by the Government. That raises the question—I shall be interested in the Minister’s response—that what we are really trying to do is to tie them down or even encourage them to maximise the proceeds available for distribution. There was a similar experience in the way in which conditions were imposed on some of the banks which have already been affected. It may be that one really wants to maximise the long-term prospects of the bank concerned, which is not the same as maximising the proceeds for distribution in accordance with the order. Is the Minister proposing at some stage to set out what the serious objectives should be of banks which suddenly find themselves either temporarily or in part under government control?

I note that the noble Baroness, Lady Noakes, said that this is a probing amendment. There is not a great deal of difference between us on this point and the noble Baroness is right to refer to the European convention.

Dealing first with the point made by the noble Lord, Lord Higgins, I repeated the Chancellor of the Exchequer’s Statement in the other place earlier in which there was a clear statement that the Government’s view is that banks are best in the private sector and best run on a commercial basis. We have no interest as a matter of policy in taking control of a bank for even the shortest period. However, the Bill contemplates circumstances in which that may, through force of what has happened, become necessary.

The noble Lord made an interesting observation about the size of the financial services sector and whether there is a point at which it can be too large for an economy. Some of the work that I am doing in a group chaired by the Chancellor of the Exchequer and Sir Win Bischoff on the financial services market and its future addresses this, among a number of other issues. I believe that those are matters to which this House and the other place may wish to return. We were blessed in the past, because of the prudent and cautious management of our great financial institutions, our banks and insurance companies, to be a major provider of banking and other financial services to the world. That has been a source of strength. At the moment, it is not obviously clear that that remains the case.

I say to the noble Lord, Lord Higgins, that there is no inconsistency between maximising the value of the business and maximising the proceeds. To put a bank in a safe, secure and commercially strong position is good not only for the customers, but for the owners of the bank before it was put into a resolution regime. I hope that there is no inconsistency here, but the noble Lord is right to draw attention to the inevitable challenges that will arise.

The purpose of Amendments 100 and 102 would appear to be to remove the power of the Treasury to specify, in a bank resolution fund order, that the Bank of England or the Treasury must ensure that a bridge bank, or a bank in temporary public ownership, must be managed in a manner that maximises the proceeds available for distribution. The bank resolution fund provides those with a residual interest in a resolved bank—either the residual bank in the case of a property transfer, or former shareholders in the case of a share transfer—with a contingent economic interest in the proceeds of resolution. It is surely right that, in some circumstances, a management duty should be placed on either the Bank of England or the Treasury to maximise any proceeds in such a fund. The noble Baroness is right to say that, in the absence of this requirement, the draconian consequences of other measure in the Bill would have to be revisited. It is designed to ensure that the interests of the previous owners of the business or assets are not treated in a capricious or dismissive manner.

I stress that any management duty is subordinate to the SRR objectives and compliance with the code of practice. I also point out that the proceeds in a bank resolution fund may be calculated net of any public funds or other forms of financial assistance, including the costs of the resolution, as I explained when addressing the previous amendment. This measure was inserted specifically to protect public funds.

After my explanation of the purpose of this subsection, and because there is a lot of common ground between the position of the noble Baroness and the one that I have explained, I hope that the noble Baroness will withdraw her amendment.

The Minister made an interesting digression on the future nature of the financial services industry in the UK, but he did not answer the points that I made about this amendment, so I will have another go.

The Minister said that “in some circumstances” there would be a duty to maximise. He went on to say that the subsection was designed to ensure that previous owners are not treated capriciously or dismissively. My point was: why was this only permissive? Why would a resolution fund order not always require the maximisation of proceeds, subject of course—as I accepted—to the special resolution objectives, specified in paragraph (a)? Why would a resolution fund order not require the Bank of England or the Treasury to maximise proceeds? The Minister did not say why that would be the case.

The provision is designed to ensure that there is no doubt regarding the intention that that obligation should so rest. I ask the noble Baroness: in what circumstances would it not be appropriate to have this provision in the Bill?

I ask the Minister: why would it not be appropriate to have a resolution that the fund “shall” require a bank, in managing a bridge bank and so on, to maximise the proceeds? Why is this permissive? The Minister is telling me that it just allows the bank to maximise proceeds, but I am asking why it is not required to maximise proceeds. That is what has not been answered.

