My Lords, with the leave of the House, I will now repeat a Statement made by my honourable friend the Economic Secretary in another place. The Statement is as follows.
“With permission, Mr Speaker, I would like to make a Statement regarding the Chancellor’s speech at the Mansion House last night.
First, on the Royal Bank of Scotland, the £45 billion that the previous Government put into RBS represents the single largest bank bailout in the world. This bank employs over 60,000 people in Britain and provides over a quarter of all the small business lending in Britain. Its problems and slow recovery have been one of the biggest drags on our economy, as many smaller firms know all too painfully. The restructuring of RBS and the work that Ross McEwan and his team have done since have brought us to a decision point.
This Government were not responsible for the bailout of RBS, or the price paid then for shares bought by the taxpayer, but we are responsible for getting the best deal now for the taxpayer and doing whatever we can to support the British economy. As the Chancellor set out, there is no doubt that starting to sell the Government’s stake in RBS is the right thing to do on both counts.
That is not just our judgment—it is the judgment of the Governor of the Bank of England, whose views the Chancellor sought and whose letter on the issue we published last night. In the governor’s words:
‘It is in the public interest for the government to begin now to return RBS to private ownership’.
He goes on to say that this,
‘would promote financial stability, a more competitive banking sector, and the interests of the wider economy’.
Indeed, he adds,
‘there could be considerable net costs to taxpayers of further delaying the start of a sale’.
It is also the conclusion of the independent review which we commissioned from Rothschild and also published last night. It says that beginning sales now and increasing the free float will improve the marketability of our remaining stake, and it means we can expect to see larger sales on better terms in the future. But only if we start now.
This independent report confirms that if we take into account all the sales we have authorised of our bank assets, and the fees we have received, at the current valuation taxpayers can expect to make £14 billion more than they paid out. So in the coming months we will begin to sell our stake in RBS. It is the right thing to do for British businesses, British taxpayers and the British economy. When we take all the bank interventions in total—Lloyds, Northern Rock and scheme fees—we are making sure that taxpayers get back billions more than they were forced to put in.
Of course, given the size of our stake in RBS, the sales will take some years and will likely involve all types of investors. With such a complex investment case, we have to start with institutions but, as the Chancellor said, there is no reason why ordinary investors—in other words, members of the public—should not take part in due course.
Turning to Royal Mail, as the Chancellor set out last night, the first sale of our remaining stake has begun. The Government have today sold half of the 30% stake they retained in Royal Mail plc, at a price of 500p per share. This sale has raised £750 million, and that money can be used to reduce public debt.
We have said that we will dispose of all our shares in Royal Mail in this Parliament. We will continue to review the options in light of our stated sale objectives, but there is no rigid timetable. Value for the taxpayer remains the priority.
The Chancellor also announced last night that the Government intend to gift up to 1% of the shares of the company to Royal Mail’s UK employees. This is in recognition of their work in turning Royal Mail around.
Finally, the Fair and Effective Markets Review yesterday published its final report. It sets out 21 recommendations to help restore trust in the wholesale fixed-income, currency and commodity markets.
The review was established by the Chancellor of the Exchequer and the Governor of the Bank of England in June 2014 to help to restore trust in those markets in the wake of a number of recent high-profile abuses. It is centred on four principles. First, individuals must be held to account for their own conduct. Secondly, firms must take greater collective responsibility for market practices. Thirdly, regulators should close gaps in regulatory coverage and broaden the regime holding senior management to account. Fourthly, given the global nature of these markets, co-ordinated international action should be taken wherever possible to improve fairness and effectiveness.
As the Chancellor set out in his Mansion House speech last night, there is no trade-off between high standards of conduct and competitiveness. Implementing the reforms set out in this review will ensure trust in our markets and strengthen London’s global leadership position.
This Government have a long-term plan to make the UK economy the most prosperous of all the world’s major economies in the coming generation, and for that prosperity to be shared widely across our one nation. The steps we are announcing are a key part of achieving a new settlement for our public finances and for our financial services industry, and will help us secure that bright future for all. I commend this Statement to the House”.
My Lords, that concludes the Statement.
My Lords, I am grateful to the Minister for repeating the Statement. He could have spared us the reference to the long-term economic plan, which seems to vary and inflate almost from day to day in terms of the length of time that it occupies and the objectives that are set for it.
I am pleased that the Statement recognises that the taxpayers who bailed out RBS during the global financial crisis want value for their money and are somewhat suspicious of any rush to sell. That is why they will be suspicious of the Government’s actions at this time. RBS is still restructuring its business and it is very difficult to see the outcome. It is still awaiting a US settlement for the mis-selling of subprime mortgages. In case noble Lords have forgotten, the global crisis started with subprime mortgages in the United States. Banks started to collapse long before a Labour Government were ever considered to have overspent as the basis for the global crisis. I hope that we will have no references to that in this short debate on the Statement.
