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Volume 725: debated on Wednesday 9 February 2011


My Lords, with the leave of the House I will now repeat the Statement on banking delivered earlier in another place by my right honourable friend the Chancellor of the Exchequer. The Statement is as follows:

“Mr Speaker, I would like to make a Statement. The near collapse of the British banking system more than two years ago still generates today deep feelings of anger and cries for retribution. I completely understand that, for the link between risk and reward that underpins our free market was completely broken. Bankers who had made the most catastrophic mistakes walked away with huge payouts and pensions. Those entrusted by us to regulate those bankers and to run our economy washed their hands. Meanwhile, the rest of the country is left paying every day for their failures. The Government have to pick up the pieces. Let me set out how we will do that.

First, we will make sure that we learn every lesson that needs to be learnt so that this never happens again. We are entirely replacing the tripartite system of regulation that was introduced in 1997 and completely failed. Next week, we will publish the detailed proposals to give the Bank of England responsibility for prudential regulation, and to create a new consumer protection and markets authority that will protect the interests of bank customers. We will then undertake pre-legislative scrutiny, as requested by this House, before introducing the Bill. I hope that it will command support from all sides.

Later this year, we will also receive the interim and final reports of the Independent Commission on Banking, which this Government established and which I asked Sir John Vickers to chair. Sir John and his fellow commissioners are asking the difficult questions that need to be asked about how we protect the British taxpayer from future bank failures so that never again is a bank too big to fail, and we look forward to receiving their recommendations.

I should make it very clear that nothing I will say today about the settlement we have reached with Britain’s banks, including references to a level playing field, in any way pre-judges the outcome of the commission. That includes both the commission’s recommendations and the Government’s response.

The second task facing this Government is to make sure that we get the maximum sustainable tax revenues from the financial sector. HM Revenue and Customs confirms that the one-off bank payroll tax introduced in the dying months of the previous Government raised £2.3 billion net but, as my predecessor as Chancellor has pointed out, it could not be repeated without massive tax avoidance. I agree with him and we will not repeat the bank payroll tax. Instead we have implemented a new and permanent bank levy, which is why yesterday I announced an increase in that levy so that it raises £2.5 billion this year. This will bring the total raised by the new bank levy to £10 billion over the Parliament, and it means that in each and every year of this Government we will raise more in bank taxes than the previous Government raised in any year.

We have also required all the major banks operating in the UK to comply in spirit and by the letter with the code of practice on taxation. This code was announced with a fanfare, but I discovered today that only two banks had signed up to it. Today all the major banks have signed.

The third task facing the new Government was to reach a new settlement with the banks so that they contribute to Britain’s economic recovery. Some prominent people in this House were predicting just 24 hours ago that my tax announcement meant that our discussions with the banks on lending were falling away. The House will be pleased to know that this prediction was wrong. This morning, the heads of the major British banks—Barclays, RBS, Lloyds and HSBC—reached a new settlement with the British Government. I want to thank John Varley, the former chief executive of Barclays, for the huge amount of time and personal commitment he has given to this project. The essentials of this new settlement are exactly as I set out last month, and I am today publishing an exchange of letters between John Varley and myself. The banks will: lend more money, especially to small business; pay more taxes; pay fewer bonuses; be more transparent about the bonuses they do pay; and make a greater contribution to our regional economy and society.

In return the Government commit to the success of a strong, resilient, stable and globally competitive financial services sector in which UK banks can compete with the best banks in the world on a level playing field and in which London is a world centre for finance. That is good for jobs and growth in our country.

