To ask Her Majesty’s Government what specific policies have been imposed on banks over which they have effective control.

My Lords, on behalf of my noble friend Lord Barnett, and at his request, I beg leave to ask the Question standing in his name on the Order Paper. My noble friend is recovering quite well from his stroke but, in spite of his 86th birthday today, he is unable to put his Question.

My Lords, we are all delighted to hear that my noble friend Lord Barnett is making a good and swift recovery. The House joins my noble friend in conveying our very happiest returns to my noble friend Lord Barnett on his 86th birthday.

As part of their recapitalisation and participation in the asset protection scheme, the Government agreed certain commitments with the Royal Bank of Scotland and Lloyds Banking Group, including on lending, remuneration and board structures. Government stakes in financial sector institutions are managed at arm’s length and on a commercial basis by UK Financial Investments Limited, which acts as an engaged institutional investor. The Government do not impose wider policy objectives on the banks through UKFI.

I thank my noble friend for that reply, but my noble friend Lord Barnett considered that, in connection with the specific policies imposed on banks, the answer should have been, “None”. Has the Minister seen the article in the Times that said—it was either a genuine leak or just a guess—that £27 billion of high-quality loan applications by small and medium-sized companies had been refused and that he intended to impose a positive response? Will he say whether that is true? What sanctions would have been imposed on the two banks, Lloyds and the Royal Bank of Scotland, if it was not true?

My noble friend Lord Barnett would have been incorrect in saying that there were no conditions. The Government’s support for the banks importantly included conditions around remuneration, board structures and governance, as well as making credit available and the conditions on which that credit was available, including conduct and forbearance consistent with good practice. As for the lending agreements, we have indicated that we will report annually to Parliament on progress against those agreements and will do so after each of the boards of the two banks has produced its annual report and accounts.

The report in the Times gave a figure that I did not recognise. What is more important is that, as I heard on the radio this morning, the Royal Bank of Scotland says that it is approving 85 per cent of business loan applications that it receives. What I hear is that the pricing of loans to small, medium-sized and larger businesses has come down dramatically in absolute terms and, more recently, in terms of lending margins, and that the banks are making a real effort to promote the availability of credit to creditworthy customers, which is consistent with the undertakings that they gave us when we provided them with support.

My Lords, given what the Minister has just said, why is it that—I know this through bitter experience—everyone from whom I hear in the SME community continues to feel that they cannot get lending from the banks? Why have the Government saved the banks while not doing enough to save the businesses that those banks are there to serve?

The experience that the noble Lord, Lord Bilimoria, describes is not one that completely accords with what we hear from the banks. Yesterday afternoon, my noble friend Lord Davies of Abersoch and I met the heads of small business lending of every major UK bank, together with representatives of the CBI, the Engineering Employers’ Federation and the Federation of Small Businesses. It was quite clear from that meeting that the primary issue in terms of lending to creditworthy, well managed and solvent businesses is demand. I cannot speak to personal experiences in which those definitions of business may not necessarily apply.

My Lords, the Minister has already said that the Government have got lending commitments out of RBS and the Lloyds Banking Group. We know, by virtue of leaks from RBS, that it is not meeting those commitments. It is difficult for Members of your Lordships’ House to know quite what is going on. Would the Government commit themselves, first, to publishing the commitments that they have with the banks and, secondly, to reporting on a quarterly basis—rather than annually and well after the event—on what has been going on? Equally, would the Government not hide behind the spurious argument of commercial confidentiality to prevent them from doing so?

My Lords, it is not a spurious confidentiality clause; it is critical to the agreement to protect the commercial interests of the banks and to create an environment that they think is likely to facilitate their achievement of the lending agreements. The lending agreements are conditional on a number of factors, including the overall economic outlook and performance. I am clear that, in a number of areas, demand for bank credit has reduced. For instance, large companies have been able to access rights issues from the stock market and the corporate bond market. The Bank of England is very clear in its own reports on lending that there is no question over availability of credit for larger businesses. The Bank of England’s most recent lending report also made it clear that availability of credit has improved recently. In that context, I would expect to see the Royal Bank of Scotland and all British banks increase their lending to creditworthy borrowers.

My Lords, the Minister also mentioned remuneration when he talked about the agreements with the banks. Recently, the Government have reached agreements with all five major banks around complying with the G20 principles. In view of the fact that investment banking revenues are self-evidently buoyant at the moment and that there are rumours of large payouts coming from the City, can the Minister explain what practical effect the agreements with the banks will have on restraining bonuses in that part of banking?

My Lords, I have come straight from a meeting with the heads of the 11 major investment banks in the United Kingdom. I would like to say that it was in anticipation of the question from the noble Baroness, but it was because we recognise that it is important that we insist, and the banks agree, that their remuneration policies will be in accordance with the FSB agreement and the G20 agreement reached in Pittsburgh three weeks ago—namely, that the banks will not reward failure, that they will defer a significant amount of bonus, that there will be clawback arrangements and that the amount of bonuses paid in cash will represent a modest proportion of the total for the very highest earners. Most important, this agreement will come into effect in the United Kingdom from this financial year, rather than a later year, as may well be the case in one or two other countries. That is significant progress. I am delighted that the noble Baroness has given me the opportunity, for which I am grateful, to update the House on another area of achievement by this Government.