The Chancellor said two years ago that he would countenance the sale of RBS only when,
“the bank is fully able to support our economy and when we get good value”.
Does the Minister really think that these tests have been met? While we have always supported the eventual return of RBS to the private sector, it is surely essential that the Treasury gets back as much money as possible to help pay down the national debt, and therefore to limit the impact on the wider population of the costs involved. RBS of course had to be bailed out with great urgency but it does not have to be sold off at the same speed. It is not the case that the Governor of the Bank of England is telling Ministers that the price is right now. He makes it very clear in his letter that questions of valuation are entirely for the Government; it is their judgment which is, rightly, at stake.
On the specifics, can the Minister clarify exactly what the Government accept as a break-even share price for the bank? A potential £7.2 billion loss might be understating things because the Rothschild calculation, which is the basis for that figure, has netted off the fees that the Government have received from the bank since 2008.
When it comes to Lloyds, the Treasury has already pledged that shares sold through the Government’s trading plan will not be sold for less than 73.6p—the price the Government paid for them. That is the red line for Lloyds. What is the equivalent red line for this premature sell-off? Why cannot the Minister give us more detail about precisely when the sale will commence? What impact does he predict that that will have overall on the debt reduction?
It is important that we do not allow the Government to state that RBS losses can be put against the gains that will potentially be made in other areas such as Lloyds. RBS was purchased by the public in dire circumstances and taxpayers have every right to insist that the Government get their money back. But we are not too confident that the Government can do this; we saw their recent effort regarding the first part of the sale of Royal Mail, and look what a mess they made of that, with a loss for the public purse.
Finally, it may be noted that the Chancellor made his statement to the banking community last night, and the Minister repeated constantly in his contribution what the Chancellor said to the bankers. They are an important section of the community, but I do not think it does this Government any credit when Parliament is treated in such a mean fashion: when a junior Minister—a junior Minister—speaks in the other place and a Whip speaks in this place. Much as I have regard for the talents of the noble Lord who is addressing us, he will recognise that this Statement deserved a Treasury Minister speaking here, and that the Chancellor ought to have spoken in the other place earlier today.
My Lords, I have been away from the markets too long over the last two years, at the Department for Transport, to know whether this is the right time to be selling off either RBS or Royal Mail. However, first, although I only skimmed it, I did not find that Rothschild’s report to be terribly enlightening. Secondly, if this is a fire sale to fill holes in the budget because the Government are foundering on trying to find that impossible £12 billion in welfare cuts, and have handcuffed themselves in terms of raising taxes through their commitment to a law to prevent them from doing so, that is absolutely the wrong answer. This should not be used to fill other holes in the bucket unless we are getting the best possible value for these two assets.
I want to make a final try to persuade the Government to take a much more constructive approach to returning RBS to private hands. The Government should be breaking this bank up, into either regional or community banks, to begin to remedy a critical missing layer in our banking system. The Government carried out a half-hearted review—I know how much they resisted even doing that review—of alternatives to simply passing this back as is, as it were, to the public. They used an investment bank to do the review, which was exactly the wrong choice—an institution which cannot understand the dynamic. This should go out to the public: there should be a discussion with small businesses and a general consultation to try to decide how we can best return RBS to the private sector.
Small and medium-sized companies find it difficult still to access credit, and that credit is vital to economic growth and absolutely vital for productivity, which the noble Lord, Lord O’Neill, has often talked about. On Monday, we had the debate on trade and investment, and noble Lords brought out the difficulties for small and medium-sized companies in raising export finance. Leading economies that successfully grow their small businesses, such as Germany, the United States and Switzerland, have some form of regional and community banking. We are missing this layer, and here would be a great opportunity. Of course we have new players—challenger banks and peer-to-peer lending—but RBS, broken up, would really shift the landscape. Surely keeping RBS as it is continues the too-big-to-fail and too-big-to-manage problems that we all bemoan. Although it is guilty of plenty of scandals, RBS largely failed the old-fashioned way by making appalling loans.
The taxpayer is not going to make money on this sale, so why not use it to achieve something much more important than immediately money—a shift in the banking landscape that would underpin growing prosperity? Once this opportunity is lost, it will never return.
I will make one last comment, on the fair and effective markets review. I need time to go through that in detail, but the RBS losses are a reminder of the depth and the consequences of the banking crisis. We all always knew that when the crisis itself passed, the banks would begin their special pleading, sweetened with a little blackmail, to reverse both the penalties and levies that they faced and the regulation that has now been introduced. I ask the Government not to go wobbly on us. We need the Government to stand tall and carry through on the recommendations of the Parliamentary Commission on Banking Standards and others to give us a secure banking system.