I believed that I had done that when I said that this was subordinate to the objectives of the Bill. The objectives are overriding in that respect. Subject to achievement of those objectives, including compliance with our obligations under the European directive, this is a requirement—but it is subordinate to the Bill’s objectives.

I do not want to prolong this debate unnecessarily, but that is exactly what subsection (6)(a) says, as does subsection (7)(a). The Minister is not saying anything additional. The opening words of both subsections say “may require” maximisation; then,

“an order must … subserviate it to pursuit of the special resolution objectives”.

The Minister has not answered that at all. He has merely repeated, as if it is a separate answer, that maximisation is subordinate to the special resolution regime objectives, but it says that right in the middle of the subsection. I am asking why it is permissive.

When the Minister replies, perhaps he would also answer my other point about what specifying the extent of profit maximisation means in subsection (6)(b) and subsection (7)(b) .

It is the Government’s view, as I said earlier, that the bank resolution fund satisfies the conditions of the ECHR. The proceeds of resolution will be the product of a series of management decisions by a bridge bank’s board of directors and the Bank of England as a shareholder—for example, how the business should be managed, when and at what price to sell parts of the bridge bank and so on—or, alternatively, the Treasury if the bank is brought into temporary public ownership in the light of prevailing market conditions. We consider that a duty is necessary in some circumstances in order to provide a specific protection for all the beneficiaries’ interests and to help to ensure that the proceeds of resolution will bear a reasonable relation to the value of the property expropriated from the failing bank, subject to the overriding need to act in a manner consistent with the SRR objectives.

The noble Baroness asks why the wording is permissive, and I fully understand why she should seek an explanation. In certain circumstances, such as the initial transfer to a bridge bank, disposals by the Bank of England days after the initial transfer or where there is no need for duty and no ongoing management decisions, the word “may” would be appropriate. However, I agree with the noble Baroness that in the majority of circumstances one would contemplate that the use of the word “may” was permissive. I should like to take away her comments. I assure her that we will reflect carefully on whether a modification of language would be helpful in addressing the point she has raised. On that basis, I hope she might be kind enough to withdraw her amendment.

My noble friend will come back again, but, first, I agree wholeheartedly with the view the Minister expressed after my previous intervention with regard to the Chancellor’s statement about wanting to keep it in the private sector and not in the public sector. I am certainly not in favour of not doing that.

I am worried about the maximising argument. There is clearly a substantial element of timing in it. Just to talk about maximising the proceeds without saying how quickly or over what period is pretty well meaningless. We need to look a little more carefully at that.

In many years as a pension fund portfolio manager, I struggled with objectives that were expressed in such language as “maximise the return on the portfolio in accordance with an acceptable degree of risk”. When one asked for qualification, on the whole the client felt that it was better to leave it in those vague terms. In saying that I will look again at the wording of this part of the clause I will also take account of the point made by the noble Lord, Lord Higgins.

We have spent long enough on the fun of this amendment. I beg leave to withdraw.

This amendment is even more fun. Amendments 101 and 103 replace the words “subserviate it to” with “subordinate it to the” on the two occasions that they appear in Clause 58. My question is: is “subserviate” a word? My spellchecker does not think so and the word appears in virtually no dictionaries, although we found it in the Oxford English Dictionary, which cites only two known uses of the word. We may conclude that it just about qualifies as part of the English language. On the other hand, it is most definitely not a word used by lawyers apart, presumably, from the parliamentary draftsmen on this Bill. From our research the word has never been used before in an English statute.

In another place the Minister first dismissed this as “stylistic”, which my honourable friend took as a compliment, but agreed to consult officials. Perhaps officials really did persuade the Minister that mucking around with the English language and using words that no one has heard of is a good thing to do in legislation. In any event, I hope the Minister will have a rather better answer than we received in another place. I beg to move.

We move around in this debate from issues of extraordinary technical complexity to lighter moments. I also asked my officials why this word had been chosen. They also referred to the dictionary. They found two known uses in quotations, one being from Winston Churchill. I suggest to the noble Baroness and her colleagues on the other side of the Committee that the fact that the other place had difficulty with this word should not mean that we should indicate that we are in any way uneasy—or lacking in familiarity—with it. I believe the dictionary definition is very clear. It is clear that it is almost identical to “subordinate”.

