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Banking: Scotland

Volume 710: debated on Tuesday 28 April 2009


Asked by

To ask Her Majesty’s Government what controls they will apply to ensure that Scottish banks printing money do not do so at a level that would disproportionately favour the Scottish economy.

My Lords, the supply of banknotes is dictated by demand. There are three banks in Scotland privileged and authorised to issue commercial banknotes, and they are limited to doing so in Scotland. Their issuance is also constrained by the legal requirement to hold Bank of England notes to back their own notes in circulation. There is an estimated £3.3 billion of Scottish banknotes in circulation, compared with approximately £44 billion in Bank of England banknotes.

My Lords, I thank the Minister for that response. As it is obviously such an important part of the Government’s economic policy to improve the money supply at this time, would he not consider it appropriate and timely to reintroduce the transparency that went with the old M4 report on the money supply, and provide a separate extraction line, as he has just indicated, for Scotland?

My Lords, as I have already indicated to the noble Lord, Lord James, the information is available.

My Lords, will my noble friend confirm that the notes that are issued by the Royal Bank of Scotland and bear the signature of Sir Fred Goodwin are worth £20 or £5, as they say, and that any of us who find ourselves in Scotland with such notes will be able to use them to the full extent of their value?

My Lords, I thank my noble friend for the question. Sir Fred Goodwin is no longer signing banknotes—they are now signed, in the case of the Royal Bank of Scotland, by Mr Stephen Hester. As an aside, I have been advised that in the Royal Bank of Scotland’s headquarters in Gogarburn, Sir Fred Goodwin employed somebody whose sole job was to ensure that banknotes dispensed from the automatic telling machines in that building bore his signature and his signature alone.

My Lords, is it true that neither the Government nor the Bank of England have made any forecast of the money supply; and if it is not true, can this be published?

My Lords, I am in the course of writing to the noble Lord, Lord Higgins, in answer to that question, which he asked me outside the Chamber. It will save me a stamp if I say now that we do not forecast money supply in the Budget document. This is because we have moved on to an approach to the control of monetary aggregates designed to achieve the 2 per cent inflation target. We have placed that in the hands of the Bank of England Monetary Policy Committee, which has done a truly excellent job over the past 10 years in achieving that target.

My Lords, the noble Lord has reassured the House that Sir Fred Goodwin is no longer signing banknotes, but we all understand that he is receiving them in copious quantities. Are the Government pursuing any legal recourse against Sir Fred Goodwin to stem the flow of his personal money supply in the period ahead?

My Lords, through the agency UK Financial Investments, which holds shares on behalf of the public in the Lloyds Banking Group and the Royal Bank of Scotland, the Government have asked the Royal Bank of Scotland’s existing board to explore legal channels to ensure that the payment of the pension to Sir Fred Goodwin is in accordance with the rules of the scheme and the terms of his contract. Advice is currently being received from counsel and it will be for the new board of the Royal Bank of Scotland to take whatever action it judges to be necessary in the light of that advice to protect the interests of the Royal Bank of Scotland and, through that, UKFI and the general public as investors in the bank.

My Lords, is the Minister of the opinion that there is anything wrong with favouring the Scottish economy?

My Lords, the Government are taking actions across a wide range of areas to stimulate the British economy, to ensure that the worst ravages of a global recession are handled effectively and swiftly. There are signs that the global economy is beginning to stabilise, and we are sure that the United Kingdom will benefit from that.

My Lords, the Minister said, in response to my noble friend Lord Higgins, that the Government are not producing forecasts of the money supply because it is all in the hands of the Bank of England. Is this not another case of the Government being in denial and refusing to acknowledge that their policies on the money supply could have a significant impact on the economy; and is it not about time that they did start monitoring this and revealing the figures?

My Lords, what I said was that we do not make forecasts of the money supply. The money supply is of course monitored, as would be evident to anybody who reads the minutes of the Monetary Policy Committee.