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Banking

Volume 714: debated on Tuesday 10 November 2009

Question

Asked By

To ask Her Majesty’s Government what assessment they have made of the legality of the European Commission’s decisions on the future of banks in the United Kingdom owned or partly owned by the Government, in the context of the expiry of the present Commission’s term of office on 31 October.

My Lords, the Commission may act in a caretaker capacity after the expiry of its mandate on 31 October to protect the interests of the EU, to fulfill its obligations under the treaty and to ensure the continuity of public service. The Government have agreed packages of measures in principle with Commissioner Kroes in respect of the restructuring of Lloyds Banking Group and the Royal Bank of Scotland. These are now subject to state aid approval by the college of Commissioners.

My Lords, while I am grateful to the Minister for that reply, I am afraid that I am not satisfied by it. Nowhere does the treaty, under any article for the reappointment of the Commission, allow for reappointment in a caretaker capacity; there is simply no legal basis in the treaty for that. It therefore follows that, in all its actions since 31 October, the Commission has been acting beyond its powers. That includes the restrictions that have been put on the Royal Bank of Scotland in relation to the payment of dividends, for example, which disadvantages shareholders and pension funds. Can the noble Lord confirm that the Commission has not been legally reappointed according to the procedures laid down in the treaties and that, therefore, its actions are ultra vires?

My Lords, the Commission has not been legally reappointed because there is no need for it to be. What is happening at present, as has happened on two occasions in the past, is that a caretaker Commission has continued beyond the expiry date of the mandate. Its decisions have been ratified by case law and decided to be entirely valid in circumstances in which, as the House will appreciate, a vacuum could not be allowed to occur because of delays with the treaty that would lead to a situation in which no decisions at all could be taken by the Commission.

My Lords, is my noble friend aware that, under Article 216 of the treaty, provision is made to ensure that a Commissioner—and therefore a Commission—stays in office unless and until a replacement is appointed through due process, and that consequently the decisions taken by the Commission since 31 October are completely within the law? Is he further aware that the competition rules operated by the Commission have existed unchanged since 1958, and that the banking restructuring required under the state aid rules set down since then is completely consistent with the law and has been supported by every UK Government since we have been in the European Community and the European Union?

My Lords, I have been grateful to my noble friend in the past, but perhaps never so much as on this occasion, when he speaks with all the authority of having occupied the Commissioner role.

My Lords, do Her Majesty’s Government agree that the EU’s emerging common financial policy—illegal though it may be, as your Lordships’ Select Committee has found—will prove a worthy companion to those planetary disasters, the common agricultural policy and the common fisheries policy?

My Lords, I am grateful to the noble Lord for broadening the discussion. It gives me the chance to emphasise that not only British banks, but two German banks and a Dutch bank, are subject to the requirements. The background to this is phase 1, in which the Commission acts and there is a right of appeal against any position that it takes. So far, no one has appealed against the decisions of Commissioner Kroes, largely because they make a great deal of sense.

My Lords, will the Minister confirm that, irrespective of what decisions are made about the future of the banks, the three separate Scottish banknotes will continue to be issued and the holders of such banknotes will be protected against any potential future insolvency?

My Lords, I am delighted that my noble friend was able to attend the Committee yesterday when we discussed these issues, and I am pleased that I am able to confirm today what I was able to confirm yesterday.

My Lords, does the Minister accept that the real question concerning the banks is how best to restructure them in order to prevent them taking undue risks in the future? Would he accept that simply flogging off a few hundred branches does not get to the root of the problem, and that what the UK Government should be doing is discussing with the banks how to split their utility functions from their casino functions on a permanent basis?

My Lords, the noble Lord has strayed from the Question, which concerns the decisions taken by the Commissioner being implemented by the Government for the necessary increase in competition in the British financial sector. He is going on to the broader role of banking, and will know that the Government are addressing themselves to that with all the urgency required.

My Lords, does the Minister agree that it is a trifle odd that two noble Lords opposite are seeking to undermine the powers of the Commission as regards competition policy when what this country requires is for the Commission to operate those rules in a rigorous and even-handed way, which it has been doing, because that is what is in our national interest?

My Lords, I would never suggest that expressions that emerge from noble Lords opposite are odd but they certainly do not fit in with received public opinion in this country. People know only too well that the Commission’s role with regard to competition policy has been hugely backed by public opinion and by Governments of all persuasions in this country because it is very much in our interests. To that extent, therefore, I am extremely grateful to the noble Lord for identifying those issues.

My Lords, rather than inflict on the House a second question from the noble Lord, Lord Pearson, I invite my noble friend to hypothesise on what the damage to European economies would have been if co-ordinated action had not been taken at the European level. Does he agree that today throughout Europe we are seeing the benefit of that co-ordination in the fact that economies are coming out of the recession and growth is showing quite strongly, so that even papers such as the Daily Telegraph yesterday are full of praise for the prospects of this country?

My Lords, my noble friend, in his usual trenchant terms, has identified the strange feature of arguments opposite that somehow in this global crisis, with Britain so exposed because of the significance of our financial sector, we could have pursued a policy of go-it-alone.

There is time. As the noble Lord, Lord Hannay, said, the question is not whether the Commission has done a good or a bad job; it is whether it is legal. I do not accept the point made by the noble Lord, Lord Kinnock. I should like him to quote Article 216 to see whether the Commission is legal. I do not believe that it is; it may have to be tested in the courts.

My Lords, it is always open for that to happen in a democratic structure, to which I know that the noble Lord subscribes so far as the European Union is concerned. I emphasise that on two previous occasions Commissions have had to extend their periods of office for a short time. Test cases indicate their right and duty to do so, and the same applies here.

3.07 pm

My Lords, it has been drawn to my attention that there may be two matters for which I should apologise to the House in respect of a question that I asked spontaneously a short time ago. The Cross-Benchers, of whom I am one, are always grateful for the hospitality that is received in the position that I now occupy. The question certainly did not indicate that I intended any allegiance to Her Majesty’s Opposition, but apparently the hospitality extends only to sitting on this side of the House and not to asking questions from it. If that be so, I apologise and shall try to forbear doing so again.

Regarding the second matter that was drawn to my attention, I am grateful to the Leader of the House, who indicated that perhaps I should have referred to the fact that I am engaged for profit in seeking to establish a court in another Gulf state, Qatar. My question was directed at what the Government should be doing and had nothing to do with Qatar. However, in so far as I should have mentioned that matter, I do so now and apologise.