I say to the noble Baroness that, as noble Lords know, I am new to this process. I understand that, at some stage, we begin to focus on narrowing down the areas where there are differences on the Bill between the parties in the House. It is probable, given my poor handling of the Bill to date, that I am likely to have to make concessions. If the noble Baroness indicated to me now that this was one of the more important concessions that she would expect me to make, rest assured that I would respond positively to that. I look forward to an indication in due course. If this really is the most important clause in the Bill, I will look kindly on responding in a helpful way on Report. Pro tem it would be appreciated if the noble Baroness withdrew the amendment.

I am disappointed with the way in which the Minister has handled this. I raised a serious issue which arises from the scrutiny role of the House of Lords. This word has never been used in statute. That is the important thing. That point was not made when the issue was debated in another place. While it is in the Oxford English Dictionary, I think that is the only dictionary in which the Minister will find it. It is not a word that lawyers recognise, nor would be expected to recognise. I hope that the Minister will take it away, discuss it with his officials and bring back an amendment on Report because that would be the correct thing for him to do.

I am happy to concede the point.

Does that mean I can move the amendment formally? However, I am happy to wait for Report. I beg leave to withdraw the amendment.

I temporarily lost my notes. I was about to move the next amendment, which might have confused the Minister. Amendment 104 seeks to change “may” to “shall” in Clause 60(1), which deals with third party compensation arrangements in cases of partial transfers. This clause allows the Treasury to make an order which will give effect to the “no creditor worse off” safeguard promised by the November consultation document. The industry has welcomed this and we support it, though as I mentioned in connection with the set-off and netting issue, the lack of certainty about outcome of the processes set out in the draft order—and, indeed, in the clause—means that it adds nothing to the legal certainty that is required for set-off and netting arrangements.

We cannot understand why the Treasury should have the option to issue the “no creditor worse off” order. It promised it as a safeguard and should be required to deliver it. Anything else would create uncertainty, which we have already debated in the context of partial transfers. I hope that the Minister can agree to this because it is a straightforward case of making an order and is not subject to the more complex provisions that we came across in the context of whether we should have “may” or “shall” in Clause 48. Clause 60 is very much more straightforward and I hope that the Government agree that this is a no-brainer. I beg to move.

I wish to speak to Amendment 104A and in support of Amendment 104. I seek to introduce another piece of greater certainty into the clause by leaving out,

“in particular, have regard to the desirability of ensuring”,

so that the clause reads:

“In making regulations the Treasury shall ensure that”.

We have discussed “have regard to”, but this set of words also includes “desirability” so we have two uncertainties. The language is another example of “now you see it, now you don’t”; that is to say, there is an intent but how far will the intent be translated into what happens? This is an area of great sensitivity and there is a need to achieve equity. I suggest that certainty is needed.

I am grateful to noble Lords who have spoken to their amendments. The Government’s current plan is to make regulations under Clause 60 to provide for the “no creditor worse off” safeguard. I hope that the consultation document on safeguards, which included a draft of the regulations for the “no creditor worse off” safeguard, makes this clear.

The Government’s continuing work with the expert liaison group should provide further evidence of the sincerity of the Government’s intention to provide standing secondary legislation under this enabling power. Our intention is to ensure that these safeguards are in place at the same time that the powers to make partial transfers come into force.

However, it does not necessarily follow that the Treasury should be required always to maintain secondary legislation under Clause 60 or any of the other powers that enable legislation to be made in relation to partial transfers. The Government should have the flexibility to develop and update the content of partial transfer safeguards should they, or stakeholders, believe that there are better ways to protect certain interests.

For example, if the Government and the market agreed that compensation to pre-transfer creditors under Clause 60 was redundant because a better way to protect this category of person could be developed, the Government should be allowed to revoke the regulations that had been made under Clause 60; but the amendment proposed by the noble Baroness would not allow this. However, I emphasise the Government’s commitment to making this secondary legislation and providing appropriate protection to creditors following a partial transfer. I hope that the noble Baroness respects the Government’s commitment and sincerity in these terms and feels able to withdraw the amendment.