I shall go through each part in detail, starting with pay and bonuses. Most of us of find the levels of pay in financial services to be completely out of kilter with what the rest of society would regard as fair or reasonable. We are determined to bring responsibility and constraint and to ensure that pay is properly taxed. Four years ago, at the height of the banking boom, the City paid £11.5 billion in banking bonuses, most of which was in cash, most of which could not be recovered when the banks collapsed, and too much of which went untaxed. The new remuneration code introduced last month and the tax avoidance measures we are taking will change that. Today I can tell the House that the four major British banks have also agreed that total bonuses for their UK-based staff will be lower than last year and lower than they would have been without today’s settlement. The independent, non-executive director who chairs each bank’s remuneration committee will have to confirm personally in writing to the FSA that their pay accord conforms with today’s commitments. For the first time, the banks have agreed to seek explicit approval from their board’s remuneration committee for the pay of the 10 highest paid employees in each of their main business units. This did not happen in banks such as RBS before the crisis, where the board was ignorant of what was going on.

We have also insisted that the banks be far more transparent about who and how they pay. From this year onwards, the four major banks have committed to disclosing the pay details not just of their executive board members, but also of the top five highest paid executives not on the board. This will mean that the salary details of at least seven executives at each bank will be published this year. That compares with five individuals in the US and Hong Kong, and only board executives in Germany and Japan. By disclosing individual pay levels, it goes further than the Walker disclosure recommendations, on which we are seeking international agreement. We will consult on whether to make it a mandatory requirement from 2012 on all large UK banks to publish the pay of both the board plus the eight highest paid senior executive officers. This would mean that Britain has the toughest and most transparent pay regime of any major financial centre in the world.

I shall also provide an update on the situation at RBS and Lloyds. In 2009, the last Government signed an agreement with RBS that explicitly said would,

“enable pay arrangements in line with the market”,

this year. Despite that constraint, which we have inherited, UKFI, the arms-length body that manages the Government’s stake in these two banks, has agreed the following: for all staff at RBS and Lloyds, the maximum up-front cash bonuses will be limited to a maximum of £2,000 this year. All executive directors, including the chief executives, have agreed to receive this year’s bonuses entirely in the form of shares. Directors will have to wait until 2013 to convert these shares into cash. As the Prime Minister made clear last month, the bonuses at RBS and Lloyds will in total be smaller than they were last year and so, crucially, will the compensation ratios. They will be backmarkers in the industry, instead of the frontrunners they once were.

Let me turn from pay to the additional support that British banks have committed to provide to the regional economy. At the end of last year, the industry pledged £1.5 billion to a new business growth fund that will invest in the kind of expanding small businesses that hold the key to Britain’s more balanced economic future. Today it commits to making an additional £1.2 billion contribution to society. The four major banks commit to an additional £1 billion for the fund and an additional £200 million to capitalise the big society bank. The business growth fund contribution will be front-loaded over the next couple of years so that more help can be given to businesses sooner. This money will be additional to the lending commitments and additional to any funding already allocated from dormant bank accounts.

Finally, at the heart of today’s settlement is a commitment from the four major banks, as well as Santander, to make much more money available for lending to small and medium-sized businesses. Last year, these banks lent £66 billion to such businesses; today, the banks commit to lend £76 billion this year—£10 billion more gross new lending to small and medium-sized businesses. This is a massive 15 per cent increase, materially higher than they had been planning to lend this year and materially higher than anyone who followed these discussions would have expected. It comes alongside a very welcome commitment from the banks to improve greatly their customer service to small businesses, with a free mentoring service, published lending principles, transparent appeals and improved access to trade finance. Overall gross new lending to all businesses, large and small, will increase from £179 billion to £190 billion. They make a commitment to lend even more if demand materialises. Absent this accord, the banks were actually expecting lending to fall this year.

In order to ensure that progress against these lending commitments can be monitored, the Bank of England has agreed to collect the relevant data and publish them on a quarterly basis. To help ensure that today’s agreement is honoured, for the first time the pay of the chief executives of each bank, as well as the relevant business area leaders, will be linked to performance against the SME lending targets. Of course, if, even then, the banks fail to live up to their promises, the Government reserve the right to return to the issue and take further measures. However, I sincerely hope that that is not necessary.

