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Bradford and Bingley plc Compensation Scheme (Amendment) Order 2009

Volume 709: debated on Monday 16 March 2009

Considered in Grand Committee

Moved By

That the Grand Committee do report to the House that has considered the Bradford and Bingley plc Compensation Scheme (Amendment) Order 2009

Relevant Document: 7th Report from the Joint Committee on Statutory Instruments

I beg to move the Motion standing in my name on the Order Paper. I will also speak to the Northern Rock plc Compensation Scheme (Amendment) Order as the two draft orders are related.

In February 2008, when it became apparent that it would be impossible to achieve a private-sector sale of Northern Rock that would adequately protect taxpayers’ and consumers’ interests, the Government transferred into temporary public ownership all shares in Northern Rock. This transfer was effected using the powers conferred on the Treasury under Section 3 of the Banking (Special Provisions) Act 2008.

Section 5 of that Act specifies that, where an order is made under Section 3, the Treasury must make an order providing for a scheme for determining the amount of any compensation payable to former shareholders of Northern Rock and other specified persons. In accordance with this requirement, the Treasury made the Northern Rock plc Compensation Scheme Order on 12 March 2008. The order makes provision for the appointment of an independent valuer to determine the compensation, if any, payable to the former shareholders of Northern Rock and other persons specified in Part 2 of the Schedule to that order. Following a competitive process, the Treasury announced in September 2008 that an independent valuer had been appointed to undertake the valuation exercise.

In order to ensure that the valuer is able to do his work efficiently, it is essential that he has the powers necessary to conduct his valuation work. The Treasury made clear in its brief to applicants that it would consider any requests by the valuer for powers additional to those set out in the compensation scheme order, which the valuer considers are necessary for the effective conduct of the valuation exercise.

The independent valuer has requested from the Treasury powers to obtain from third parties information reasonably required for the purpose of assessing the amount of any compensation payable. Having considered that request, the Treasury laid in Parliament the Northern Rock plc Compensation Scheme (Amendment) Order 2009, which confers powers on the valuer to apply to the court for an order compelling the production of information by third parties.

The court process will enable any persons from whom the information is sought, or to whom the information relates, to make representations to the court as to why the information is not reasonably necessary for the purposes of the valuation exercise. The order makes provision specifying the circumstances in which a person may not be required to provide information—for example, information in respect of which a claim to legal professional privilege could be maintained in legal proceedings. The order also makes it clear that the independent valuer may share information with his staff and advisers, and disclose information if necessary for the purposes of exercising the functions of his office. Information must not be shared more widely without the consent of the persons from whom the valuer obtained the information and to whom the information relates. The valuer must have regard to the need to exclude from disclosure, so far as practicable, certain classes of information, such as commercially sensitive information. The order also specifies that a person who provides information to the valuer for the purposes of the assessment of the amount of any compensation payable is not, by that reason, liable in any proceedings relating to a breach of confidence.

As the Committee will be aware, the Treasury has recently commenced the process for the appointment of a valuer to undertake the valuation exercise in accordance with the Bradford & Bingley Compensation Scheme Order 2008, which was made last December. Under that scheme, the valuer must assess any compensation payable to the former shareholders of Bradford and Bingley plc and other specified persons who suffered interferences in their property rights arising as a result of the provisions of the Bradford & Bingley Transfer of Securities and Property etc. Order 2008

The Treasury considers it appropriate that the person appointed as the valuer should have the same powers as the Northern Rock valuer. Therefore, the same powers for information gathering and sharing are conferred on that valuer and are set out in the Bradford & Bingley plc Compensation (Amendment) Order 2009. In addition, it is important to note that Article 3 of the order amends paragraph 5 of the Bradford & Bingley Compensation Scheme Order to make it clear that the independent valuer must assess any compensation payable to any subordinated debt holders who suffer compensatable interferences in their property rights arising from the amendments to Article 6 of the Bradford & Bingley plc Transfer Order, specified in the Bradford & Bingley plc Transfer of Securities and Property etc. (Amendment) Order 2009.

I hope that the Committee will agree that it is necessary to confer these information-gathering powers on the independent valuers for Northern Rock and Bradford & Bingley in order to ensure that they can conduct the valuation process effectively and that the valuers may reach their determinations without unnecessary delay. I commend both instruments to the Committee.

I thank the Minister for introducing these two orders, which are of course not unexpected, given the insertion of Section 237 into the Banking Act during its passage through this House.