On Amendment 104A, proposed by the noble Viscount, Lord Eccles, I will set out in a bit more detail how the safeguard will work. In some circumstances, in a partial transfer, the payment received by creditors of the residual bank after the winding up of the residual bank may be less than they would have received had the whole of the bank gone into an insolvency procedure.

In these situations, this clause provides a compensation mechanism. This compensation would be calculated by an independent valuer and would involve an estimation of what realisations would have been made had the whole of the bank been wound up. I believe that the purpose of the noble Viscount’s amendment is to require that the Treasury must ensure that pre-transfer creditors do not receive less favourable treatment than they would have received had the bank been wound up immediately before transfer.

As drafted, the clause refers to having,

“regard to the desirability of ensuring”,

that this is the case. The clause has been drafted with care and with purpose in this respect. The regulations made under this clause will put in place a procedure that includes a calculation of a hypothetical insolvency of the failing bank.

Given that this calculation necessarily requires an assessment of a situation which has not in fact occurred, it would not be appropriate for the Government to commit in statute that this procedure will “ensure”—which is what is envisaged in the amendment—that creditors are no worse off than if the bank had been wound up. It is not possible to know definitively what this would mean. Therefore, the language has been drafted in less concrete terms than those suggested by the noble Viscount, Lord Eccles, and appropriately so. We are dealing with areas of some uncertainty.

I assure the noble Viscount that the Government are committed to providing adequate compensation to creditors to ensure that this is an effective safeguard that provides confidence to creditors dealing with banks. I believe that the Government’s provision under this clause and the draft regulations that we are consulting on provide this confidence. I hope that the noble Viscount will consider that those are sufficient reassurances and will not press his amendment.

We discover our old friend flexibility has come back again; the flexibility not to have the third-party compensation arrangements that the Government have promised. They have said that they might find some other way, but they would then need some statutory cover that would give them the opportunity to remove Clause 60. Putting that on one side, even if we do get the secondary legislation, the issues raised by my noble friend suggest that the third-party compensation arrangements may well have been oversold, because the Government are saying that creditors may well not be put in a no-worse-off position. That is another bit of spin in the Bill.

I do not think that I shall pursue this matter again—certainly for this evening. I beg leave to withdraw the amendment.

I am moving the amendment on a probing basis. Clause 61 deals with the sources of compensation for the various compensation orders, and lists in subsection (2) the Treasury, the Financial Services Compensation Scheme and then “any other specified person”. It is this latter category that I am seeking to probe with my amendment. Will the Minister say who these other persons might be? The clause is drawn very widely. Will he say whether there are any limits on the categories of person who may be required to cough up for a compensation order?

In addition, Clause 5, which requires a code of practice, does not extend to compensation orders, and in view of the breadth of Clause 61(2), it seems odd that the code of practice will not cover this issue. I invite the Minister to reflect upon whether the code should in fact be the place where this is spelt out in more detail, so that people understand how this is expected to work in practice. That is what I understood the code of practice to be aimed at. I beg to move.

The Government’s response to this amendment is fairly straightforward, and, I hope, constructive. I hope that the noble Baroness will feel that she has received a proper reply. Clause 61 sets out the sources of any compensation and subsection (2)(c) refers to “any other specified person”. The noble Baroness has indicated that that gives rise to suspicion. I hope that we have sufficiently identified the Government’s actions in these terms to be beyond suspicion. Nevertheless, I recognise the noble Baroness’s obvious right to probe us on this.

Let me provide an example of who are meant by “any other specified person”. I have not got a little list, a big list or even a microscopic list. I have a category, and if I can I shall provide more, or an illustration of the nature of the situation which has obliged us to set out the Bill in those terms. Where a price agreed between a private sector purchaser and the Bank of England was felt to reflect the market valuation of the failing bank at the time of the transfer, the Treasury could specify in the compensation scheme order that the price agreed was deemed to be the compensation to be paid.

The provision would facilitate this by making it clear that the compensation payment—in this case, the price paid by the purchaser—may originate from sources other than the norm—either the Financial Services Compensation Scheme or the Treasury. All that we seek to do in this respect is identify that the norm is envisaged as certainly being those two, but it is possible that an agreement could be struck by the Bank of England which does not involve those. We are seeking to make provision for that eventuality in circumstances where, I hasten to add, yet again we are not in a position to envisage every possible significant development with regard to these negotiations and developments. However, we have to construct the legislation in such a way that it does not inhibit or prohibit action which might be very much in the interests of the parties concerned because it is drafted too rigidly. That is why the subsection is set out in those terms.