The anger at the terrible mistakes of the banking industry and the failure of those who regulated it will long remain, and rightly so. But let us, as a country, confront this hard truth: anger and retribution will not bring one percentage point of economic growth or create one single new job. The anger will remain, and we must never make the same mistakes again, but Britain needs to move from retribution to recovery. Today we get the banks to commit, with more for lending—£10 billion more for small businesses—more for our regional economies and society, £10 billion more in taxes, lower bonuses and the most transparent pay regime in the world. In return, let us build a banking industry that creates jobs for hundreds of thousands of our citizens and competes in the world. Above all, let us make sure that the economic catastrophe that befell this country can never be repeated. That is how this Government will clean up the mistakes of the past. I commend this Statement to the House”.

My Lords, that concludes the Statement.

My Lords, I am grateful to the noble Lord for repeating the Statement made by the Chancellor of the Exchequer in another place. What a pathetic performance—not, I hasten to add by the noble Lord, who read very well, but by the Chancellor. It was described this evening by “Channel 4 News” as lying,

“somewhere … between charade and sham”.

This was a Statement hatched in a smoke-free room in Downing Street, probably not over beer and sandwiches but maybe over smoked salmon and champagne. It sees the unwelcome resurrection of that distinguished and unlamented figure of the 1970s, Mr Solomon Binding. It is not only in their policies that this coalition Government seek to return Britain to the past; they are returning to the old methods of back-room deals masquerading as proper governance.

Before turning to the fundamental issues raised by the Statement, could the noble Lord clarify some of the aspects of the agreement, as published by the banks? The agreement states that there is,

“a commitment by the Government to the stabilisation … of the relationship between the Government and the banks”.

What exactly does that mean? Moreover, the agreement states that the Government accept,

“the right of self-determination by bank boards”.

What could that possibly mean, other than that the Government agree to let the banks do whatever they want?

Let us turn to the fundamental question: what is this for? More importantly, how will it help the recovery of the UK economy? Take first the question of bonuses. The essential problem with bonuses, apart from the sheer immorality of the quantum of money involved, has been that they embody perverse incentives. They encourage excessive risk-taking and reward mediocrity. They absorb resources that could be used to rebuild bank balance sheets and expand lending to the real economy. They attract to an essentially non-productive activity people with skills that could be deployed to perform productive tasks elsewhere in the economy—less financial engineering, more real engineering. Indeed, by their grotesque distortion of pay relativities, bank bonuses devalue the hard work of talented people in the public sector, in manufacturing and industry, and in non-financial services.

What now is to be done about bonuses, over and above the measures already being enforced by the European Union, such as the requirement that bonuses be paid predominantly in shares? In the Statement the Chancellor claimed:

“Britain has the toughest and most transparent pay regime of any major financial centre in the world”.

Will the Minister confirm that this statement is incorrect? Will he confirm that the US banks in receipt of TARP funds not only have to provide more wide-ranging disclosure of the details of remuneration, but have to do this for past years, too? This is all detailed in the recent report on bank bonuses by Mr Andrew Cuomo, Attorney-General of the state of New York. Finally, in the section of the agreement on bonuses, we find the wonderful clause 3.5, which is destined to have enduring fame as the ultimate get-out clause:

“Nothing in this statement derogates from the obligation of the banks, and their boards and remuneration committees, to manage pay policy in a way which protects and enhances the interests of their shareholders”.

In other words: “Get lost, Mr Osborne, we’ll do what we want”.

Given that nothing of any matter has been achieved on bonuses, what of the much trumpeted agreement on lending? The agreement clearly states that any increased lending—any of it—must be on commercial terms. If it is on commercial terms, would it not be done anyway? After all, that is what the banks are supposed to be for. We are told that the banks will increase their gross lending to £190 billion in 2011. However, this is a deception, for gross lending is not the relevant figure. What matters is net lending—new lending minus repayments. It is net lending that defines the amount of new spending power funding the investments of British industry. If gross lending increases but repayments increase too, the net benefit to Britain will be negligible. Will the noble Lord tell us: is there an agreed target for a net increase in lending? Will refinancing of current financial facilities be deemed to be new gross lending or not?