I have been uncomfortable about Sections 55 and 237 of the Act, and these orders leave me no more comfortable about the valuers being given the power to compel the provision of information. With regard to procedure, the valuer has to apply to the court to get the information, which seems sensible, but the order says nothing about procedure. For example, does the valuer have to notify the person whom he wishes to compel about the application? How much notice must he give? What rights do the persons who could be affected but who are not the ones who are compelled to give the information have? The Minister implied that such rights exist but there is nothing in the order setting that out.

When considering Section 237 during the passage of the Bill, we were told that the Northern Rock valuer wanted to obtain information from the auditors and from potential commercial purchasers for Northern Rock, but in the event they were not permitted to proceed with the acquisition of Northern Rock. I assume, therefore, that those persons declined to give that information voluntarily. Thus a Banking Act valuer would be in a position to obtain information which, in the ordinary course of events in the commercial world, he would probably not be able to obtain. I believe that that places an onus on the Government to ensure that the persons who can be coerced into giving information are fairly treated.

Section 55(3) allows the Treasury to make provision about procedure but this order has not done so. Can the Minister explain why? My concerns are increased when we get to the information disclosure elements of the order. Proposed new Section 9C seems to give good protection in the form of consent for persons who are forced to hand over information to the valuer or who are affected by the information, but that is considerably watered down by proposed new Section 9D and, in particular, proposed new subsections (3) and (4). Will the Minister explain in what circumstances the valuer might need to disclose information he has obtained for the purposes of his office, as referred to in proposed new subsection (3), against the wishes of the person forced to give the information?

In connection with proposed new subsection (4), will the Minister explain why the rider “so far as practicable” is attached to the valuer having regard to the need not to disclose commercial or private information? Surely, there should be an absolute requirement to respect commercially confidential information and, perhaps even more importantly, private confidential information.

Can the Minister explain what remedies are available to deal with the improper disclosure of information by a valuer? That is disclosure by the valuer of information that is obtained by virtue of the powers that are given to him, but which are not within the specific terms of the order. Can the valuer be liable in damages if information is disclosed without consent or one of the protections offered by the order?

In addition, Section 55 allows the Treasury to create a criminal offence in connection with an order, but it has chosen not to do so. Criminal offences are not unusual protections against the abuse of information powers. That is particularly important because once information has been disclosed, it cannot be put back into the private domain. Proper sanctions are extremely important. Perhaps the Minister can explain why the Treasury has not used its power to create an additional protection for those who might be forced to disclose information.

The Minister would not expect to get through a debate on either Northern Rock or Bradford & Bingley without some more general questions. Of course, the possibilities are endless, but I shall confine myself to business plans. We have still not seen a business plan for Bradford & Bingley, notwithstanding that its mortgage book has been nationalised for nearly six months. How difficult is it to prepare a business plan for a rump organisation? Can the Minister at last be precise about when we can see its business plan? Taxpayers have a right to know what is being done with their money.

Turning to Northern Rock, a business plan was prepared last year, although only the briefest of outlines was put into the public domain. In January, the Government announced a U-turn and said that Northern Rock would tear up that business plan and start lending again. However, two months on we have seen no revised business plan even though Northern Rock itself has said that it will involve capital and legal restructuring. I remind the Minister that taxpayers’ money is bankrolling this organisation.

Lastly in this context, will the Minister say who is setting the agenda for these organisations? Is it the Treasury or UKFI? Whoever it is seems not to understand the meaning of speed or accountability. We need to be clear about who is to blame.

As the Minister said, these are not surprising statutory instruments; we have expected them for some time. I start where the noble Baroness just finished in terms of speed. In respect of Northern Rock, the whole process of the evaluation of Northern Rock’s assets has happened at a snail's pace. As the Minister pointed out, the order allowing a valuer to be appointed was made on 12 March. Six months later, a valuer was appointed. In my view, that was a completely unacceptable delay. How difficult can it be to appoint a valuer of a bank that is bust?

Secondly, why have we had a six-month gap between the valuer being appointed and this order coming forward? More important, in respect of Northern Rock, is why such an order should be necessary at all. What kind of body is refusing to divulge information to the valuer that could have a serious influence on the valuation of Northern Rock? To a non-technical person, the conditions that were placed on the valuer would seem by definition to mean that Northern Rock had no residual value at the point at which it was nationalised. It would be extremely helpful to know what class of person is refusing to co-operate with the valuer in this respect, because it is shameful behaviour.

The noble Baroness talked about the need to be concerned about people who are coerced into giving information in respect of both these orders. It is not a question of being coerced into giving information. Anyone who has information that is relevant to the process should, as a matter of public duty, be willing to give it. If he has to be dragged to court in order to give it, he should not feel that he is being coerced. Rather, he should not be allowed to act as an obstacle to the pursuit of the public good.