I thank the Minister for that reply and for the one example, which at first sight certainly seemed an entirely plausible explanation. I suppose that my concern relates to the question “What else?”, which is why I invited the Minister to consider whether the code of practice should outline the way in which compensation orders might be used in practice. That is what the code of practice is for.

I shall certainly take that point on board.

I am grateful to the Minister for that and beg leave to withdraw the amendment.

Although this amendment appears to be somewhat prescriptive, it is, I assure my noble friend, essentially probing. There may be arguments as to whether it is in the right part of the Bill, but it seems to me that it is because we need to mention the impact of all this on consumers and competition, and we need to mention it before we come to the next part of the Bill, entitled “Incidental functions”. This is not incidental; it is a central consequence of the measures that would follow the use of any of the three special provisions outlined in the Bill.

I am strongly in favour of the majority of the provisions in the Bill and indeed of the announcements that my noble friends Lord Mandelson and the Minister have made in relation to loans to business. However, whichever way we look at it, it is inevitable that these prospective interventions will cause major changes in the structure of one of our most important industries. Essentially, it is an industry on which the rest of the economy is dependent. It is also a service or industry on which ordinary people and small businesses depend very heavily. If we use the part-nationalisation or temporary nationalisation provisions, we create new state-owned companies. If we use the provisions for transfer into merged companies, the state is intervening to create a large company. If we use the bridge proceedings—at least, for a time—again, the Bank of England is using its leverage to create a substantially large banking company.

All these changes occur in an industry in which, so far as concerns most people who seek deposit facilities, mortgages, loans and other credit facilities, the range of options is already relatively small. It is already an oligopolistic industry, and that is why many of the regulations administered by the Bank of England and the FSA exist.

I declare my interest as chair of Consumer Focus. Looking after the interests of those who rely every day on retail banking, mortgages and credit from the banking system for their livelihoods and their very quality of life must be an essential part of the Bill. Objective 3 refers to the interests of depositors. However, the issue goes wider than that because we all depend on the banking system to work efficiently.

The service provided by the banking system benefits from competition, but the interventions under each of these three headings will almost inevitably restrict competition, at least temporarily. When we came to my noble friend Lord Mandelson’s first debate in this House, on the issue of Lloyds/HBOS, I asked him whether there was an opportunity to revisit what effectively was the exemption under that order for the merger. We were creating a retail banker which has 30 per cent of the market and a mortgage provider which has 30 per cent of the market. In any other circumstances, there would have been a reference to the competition authorities to see whether this was operating in the interests of the consumer.

This amendment says that, where any of the interventions creates the largest company in the particular sub-market which I suggest definitions for and has more than 25 per cent of the market, there is an a priori reason for referring that to the competition authorities within 18 months—one may argue about the timescale—if that structure still exists. The consumers, both business and individual, require some assurance that a reference will at some point occur to the competition authorities.

I also suggest that, because we are creating either a state bank or a merger sponsored by the state, some institutional provisions should be provided. The suggestion here is that if such a dominant bank were created in any of the markets I identify then that bank—which in many cases will be a state or part-state bank—should create within its structure a small business panel and a consumer panel. That may not be enough to create an institutional form but it recognises that a banking system and those who control, manage and direct banks are in a relationship not only with the whole economy but with millions of individuals. Their interests need to be reflected within that structure.

In earlier debates the Government by and large rejected the view that, although banking in some sense is special, the directors appointed by the state—I do not want to reopen this argument—or the Bank of England are no different from any other directors. We are not using the public interest at the director level to look after the wider interests of the consumer and of the taxpayer; I am suggesting we need some other measure so to do. The suggestion here is that we should establish two panels in consultation with those who represent small business and consumers. Those are the two measures: an automatic reference, or one that is more automatic after a certain time, to the competition authorities; and the creation of some structure which represents the key dependence of the banking system on small business and individual consumers.

I do not expect the Government to accept this tonight—maybe they will later on; I would be delighted if they did—but at least the issues which underline this amendment need to be addressed by the Government in the interests of wider society and the wider economy. I beg to move.

