Budget 2010 included an estimate for the net cost of all financial sector interventions of £6 billion. However, this is based on current market prices. The actual net cost, if any, will depend on a number of factors, most notably the eventual sale price achieved for the Government’s shareholdings. The Chancellor made it clear in his Budget speech that the Government intend to get all taxpayers’ money back.
My Lords, I am grateful to the Minister for that clarification of the net position. However, the FSA, in its Financial Risk Outlook 2010, says that the banks have to find some £440 billion worth of loans and finance by 2012 to replace maturing debt. More than £300 billion is finance provided by the taxpayer under the credit guarantee scheme and the special liquidity scheme, due to end in 2012. Will the banks not find it very challenging to finance these paybacks? Indeed, how will they do it? Will it be by increased deposits, securitisation of loans and mortgages, convertible gilts, rollover of government finance, or a combination of these things?
My Lords, the process of restructuring the liabilities of the banks is already on course. The special liquidity scheme closed at the end of January with £185 billion outstanding. The credit guarantee scheme, which was launched with a maximum potential exposure of £250 billion, closed at the end of February with £125 billion of drawings. Banks are increasingly raising funds in their own name without recourse to either the SLS or the CGS, and the market for covered bonds and MBSs is beginning to develop as well. It is important to remember that money does not disappear from the system. The money that banks have to repay will go back into the system and the banks will have to bid for that to refund themselves in the future. I regard this as an entirely manageable challenge.
We continue to make good progress. We announced the restructuring of Northern Rock as at 1 January. As the House is aware, we have also announced the end of the guarantee on deposits. So far as our shareholding in the Royal Bank of Scotland and Lloyds Banking Group is concerned, we are committed to returning them to full private ownership in due course. Since the middle of last year, we have been looking at a variety of options including full disposal, convertible issues, partly paid issues and other forms of innovative distribution, because they are large investments. We are absolutely committed to recovering in full—and more—the value that the taxpayer has placed at risk in acquiring the shares, and to doing so in a way that fosters competition and enhances financial stability.
My Lords, could the Minister give a commitment that there will be no quick sale of shares in the RBS and Lloyds Banking Group, not only—as he just said—to maximise the return to the taxpayer when they are sold, but so that the Government can continue to exercise some influence on those banks’ lending levels, particularly to small and medium-sized businesses, in the difficult period ahead?
The House is of course aware that we have entered into commitments with the Royal Bank of Scotland and Lloyds Banking Group that amount to £94 billion of new lending for business, of which half will be for small and medium-sized enterprises. So far as the timing of the sale is concerned, the key thing is to ensure that we get good value for the taxpayer; I have made it clear that that is our priority. We will not enter into any silly scheme to distribute shares at a huge discount to friends in the City or hedge funds, in order to reward them for their support.
Will the Minister not accept that, if Northern Rock had been properly regulated in the beginning, it would not have needed the advance of these massive sums? Surely to have a business plan that borrows money on the overnight markets and lends in mortgages over 20 years is completely unsustainable.
As the noble Lord will know, the FSA has been frank in its forensic audit of its failings in the regulation of Northern Rock. But let us be clear that the failure of a banking institution can never be primarily placed at the door of the regulators; it must lie with the board of directors and the owners of the business.
When the Minister wound up the economic debate last week, he was kind enough to say that he would obtain from the FSA the answer to my question about the £61.5 billion of credit card debt held by British banks on which interest is being paid, of which £9 billion was securitised at between only 10p and 20p in the pound. How much of the remainder has been written down on the balance sheets of the banks? It is a big sum and important. Has he had that information yet?
The noble Lord is aware that I said that I would write to the FSA and obtain that information, and I have confirmed that in a letter to him. He may be wrong to talk about the securitisation of credit card debt at 10p in the pound. The receivables may well have been sold on, but securitisation is the wrong term to describe that process.
My Lords, my noble friend Lord Roberts’s supplementary question was about the £440 billion that needs to be refinanced by 2012, and the Minister was remarkably sanguine about the ability of banks to do that. How much of that £440 billion relates to the RBS and Lloyds, and can the Minister assure us that it can be refinanced without the taxpayer having to put the money up yet again?
The amount that the FSA referred to in its financial risk report was at a point in time, and the figure is different now. Those banks continue to improve their liability management, as we have seen from recent reports from Lloyds, which says that it will be back in profit this year—further evidence of its recovery under government support. Noble Lords will no doubt be pleased to see that the share price of the Royal Bank of Scotland has quadrupled since its low. Those banks are beginning to refinance themselves, and I have high confidence that they will not require continued dependence on the Government for funding once the SLS and CGS are finally paid off, as they will be by 2014.
My Lords, my question is on a connected and important issue. Is the Minister fully confident that bonuses paid to directors, executives and staff of the state-controlled and owned banks in Britain will be subject to proper and full UK direct taxation in all cases?
I can only say that I am confident that those who have received bonuses and payments will seek to comply with their responsibilities in terms of disclosure. There will be people in these banks who are subject to UK tax on only a portion of their income, if some of their service is provided outside the United Kingdom—as, for instance, would be the case with Mr Diamond of Barclays, who I have read is eligible for £64 million in reward. The answer that I would really wish to give the House is that the shareholders must be more vocal and visible in challenging these levels of reward.
Banks are definitely lending to SMEs. What we need to focus on is their gross lending, which is their extension of new loans to existing and new customers. As I said earlier, £94 billion has been committed by the Royal Bank of Scotland and Lloyds in new loans this year. Both banks increased their market share last year and were undoubtedly to the fore in meeting customer needs. But at the same time that some customers were borrowing, others were repaying their liabilities to their banks; net borrowing was therefore lower. The critical factor is gross borrowing—the availability of credit to support economic activity.
Is my noble friend describing a win-win situation, in so far as when we come to sell some of these now state-owned banks back to the private sector, there is the prospect of making a profit? That wholly justifies the Government’s swift and determined intervention during the financial crisis to buy in those banks in order to save the banking system.
My Lords, in life I have many times anticipated win-win situations, but I have yet to experience one. However, the total amount of taxpayers’ money currently at risk in terms of the difference between the market valuation and the amount that we have invested is only £6 billion. I say “only” carefully, because it is a very large amount of money, but in the context of the effective rescuing of the banking system it represents very good value for money. I remind noble Lords that my right honourable friend the Chancellor of the Exchequer told the other place last week that we have already earned £8 billion in fees from the banks for the support which we have provided over the past 18 months.