The noble Baroness rightly talked about the delay in seeing a business plan for Bradford & Bingley. She will recall that when Northern Rock was being nationalised, we were promised a strategy document by the Government within days of the Bill being passed which never appeared, despite assurances on the Floor of the House that we would see it within a day or two. I am slightly jaundiced about the Government making available business plans in respect of these two bodies. I revert to this: I accept that Bradford & Bingley is a more complicated case, but is the Minister able to tell us why on earth anybody needs to have this procedure applied to him given the situation in which Northern Rock finds itself? Who is obstructing the valuer in trying to get the information which he feels he properly needs?

The noble Baroness, Lady Noakes, asked about the procedure for applying for information. The valuer would of course notify any third party of information required by the valuer for the purposes of the evaluation exercise.

We anticipate that he would notify them at the same time as the court procedure is commenced. If the third party refuses to comply with the request, the valuer may apply to the court at the same time and the third party would be put on notice. The court may also invite any party to make representations. Therefore, the third party’s interests are properly protected.

The noble Baroness raised a number of questions about why we did not specify protections in the order and a remedy for inappropriate disclosures. On the question of protections, I should like to write to the noble Baroness and the noble Lord in explanation as to why in this case such protections were not included. As for the remedy for inappropriate disclosure, if the valuer discloses confidential or private information not in accordance with the provisions of the order, it is possible that a person may bring a claim for breach of confidence.

Questions were also raised by the noble Baroness and the noble Lord on the business plans for Northern Rock and Bradford & Bingley, whose business plan will be finalised by 29 March 2009. A high-level business plan will be published very shortly thereafter. I cannot give precise dates as this is a matter for Bradford & Bingley’s board. The Northern Rock business plan will be published shortly following the Chancellor’s decision to split Northern Rock into two banks, one to enable £14 billion of new mortgages to be granted over the next two years.

Questions were raised by both the noble Baroness and the noble Lord about the people from whom information was being sought by the independent valuer, who has made representations to the Treasury seeking powers to obtain information. Given that this is an independent valuation process, it is right that the Government provide these powers. I am not in a position to comment on who, if anyone, has refused to give information as this is an independent valuation process. The process of valuation is complex but very sensitive, and it is important that the independent valuer has all necessary powers to complete a valuation which is independent, thorough and beyond reasonable challenge. It is in those circumstances that we seek the authorities embodied in these instruments.

Will the Minister return to the issue of not commenting on from whom information is not obtained? When he introduced the orders, he said that they would make an order if the valuer made a reasonable case for the information to be obtained. Is the Minister saying that the Government will not share with Parliament what that reasonable case is based on? Once an order is granted, presumably this could end up in court and it would be plain and evident in any event. I referred in my own remarks to the auditors and to one or more potential purchasers of Northern Rock, on which I understood—though from memory, so I cannot quote chapter and verse—that the Minister informed the House during the passage of the Banking Bill. I am just a little concerned about what this secrecy is all about, because it is not enough for the valuer to say, “I want to get information at will”. The Government rightly referred to the fact that that request had to be reasonable. Therefore, they should be prepared to share with the House the nature of that request made to them.

I believe that the identity of those from whom the valuer sought information would become a matter of knowledge when the valuer sought the necessary court order, if required, to secure the information. However, I am not in a position to give details of the people from whom the Northern Rock valuer is currently seeking information because I have not been given them, nor would it be right for me as a Minister to seek that information in any way that might seek to interfere with the work of the independent valuer.

I am sorry, but we have to probe this a little further. The procedure is that the Government decide to confer the powers on the valuer. It has to decide that on the basis that the Minister explained from his own speaking notes, which was that a reasonable request had been made. The valuer does not just come up to the Treasury and say, “I want to go to the court to get whatever information I want, so give me a broad power”; it must make a case. If the Minister is saying that they are handing out those powers willy-nilly, Parliament should be much more concerned about the way in which they are being used. We had assumed from the Minister’s remarks that the Government were satisfied that it was appropriate to give the valuer this power because of the circumstances of the case. The Minister is now saying that it is not appropriate for the Minister to know—but it is of course appropriate for the Minister to know. I request that the Minister reconsider that position.

We have been informed that certain parties have declined to provide information to the independent valuer. I am not in a position to identify those parties. Should the valuer continue to seek information from them, and it is not forthcoming, the valuer may apply to the court, which will then assess whether the information should be provided. That is a very careful process, in which the court exercises the ultimate judgment as to whether the valuer has made a case that the information is necessary to the valuation process, and in which parties’ rights are appropriately and sensibly protected while facilitating the completion of a professional and independent valuation.

Motion agreed to.