While in theory I am sympathetic to the amendment of the noble Lord, Lord Whitty, and I understand his genuine fears about competition, in the circumstances of this Bill we are in emergency measures and, with the greatest respect, his amendment would create more uncertainty in an already difficult situation.

I am grateful to the noble Lord, Lord Whitty, for bringing forward this amendment. I have a lot of sympathy for both its arms. I have a question for the Government, given that I think these are sensible ideas, particularly in respect of the consumer panel and the small business panel.

Would the Government consider suggesting to the Lloyds Banking Group and RBS that they now establish such panels, because the Lloyds Banking Group has a very large share of the market and RBS is a largely nationalised bank? For both banks there are real questions, among their consumers of ordinary retail deposits and their small business consumers, about the way they are behaving or have behaved. This would be a good use of government influence on those two banks, which are already de facto partly nationalised.

We have considerable sympathy with the issues that the noble Lord, Lord Whitty, has raised. I think that we all felt a touch uncomfortable at the market position created by the Lloyds/HBOS merger and the way in which that was dealt with. However, after such a position has been created, I have a problem with instigating what can be a lengthy and costly process both for the Office of Fair Trading and for the bank concerned if there is no evidence of abuse of dominant market position. If there is no abuse, I rather hesitate to impose an investigation on everybody and I am uncomfortable with trying to impose panels on to organisations that we hope will be operating on commercial lines as far as possible. Panels may be fine for organisations such as the FSA and other public bodies, but I think that they are less obviously beneficial for companies that are operating in markets and to commercial remits.

I welcome my noble friend’s support for the central thrust of the Bill and I note the measured and constructive way in which he proposes the amendment. To the extent that we will ever have to use the special resolution powers that the Bill creates, I sincerely hope that it will be in the case of the smallest deposit-taking institutions rather than the major banks. It would be wrong to assume that, because of the circumstances in which we now find ourselves, this legislation is framed solely to meet the needs of very large banks. That is where the competition issue arises, but it would be wrong to assume that every use of the special resolution powers would raise the type of competition issue to which my noble friend referred in his comments in support of this amendment. That leads me to find myself in a rather similar position to that of the noble Lord, Lord Northbrook, which is to say that, where special resolution is under contemplation for a very large institution, this issue of competition is just one of many factors that would have a bearing.

The amendment is designed to make provision for a situation where the exercise of one of the stabilisation options results in a company with a dominant market share. In such circumstances, as defined in the amendment, two provisions would come into force. The first provision is that, if the company is still a dominant market player, as defined in the proposed new clause, after 18 months, the case must be referred to the Office of Fair Trading.

It is important to note that the OFT and the Competition Commission already have functions that can address competition issues. For example, they have an active role under Part 4 of the Enterprise Act 2002 in investigating markets that do not appear to be meeting the needs of consumers. This can have a variety of outcomes, including the OFT making recommendations to the Government or referring the market to the Competition Commission for a more detailed investigation. Therefore, we can be satisfied that the competition authorities will continue to keep the relevant markets under review in order to protect the interests of UK consumers and the British economy.

An example of another safeguard can be provided. Part 6 of the Enterprise Act provides cartel offences, such as those relating to price fixing. Further to this, a private sector purchase, a bridge bank and a bank in temporary public ownership will continue to be regulated by the FSA in the same manner as other financial service providers are. For this reason, while respecting my noble friend’s intention, I do not believe that it is necessary for the Bill to include provisions on referrals to the OFT.

Furthermore, I am not convinced that this Bill is the appropriate place to provide legislation on such matters. It is for the Competition Act, the Enterprise Act and related legislation to cover, as they already do, the remit and powers of the OFT and the Competition Commission. On that basis, I do not, with all respect to my noble friend, agree with the first part of the amendment.

I turn to the second part of the amendment, which would require certain panels to be set up to advise the dominant company following the exercise of a stabilisation power on matters important to consumers and small business. First, I agree with the broad thrust behind that part of the amendment. It is of course right that the policies of private sector companies should be informed by the needs of their consumers, including small businesses and individuals. However, I do not believe—here I find myself on common ground with the noble Baroness, Lady Noakes—that it is the place of legislation to enforce on companies a structure such as the panels proposed in the amendment.

