To ask Her Majesty’s Government whether they will explain the discrepancies between the account given by Sir Tom McKillop in his letter to the Treasury Select Committee and the account so far given to Parliament about the role of Ministers in approving the pension severance and retirement arrangements of Sir Fred Goodwin.

My Lords, there is no discrepancy on matters of substance between Sir Tom McKillop's letter to the TSC and the account that I gave in my evidence to the TSC on 17 March.

For the convenience of the House, perhaps I may restate the points from my previous evidence. I have made it clear both in my evidence to the Treasury Select Committee and in statements to this House that I met Sir Tom McKillop and Mr Bob Scott, then chair of the RBS remuneration committee, in the late afternoon of Saturday 11 October and was informed that the directors of RBS had decided on the previous day, the Friday, that Sir Fred Goodwin would have to stand down as chief executive of the bank. The following evening, at 8.35 pm, I spoke with Mr Scott by telephone. During the conversation, I was told the then estimated transfer value of Sir Fred Goodwin’s pension. I have always been clear about this fact, both to the Treasury Select Committee and to the House. To the Treasury Select Committee, I said:

“The following evening”,

which was the Sunday,

“I was telephoned by a director of RBS, Mr Robert Scott, and during the course of that conversation was told of the then estimated transfer value of Sir Fred Goodwin’s pension”.

That is the response to Q2659. My Written Answer to the noble Lord, Lord Taylor of Warwick, on 5 March stated that,

“I was informed of an estimate of the capitalised value of the pension late on 12 October 2008”.—[Official Report, 5/3/09; col. WA172.]

But at no stage prior to February of this year was I, or anyone else in Government, as far as I know, made aware that a decision had been taken to treat Sir Fred Goodwin for pension purposes as if he had left at the request of the employer. This treatment allowed Sir Fred to claim his full undiscounted pension from the age of 50 and thereby nearly doubled the value of his pension.

My statement to the Treasury Select Committee was that,

“I was given no information”,

about the size of the pension. That was in response to a question from Mr Fallon at Q2671, which was part of the session which covered the Saturday meeting. I had earlier in the evidence session given a detailed account of that meeting and the phone call on Sunday.

My account of the meeting to the TSC is entirely consistent with my other statements, with Sir Tom’s letter and with the record of the meeting made by Mr Charles Randell, a partner of Slaughter and May, which is available on the Treasury Select Committee website. This statement, and Sir Tom’s letter, also confirms the very clear principles, including no rewards for failure, that I said I expected to be at the heart of the decision to be taken by the board of RBS.

Mr Fallon has also asserted that I saw the compromise agreement between the board of RBS and Sir Fred. Sir Tom’s letter does not suggest that that is the case. I did not see the compromise agreement.

The records show that my answers to Parliament do not support the conclusions drawn by Mr Fallon. I am writing to the right honourable John McFall this afternoon and will place a copy of that letter in the Library of the House.

My Lords, I thank the Minister for that extensive response and wish him a very happy birthday, although I am sure that he would rather be spending it somewhere else this afternoon. For all he has said, the fact remains that there is a serious disagreement. The former chairman of RBS, Sir Tom McKillop, backed up by his senior independent director, said in a letter sent to the Treasury Select Committee that the circumstances relating to Sir Fred Goodwin’s pension have not been accurately represented. These disagreements include the terms of Sir Fred’s departure, the cost of his pension and whether or not it was discretionary.

I am sure that the Minister will agree that the Government will need to find a way of proving which version is correct. The Minister referred to some notes taken by the lawyer from Slaughter and May, which he says is on the public record. Can he assure us that, if there are any other contemporaneous independent records of what took place, they will be put in the public domain, because it is damaging to Parliament, if nothing else, to have this constant exchange of versions of stories that plainly disagree with each other?

My Lords, first, as I said earlier, I think that there is very little disagreement between Sir Tom and myself. In fact, in a 28-paragraph letter I think that I was in agreement with Sir Tom on 24 of the paragraphs. The critical factor was whether the board of RBS had discretion. When Sir Tom asserts that the board did not have discretion having formed the view that it was not going to terminate the employment of Sir Fred Goodwin, a certain chain of actions followed. My query, and that of UKFI under advice from its lawyers, is that the board did have discretion. It seems odd that it paid Sir Fred Goodwin 12 months’ compensation for loss of office, a payment that you make when you terminate somebody’s contract, yet also asserted that his employment had not been terminated. That seems entirely consistent with the assertion that I made earlier to the Treasury Select Committee that, at the very least, certain members of the board of the Royal Bank of Scotland appeared confused.