Then there is the commitment to a new £1.5 billion business growth fund, building up,

“over a number of years”.

Not too much too soon. That is less than 1 per cent of current gross lending and, moreover, it is not at all clear that this will be new money. There is nothing at all in the agreement about the cost of credit, other than the reference to “commercial terms”. However, ask any small business and they will tell you that it is the price of credit, rather than its availability that is often the problem. It is so easy to avoid making a loan by pricing it out of the reach of the small business borrower.

We are told in the agreement that there is to be an appeal mechanism for those denied credit, managed by “a senior independent reviewer”. Who is this reviewer to be? Who will appoint him or her? What will be the terms of reference? What sanction will there be on those banks that the reviewer deems to have failed in their commitment? Will the reviewer be able to assess all the terms of the credit, including the price? What arrangements have the Government made for the publication of the banks’ lending data to include data on credit refused, so that lending behaviour can at least be subject to some public scrutiny?

This is not the way to make economic policy. Three facts must be obvious to all. First, this crisis was inflicted on the economy by the profligate lending policies of the banks. Secondly, a sustainable recovery of the British economy requires a steady secure flow of affordable credit to British industry. Thirdly, to attain this goal there must be a fundamental reform of banking in this country. Those three propositions will be shared on all sides of this House, other than probably on the coalition Front Bench. This Statement addresses none of those three challenges. It does nothing to limit profligate lending—indeed, I suppose it tries to encourage it—it does nothing to secure a steady flow of affordable credit, and it is irrelevant to the cause of fundamental reform. Let us hope that this tawdry so-called deal will stimulate Sir John Vickers and his committee to address these issues with enhanced vigour.

The Government’s overall policy towards the banks was summed up perfectly in today’s Financial Times, which stated:

“With much noisy showmanship, the Conservative-Liberal Democrat coalition is puffing demands that are little more than cosmetic. A slight change in a levy on bank balance sheets and a commitment to greater small business lending and transparency in bankers' pay may play well politically. But they are no way to fix the banking system”.

I agree.

My Lords, I am disappointed that the noble Lord, Lord Eatwell, recognises nothing in this Statement that moves things forward because, compared with what the previous Government did, my right honourable friend the Chancellor of the Exchequer has made enormous strides forward.

Where should I start? On the question of lending, it is precisely the gross lending target that matters. The net lending target which the previous Government imposed on a couple of banks let them off the hook. It is the significant total lending for 90 per cent of the SME market that is captured by the banks in the agreement that means we can confidently say that the banks are committed to lending 15 per cent more to the SME market this year than they did last year. Through the process of these talks, the banks have got themselves from a position of looking at flat or reducing lending this year to looking at a position of increased lending. I regret that the noble Lord, Lord Eatwell, seems to have confused gross and net lending. It is the gross figure for the whole market that matters. We have linked—in a way that the previous Government did not—the achievement of those lending targets with the pay of the key decision-makers in the banks. If they do not meet the targets, it will be reflected in their pay in a way that was never done before.

I turn to the business growth fund. Again, I regret that the noble Lord, Lord Eatwell, may be a little confused. He talked about loans from the fund, but it is an equity investment fund; it is absolutely additional funding to anything comparable that the banks have done before. As to the pace of build-up, the banks have today committed £1 billion in addition to the £1.5 billion that they had previously committed. They will front-load the commitment of that money, which will go with the pace of businesses that are growing and are in a position to receive the equity support. It is a significant fund.

The other thing that is different about the lending targets and the agreement of this Government compared with that of its predecessor is all the qualitative measures that the banks have come up with in their task force to stimulate demand and give the confidence that SME businesses need to approach the banks to ask for the money that is now clearly available. In every dimension—by moving from partial net targets to sensible gross targets that cover 90 per cent of the market; by the linkage to pay; by capturing that market; and by the qualitative measures that are in the task force—we have come up with completely different and better measures than did the previous Government.