My Lords, I thank the noble Lord and the noble Baroness for their remarks. First, the noble Lord opposite commented on the mention in the Statement of the economic plan. The long-term economic plan is the reason we are able to make this sell-off at the moment and why we think that it is for the benefit of the nation to do this now. We make no apologies for mentioning the long-term economic plan, which has been so successful.
The noble Lord referred to a rush to sell. There is no rush to sell and there is no question of a fire sale. The Government—the nation and the taxpayer—own 79% of RBS, and there is no question of selling the whole lot as a fire sale. At the moment, we are going to sell bits of it in tranches, first to institutions: that is the way that is most suitable and the way recommended both by the Governor of the Bank of England and by independent advice. We have met the tests that the noble Lord, Lord Davies, mentioned. We will obviously get as much as we can for the sale and certainly intend to get value for the taxpayer. If all goes well, based on prices at 5 June, there will be £14 billion more than we paid to rescue the banks. It is not unreasonable to put those together, because this is part of the overall government strategy of returning these banks to private hands so that they can operate in a more effective way.
I completely agree with the noble Lord opposite that it is the Government’s judgment in the end to decide on the price. It is the Chancellor’s responsibility to get the best price for the Government, and he is perfectly prepared to take on that responsibility. In fact, he mentioned in his speech that it would be much easier for him to wait until the share price went up and not do the initial tranche at a loss. However, he is not going to do that, but is going to make the right decision for the country.
The noble Lord, Lord Davies, asked why we do not have a red line, as with Lloyds. We are going to allow the sale to happen in tranches, as I said, and the price will depend on what happens as those individual tranches go through. It is a bit rich for a party that sold gold at an all-time record low in government to complain about Royal Mail and getting the price wrong.
It is true that the Chancellor made his annual Mansion House speech to bankers. That is a perfectly normal place to talk about economic policy. I have some sympathy with the noble Lord’s last point, when he asked why the Chancellor did not make the Statement himself and why the Treasury Minister here did not repeat it. I have to be honest and say that I asked that question too, but of course the reason is that my noble friend the Minister is doing important government work elsewhere for the benefit of the nation.
The noble Baroness, Lady Kramer, was honest enough to admit that she has been away from the markets too long to quote the correct price, unlike the noble Lord opposite. She referred to a fire sale. We are not, as I said, selling this all at once. The pricing of these things is very difficult, and it is important to know that the loss that people are talking about is only if we sold all of our 79% share at the existing price that pertained on 5 June. The loss or profit may go up and may go down. That of course applies to the overall £14 billion profit that I quoted, which is dependent on the price that pertained on 5 June.
The noble Baroness referred to a lost opportunity to reorganise RBS before we sell it off. That is a slightly different theoretical question. It is an important one, but it is beyond today’s remit and the question of price. However, it is important to know that our strategy in selling banks and putting them back into the private sector is because we want them to do their job properly of supporting SMEs and British business. They will do that better in private hands. That is what our independent advice told us. The governor was very clear about that.
My Lords, the restructuring of RBS is certainly to be welcomed but the gap between the price paid for the RBS shares and the price now is very significant. If the policy of the Official Opposition is that we should wait “till we get our money back”, we may wait a very long time indeed. Surely it is better, as the Chancellor proposes, to make a start in the process of disposing of these shares on what is the best basis at a particular moment of time. However, would my noble friend also agree that the practice of imposing fines on banks for misbehaviour has an adverse effect on their share price, penalises the shareholders and, in this particular case, penalises the taxpayer as well? There is no significant evidence that it has any deterrent effect on bad behaviour. Surely it is much better to go for the proposal now made by the Governor of the Bank of England, which I hope will be backed up by legislation, to impose heavy penalties—criminal penalties as well—on those who are actually responsible for causing the damage to the banking system which we have experienced in recent years.
My noble friend is exactly right. He talked about fines on banks. It is very important, as he mentioned, that the Governor of the Bank of England spoke in his Mansion House speech of increasing penalties from seven to 10 years so that individuals know that they cannot play with the balance sheets of their banks and get away with it, and the penalties as such rest on the shareholders. I completely agree with him. Personally—no, “personally” is irrelevant. The Government think that, despite the fact that we increased regulation, made it more efficient and increased criminal penalties, the most important thing is the culture and ethics of the bank. That is from the top of the bank downwards. If bankers and their boards and chief executives know that and are absolutely determined that ethics should prevail, we will be in a much better position than we were. That is the single most important thing.