The noble Baroness asked about contemporaneous records. I am pleased to say that the only paragraph in Sir Tom’s letter where there is a material difference between my own view and that of Sir Tom relates to the telephone conversation with Mr Robert Scott. That telephone conversation which, as I said, took place at 8.35 pm on Sunday, 12 October, was listened to by a Treasury official. A note exists of that call, which records precisely the representations that I have made to this House and to the Treasury Select Committee. In particular, it is very clear that no explanation was given of the basis on which Sir Fred’s pension was souped up.

My Lords, I thank the Minister for his reply, the substance of which we accept. Does he accept that this row about who said what to whom serves only to hide the fact that it was the arrogance and greed of Sir Fred Goodwin which led him to demand such an excessive pension in the first place and his arrogance and greed which now lead him to keep it? Sir Tom McKillop, among many disastrous decisions as chairman of RBS, approved the pension in the first place and still shows no shame in having done so. Will the Government now refuse to pay the pension—period—to Sir Fred, whose negligence probably disqualifies him from it under the Pensions Act 1995? If he does not like it he can sue. Finally, will the Government now concentrate on the major challenges facing RBS; namely, to end its involvement with dodgy tax avoidance schemes and to devote all its efforts to increasing the support it gives to honest and decent personal and business customers?

My Lords, I welcome the opening comments of the noble Lord, Lord Newby. I find it extraordinary that the opposition Benches are fixated with this narrow subject rather than seeking to address the broader issues, but I believe that the noble Lord, Lord Newby, is absolutely correct in his assertion that the only people who made the decision about Fred Goodwin's pension were those on the board of RBS. They were the only people empowered to do so. Their own board minutes and papers are evidence that they made that decision. In my view, they fired Sir Fred Goodwin. That is not their interpretation, but we have asked the new board of RBS to look into that.

Unfortunately, it does not fall to the Government to stop payments arising under a contract, but we have asked the board of RBS to examine whether it thinks that the basis on which Sir Fred’s employment was terminated and how this was explained to the trustees permits the payment of an undiscounted pension. I also endorse the noble Lord’s comments about the importance of RBS getting back to being a properly managed bank, with the traditional virtues of Scottish banking at the core of what it does.

My Lords, most reasonable people, at a time when major leaders of the world are here discussing crucial matters, would accept that it is a little odd that the Opposition chose this particular matter at this time. Would my noble friend care to expand on something that the Prime Minister said at Question Time this morning? He implied that, apart from voting against the resolution of the board on the remuneration committee’s report at the AGM, which will have no real effect, the Government are planning some kind of legal action. Is that true? It would be well received throughout this House, this country and the world if legal action could be taken. If it is true, would the pension be frozen while that action is taking place?

My Lords, my noble friend refers to an Answer given by my right honourable friend the Prime Minister earlier today in the other place. We are certainly investigating the possibility of legal action. We are doing that through the UKFI, the new chairman and the chief executive of the Royal Bank of Scotland. I repeat that this decision on the pension was made by the board of the Royal Bank of Scotland. It was not made by a Minister, and nothing in its working papers suggests that it was. Whether there is a legal option will have to await a decision by the lawyers. I am, however, still hopeful that Sir Fred Goodwin, who has been in communication with Sir Philip Hampton, the chairman of the Royal Bank of Scotland, will see that there is an opportunity for him to make an important and significant gesture by waiving a large part of his pension or giving it to charity. He is still not giving a response on that. I think that the House would join me in encouraging him to make the right decision and cleanse his reputation, for he will not be able to make amends for the huge damage done to that bank by his mismanagement, endorsed and condoned by a board of directors that was certainly not completely up to the mark in a number of respects.

My Lords—

My Lords, I am afraid that PNQs are not expected to take longer than 10 minutes. We have another PNQ and should move on.