Similarly, on the question of remuneration, the noble Lord, Lord Eatwell, talks selectively about the backward-looking and one-off disclosure requirements that were linked to the TARP. Under normal US banking requirements, no more than five executives are likely to be caught by the remuneration disclosures. What we have done—to which the noble Lord did not draw attention—is focus the disclosures on the people who are running the main lines of business. It is not a question simply of bandings, but of focusing the disclosure on the people who matter, because they are taking the key decisions.

I am disappointed that the noble Lord, Lord Eatwell, appears to have spent too much time today listening to Channel 4 and reading the newspapers and not enough time concentrating on the agreement, which takes us to a completely different place from where the previous Government were. Perhaps it is regrettable that none of the noble Lords who were Ministers in the Treasury at different times under the previous Administration were here to put him right.

My Lords, the Minister repeated a very complicated and extensive Statement on what the Government propose to do. One thing is clear: they are right to get rid of the tripartite agreement that was so disastrous under the previous Government. It would seem that the Government are now adopting a very balanced view. They have a very difficult task in maximising revenue from the City while at the same time not driving people abroad who would otherwise contribute an enormous amount to the British economy.

When the previous Statement was made, I expressed concern that in the discussions that the Government were having, they confused the situation by appearing to say, “We will be soft on bonuses, provided you lend”. In the event, it is clear that the Government are being extremely tough on bonuses and have reached a separate agreement on increasing the amount of lending, which is so important.

The public anger on this matter is very much related to the expression “bonus”. In the public mind is the simple thought that any amount extra that is paid ought to reflect performance. However, what has been so clear in the banking sector is that bonuses continue to be paid on a huge scale while performance has been lamentable. Can my noble friend say to what extent the restrictions that are now being placed on bonuses will ensure that they reflect the performance of the various individuals and banks concerned? The idea of a pool of bonuses among the banks when their performance has been very poor is, I think, a serious problem. The bonuses for individuals seem to be related hardly at all to performance.

Finally, I welcome the fact that much tougher action has been taken with regard to the banks which have been rescued by the taxpayer and that the remuneration committees and, in particular, UK Financial Investments Ltd will make sure that in future these matters are looked at on a commercial basis while ensuring that bonuses are not excessive.

I am grateful to my noble friend Lord Higgins for pointing out that at the heart of the failure of the system and the mess that this Government have had to pick up and sort out was the failure of the tripartite system of regulation, which of course we are sweeping away. Seeing the noble Lord, Lord McFall of Alcluith, opposite reminds me that he very perceptively characterised it as a Rolls-Royce system when it sat on the shelf but an old banger when it got on the ground. I wish that I had his turn of phrase, but the tripartite system was indeed at the heart of it.

As to bonuses and their linkage to performance, that is absolutely at the heart of what the Government have agreed with the banks today. I think that the critical new element is the linkage between the performance of the banks on meeting SME lending targets and the pay of the chief executive and the other senior executives who are directly responsible for that line of business. Therefore, it is a crucial point. It is well made by my noble friend and it is at the heart of this agreement.

I refer the House to the Register of Lords’ Interests, as I have an interest in this area. Does the Minister not agree that there is still too much wriggle room on the issue of transparency for the banks and that one of the big issues in this crisis was the mispricing of risk? Therefore, the more people whose salaries are known—particularly, for example, traders, although I do not know whether that is taken into consideration here—the better in terms of aligning the risk. When we talk about bankers’ bonuses and anger, the Governor of the Bank of England had it right when he appeared before the Treasury Select Committee a few years ago and said that the incentive structure in banking was distorted. Do the Government not agree that we need to tackle that issue to ensure that we restore trust and confidence in the banking sector?

Indeed, I completely agree with the noble Lord, Lord McFall. With regard to the Merlin agreement, the fact that the five highest-paid senior executive officers now come within the remuneration disclosure is very important. As the noble Lord will know, senior executive officers typically encompass not only those responsible for managing the key divisions but also people such as the chief financial officer and the chief risk officer, who are at the heart of controlling risk in the system. Therefore, I think that the noble Lord’s point is very well made and, as I said, the Government will consult on this issue in the forthcoming year.