My Lords, I thought that somebody from the other side might get up, but evidently not. I welcome the Statement, as it goes, particularly in terms of selling the RBS shares. However, I hope my noble friend and the Government will not take too much criticism for selling them at a price below that which the Government paid. As an old stockbroker—admittedly, it is 30 years since I was one—one knows that a share is worth what it is worth at the moment, not what you paid for it. If you go on looking at what you paid for a share, your future will end in tears. The reason you hold the share is that you hope its value will go up and not down, and you wonder if you have anything better to do with the money instead. That is why you should possibly sell. I welcome that. As my noble friend Lord Higgins said, this is only the start of the sale process. It is not necessarily all to be sold at this price. If you were to wait until some time in the future when the share price might get up to what it was bought for, you could wait for ever and ever. Also, although my noble friend already said this, he does not want to take too much advice from the party opposite about this sort of thing, as we all remember the gold sales with billions and billions lost.
My noble friend is correct. Of course the Government are prepared to take criticism if criticism is due, but in this case it is not. We must also remember that it was not this Government who paid the purchase price but a previous Government who had to deal with a crisis situation brought on by, among other things, the chaotic system of bank regulation. If this Government are prepared to deal with that in a way that can provide an overall profit to taxpayers, they should be—as I am sure they will be—duly given the praise they deserve from all parts of the House.
My Lords, the Minister has said several times that it will take some years before the whole sell-off is complete. Will he confirm that, while the Government remain responsible for the administration of RBS, it is their intention to press ahead with the disengagement between the investment side and the retail side? I ask that because RBS has recently, in Scotland, announced the closure of some of its small branches. That runs against the whole history of the Royal Bank of Scotland. As my noble friend Lady Kramer said, the local branches under the authority of a branch manager used to be a positive help to small, local businesses. Unfortunately, that has long since gone, and I hope we can get it back.
My Lords, the Government have legislated to implement the Vickers ring-fencing recommendations through the banking reform Act, and it is now up to regulators to finalise those detailed rules. The Government remain committed to the implementation of the ring-fencing regime by 2019. The ring-fencing of retail banking services will help to make sure that taxpayers are not on the hook again if the bank fails in future.
My Lords, perhaps my noble friend can enlighten me. The noble Lord, Lord Davies, said that lending to sub-prime borrowers happened before the last Labour Government. Does my noble friend know why the last Labour Government did not then act? Was it not because the banking regime under that Government was extremely weak? Has it not been tightened very effectively in recent years?
Of course, the banking regime has been tightened, as we all know. I mentioned a few minutes ago criminal penalties for rogue traders and also the officers of banks. It is true that when we look at the previous regime, there is no doubt that we are making progress in that respect. As I said before, it is important that the culture is there in the banks. I believe that that is better than it was.
My Lords, perhaps the Minister can tell the House why it is considered that now is the right time to make this sale. Incurring a £15 billion loss for the taxpayer is clearly a rather painful experience. The reasons for selling shares in those circumstances are usually either that you have run out of money, which is palpably not the case here, or you fear that the shares will trade lower. The reasons given by the Bank of England are interesting but, in investment terms, not convincing. Could the Minister explain why it is necessary to do this now?
First, if the Government thought that the price was to reduce in future, they would sell the whole lot now—and they are not. As the noble Lord mentioned, the Governor of the Bank of England said that the return would promote financial stability and a more competitive banking sector. He also said—this has not been mentioned—that avoiding the sale would have the potential to incur considerable net costs to the taxpayer, further delaying the start of a sale.
Rothschild’s advice also said that by starting the sale now,
“the government will increase the free float which should in turn improve the marketability of the remainder of its shareholding”.
It will also send,
“a strong signal that RBS is on the road to recovery and that its reprivatisation has begun may also bring further benefits to the bank and therefore to the taxpayer as a shareholder”.
“Market conditions for financial assets and bank shares are … good”.
The overall accumulation of that advice is that, in the absence of unforeseen circumstances, taxpayers can comfortably expect to secure proceeds from their interventions in the banks that exceed the money they put in.
My Lords, there was a stage when Governments owned travel agencies and steelworks, not very profitably. It is not right for Governments to own those businesses and it is not appropriate for Governments to own banks. I am delighted to hear that the Government are making a start—probably only a small one—in exiting RBS. No doubt, the bank will thrive more in the private sector. Would my noble friend agree with me that at some stage it would be desirable for the customers of the Royal Bank of Scotland to be offered shares in the bank?
They have been offered an ability to participate in the purchase. The Chancellor said that although the first tranche will be done on an institutional basis because of the complex investment case, there is no reason why customers and taxpayers, importantly, should not be able to participate in the sales at a later date, and I very much hope that that will happen.