The noble Lord, Lord Newby, suggested that we should draw the comments of my noble friend Lord Whitty and the thrust of the amendment to the attention of the chairmen of Lloyds Banking Group and the Royal Bank of Scotland. That I will definitely do, and I will copy my letter to my noble friend and to the noble Lord, Lord Newby, and ensure that they also have copies of their reply. I absolutely find myself at one with the central thrust of the argument that successful organisations are aware of and responsive to the needs of their customers. One could argue that some of the failings that our banks have experienced have been because they became too distant and remote from their customers and too engaged in financial alchemy, as opposed to meeting consumer needs.

I ask my noble friend to withdraw his amendment. I hope that he will take considerable comfort from the views expressed on all sides of the Committee about the importance of the consumer. I also pay great tribute to his great commitment to consumers through his energetic work as chair of Consumer Focus.

I thank those who have at least expressed sympathy for what lies behind the amendments. In particular, I thank my noble friend for his commitment on Lloyds/HBOS and RBS. That is very welcome and I look forward to their response. Were the Government to commit themselves to using informal measures to ensure that dominant companies created as a result of one form or other of government intervention take account of the views of individual consumers and small businesses, we would not need to legislate. I remain slightly sceptical that they will in all circumstances so do, but I look forward to the response to my noble friend’s letter to the chairmen of the two banks concerned. Therefore, I will not press that aspect tonight.

On competition, this does not affect where we are rescuing small depositors; it exists only when, fairly dramatically, we are directly or indirectly creating a dominant company. In those circumstances, given the importance of the banking sector, and the fact that the state is forcing that restructuring, there are special reasons for asking the OFT to have a look at it. Eighteen months may be too soon in an emergency; perhaps we need to give it a little more time. Nevertheless, I say to the Government that it is dangerous to have lifted the normal provisions of competition assessment and therefore to allow something through that would at least have had a cursory OFT inspection. The OFT could look at it in a preliminary way to decide whether it refers it to the Government or to the Competition Commission or takes some further steps.

Wearing his consumer hat, and given his obvious interest in the subject, has the noble Lord looked at this from the other point of view? That is where government intervention in this field disadvantages the consumer. The examples that he cited of RBS and Lloyds/HBOS are good ones, where the Government setting a 12 per cent rate on preference shares has meant that consumers have to pay more for their loans or, indeed, their loans may not be available because the banks clearly want to pay back the preference shares. That is an example where government intervention is acting against consumers’ immediate interest. Has the noble Lord thought about that?

As a result of government interventions, there are clearly some disadvantages to certain groups of consumers, to use “consumers” in the widest sense. But there is the bigger picture, as the Minister has said. It was essential to rescue the banks and to intervene in order to restore a degree of confidence in the banking system. That, frankly, is the big picture for consumers at this point. The way the Government have done that can be argued about in terms of the effect on some consumers. This is why I started by saying I support the main thrust of this Bill. There are some consequences to consumers by the restriction of competition and I would not want the Government to lose the ability, or indeed the necessity, of having another look at it. This is, after all, the structure of the industry that they have created.

I am sure the noble Lord, Lord Forsyth of Drumlean, has baited me into responding on this point, standing, as he is, waist deep in his waders, seeing a big, fat fish coming towards him. The noble Lord knows that there is a very significant difference between the rate of interest on a deposit and the cost of risk capital. In the circumstances prevailing in the middle of October, we were advised by our own financial advisors at the Treasury that 12 per cent was an appropriate rate for the instrument that was being offered to and accepted by the banks. Clearly, that was the view of their directors and their financial advisors as well. One major bank chose not to use that route to securing more capital. I salute them for that because our interest was in ensuring that the banks were appropriately capitalised, rather than where they drew the capital from. That bank certainly had to pay more than 12 per cent when you take into account the dilution and the warrants and new instruments they created which gave them short capital.

We could debate this issue for some time. The noble Lord, Lord Forsyth, is no doubt aware that we announced this morning that the Royal Bank of Scotland is converting its preference shares into ordinary shares. I indicated earlier that should the Lloyds Banking Group approach us with a request, we would look at that, as long as it represented good value to the taxpayer, because that is the other side of this transaction.

In the light of that, I will withdraw the amendment.