I think the Minister for repeating the Statement and I agree with him that the noble Lord, Lord Eatwell, should surely be directing his moral outrage at his colleagues—not least the noble Lord, Lord Myners. If it was so easy to make all the changes which he is castigating the Government for having failed to make, I wonder why none of those changes was implemented by his Government.

A number of measures in the Statement are welcome. I welcome the fact that cash bonuses for the part-nationalised banks are limited to such a small amount. The noble Lord, Lord Eatwell, may not think that £2,000 maximum cash bonus is a change, but if you ask bankers whether they think that it is a change, I suspect that they would have a different view. I also welcome the fact that the banks in their statement said that they aim to foster more demand in lending to SMEs. Given that the view of the SME community over the past two years has been that those banks have been thwarting demand and that one of the main problems has been the attitude at the top level of those banks on lending to SMEs, if senior management in those banks get their regional people to foster more demand for loans, there will be more loans. That is clearly what we want.

I want to make two points for now. First, there is a rather curious suggestion about consultation on disclosure of the highest paid earners. That is the proposition that the banks should publish the pay of the board plus eight of the highest paid senior executive officers. Eight seems to be a figure plucked out of the air. Surely it would be more sensible for the Government to consult more widely and, in particular, to consider whether disclosure should not apply to everyone in the banks who earns above a certain amount.

Secondly, as the noble Lord, Lord Eatwell, pointed out, the Banking Commission is the next part of the story in the operation and regulation of the banks. The Statement simply states that the Government are looking forward to receiving the recommendations of the Banking Commission. That is an extremely weak statement. It implies that the Government will receive them, say thank you very much and then leave them on the shelf. Can the Minister reassure me that the Government will be minded to accept proposals from the Banking Commission and will not simply regard this as an academic exercise?

I am very grateful to my noble friend Lord Newby for expressing some of the sentiments that I wish I had expressed as succinctly as he did about the Opposition's abject failure to have gripped these issues earlier, and for pointing out what a dramatic difference a mere £2,000 in cash makes to a senior banker who, under previous arrangements, would have been expecting to receive many multiples of that.

We will consult on my noble friend's specific questions and have no presumption as to where the outcome of the consultation will be on the remuneration/disclosure issue. There is no particular magic about the number eight, but eight plus two executives on the board, which there might typically be, would total 10. That is about double the number disclosed in, say, the US or Hong Kong so we are already exceeding disclosure in the US and Hong Kong and going further to a position which might double the number of directors whose remuneration is detailed. That seems to be a good point to start a consultation, but it will be an open one.

As for the independent Banking Commission, I can absolutely confirm that the Government do not remotely regard this as an academic exercise. We appointed the commission early after we took office because we thought that it was so important to get to the bottom of the issues about the structure of the industry, “too big too fail”, and so on. When my right honourable friend says “Look forward”, he means in a positive sense look forward to what will be a serious and important piece of work.

My Lords, many commitments in Project Merlin—such as more lending to more businesses in the regions; the establishment of the equity fund promised in the Rowlands review, which was an initiative of the previous Government, as the Minister will remember; and, indeed, the support for the big society, if that comes off—if delivered on, and it is a big if, are welcome, and no one wants a vendetta against an important industry such as financial services. However, on the central question of remuneration, the Government have set themselves the important test that it should be fair and reasonable. On that basis, does the Minister agree that the Government’s proposals fail that test? Does he think that the £9 million bonus that Mr Bob Diamond will get from Barclays is fair and reasonable—yes or no? It seems to me that the Government have to be clear on these issues. That is particularly true for a Government where the Secretary of State for Communities and Local Government seems to think that the problem of local authority cuts can be solved by cutting chief executives’ pay. That is populist politics being played in the public sector, but will the Government play honest politics when dealing with bankers’ bonuses?

My Lords, today is precisely about honest politics. In answer to the first part of the noble Lord’s assertions and questions, there may have been plenty of good ideas floating around—whether it was the Rowlands review, the tax code for banks, the big society bank; I could go on and on and on—but the previous Government were completely unable to deliver on any of them. My right honourable friend has today set out hard delivery on so many of these issues. As for the question of remuneration, I believe that the deal on remuneration that has been done today on behalf of the British taxpayer and the British people is a fair and reasonable one. I certainly do not know, and do not wish to know, the individual bonuses that hypothetically may go to people, and I do not intend now or in the future to comment on individual banker's bonuses. The critical thing is that we now have a fair and reasonable deal between the Government, as the representative of the taxpayers of this country, and the banks, and it is one that will be enforced.

My Lords, would the Minister care to consider the impact of the failure of the tripartite regulatory system in the context of European regulatory arrangements and our credibility not only in the European context but in the domestic context as well? Does he think that after this disastrous failure of policy, a new regulatory framework is urgently needed to put stability back into the system?

I completely agree with my noble friend Lord Risby that at the heart failure of the failure and the heart of what needs to be done is the need to get the British regulatory system back on to an even keel. That is why we came forward with ideas in opposition and consulted widely on them even then. We have also moved fast in government. Only last week the appointment of the prospective head of the new consumer body was announced. We will continue urgently to roll out our proposals on the new regulatory structure. I absolutely take my noble friend's point that in the context of the United Kingdom's standing internationally, the leadership that we have shown in getting a new structure in place has been very much understood and respected by our peer group in Europe and more widely.

My Lords, does the Minister not agree that it is absolutely crucial that a significant portion of the new lending should go to small businesses in areas of deprivation and to areas that will suffer severely from job cuts in the public sector? As a consequence, what will he do to encourage the banks to take a more sophisticated view of credit analysis so that micro-companies and new companies, which are the best hope in those areas, have access to funding, rather than just well-established small entities?

I am grateful to my noble friend for allowing me to emphasise that the banks have at the heart of their intention on all lending to make sure that there is absolutely universal coverage across the United Kingdom. On the question of how businesses are put in a position to come forward, one of the most important elements of the banking task force is its proposals for mentors for businesses. Whether that is mentoring businesses to put them in a better position to apply for and take up loans or having a much clearer system of principles around lending and appeals processes, there is certainly a package of measures which goes to the points my noble friend rightly makes.

My Lords, may I suggest to my noble friend that the central issue here is the rate of growth of credit, which is at the bottom of all banking crises? It does not matter what system of regulation is in place if it does not bring the rate of growth of credit back in line with the rate of growth of the economy. There has been a considerably faster rate of growth in credit. If that continues, we are going to have another banking crisis, whatever the system of regulation may be. Perhaps I may ask a specific question. One of the reasons the banks have made so much money over the past couple of years is that the Bank of England has been lending them money—money that it does not have, incidentally—at an interest rate of around 0.5 per cent. The banks have been able to lend that money on at 4, 5 and 6 per cent and thus have made a huge amount of money, out of which they are paying bonuses, presumably on the basis that it has been their clever management that has made all this money. Has my noble friend pointed out to them the value of this subsidy, and has he indeed calculated the value of this subsidy towards banks’ profits? We needed to help them rebuild their balance sheets, but that was why they were being lent money cheaply by the Bank of England. They are booking that as profits, attributing it to their own clever management, and paying themselves bonuses out of it.

My Lords, because of the failure of the regulatory system and because of the huge over-leveraging in the economy, it was absolutely necessary for the previous Government to take drastic measures to get the banking system back on to an even keel, and of course that did mean that a number of measures were taken by the Bank of England to pump in liquidity under special schemes which always were time-limited and will have to be repaid. That was a necessary part of the rescue of the system. As I say, those measures are time-limited. It is precisely a combination of those measures and making sure that the banks, with the capital and liquidity available to them, now focus on advancing the resources they have to the small and medium-sized enterprises of this country that is at the heart of the agreement today.