Financial Services (Banking Reform) Bill

Lord Lawson of Blaby Excerpts

Wednesday 23rd October 2013 Lords Chamber

[Lord Newby (LD)]

My Lords, the amendment would introduce a system under which the regulators would be able to award compensation against a firm that mistreated a whistleblower. Whistleblowing is an important issue and the Government agree that we need to have a proper system for protecting whistleblowers in the financial services industry as elsewhere. However, I do not think that the noble Lord’s amendment would be a helpful addition to the legislative framework, particularly at this point. Let me explain why.

In the summer, the Government launched a call for evidence on the whistleblowing framework to see whether there was a case for reforming the law protecting whistleblowers. This will be able to take account of submissions from the financial services regulators as well as from other interested parties. The call for evidence closes on 1 November and, once the evidence has been assessed, the Government will consider what if any action needs to be taken. It would not be sensible to prejudge the outcome of the call for evidence and implement changes without first looking at all the evidence available to support any changes. Moreover, the Government do not think that it would be appropriate to have different laws or protections for whistleblowers in different sectors. It would not be right to suggest that whistleblowers were more deserving of protection in some sectors than in others. I am sure that this is not what the noble Lord intended, but there is a risk that giving the regulators a special role in protecting whistleblowers in the financial services sector will be seen as special treatment for that sector.

Finally, this power does not seem consistent with the role and competence of the financial services regulators. There is a comprehensive system of protection for employees in employment law, which applies across the board, protecting workers in every sector. It provides a route of redress using employment tribunals for individuals who have suffered a detriment or dismissal as a result of blowing the whistle.

[Lord Lawson of Blaby (Con)]

I think my noble friend may have slightly missed the point. It is well documented that what happens normally is not that the whistleblower is dismissed—then, of course, there is the protection of employment law—but that he is stuck in that job and will never ever have any further promotion. I may be wrong, but I do not think there is any redress under employment law for that.

[Lord Newby]

My Lords, to the extent that there is or is not redress for that, the review which is under way will be looking at that element of the system as well as everything else. The evidence submitted, including by those who are keen to see the law changed and strengthened in that respect, will be able to take account of all that.

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Moved by

[Lord Lawson of Blaby]

99: Before Clause 16, insert the following new Clause—
“Abolition of UKFI
(1) All property, rights and liabilities of UKFI are, by virtue of this section, transferred to the Treasury.
(2) Immediately after the transfer effected by subsection (1) UKFI is dissolved.
(3) “UKFI” means UK Financial Investments Limited, company registered number 06720891.”

[Lord Lawson of Blaby]

My Lords, the noble Lords, Lord Turnbull and Lord McFall, also have their names to this amendment. It is the simplest amendment that we have before us. It may be because it is so simple that it was the first one that my right honourable friend the Chancellor rejected after the commission had published its recommendations. I think that he was hasty and I therefore hope that the Government will reconsider this.

Briefly, as a result of the crisis that broke in 2008, the Government felt obliged to rescue a number of our biggest banks. The Government took control of these banks to the extent of more than 80% in the Royal Bank of Scotland, which was their biggest stake. This was the previous, Labour Government, and instead of straightforwardly taking this stake which the taxpayer owned—and the Government is a trustee for the taxpayer—they interposed this curious body called UK Financial Investments Ltd. We all know why this was done; I fully understand it and am extremely sympathetic. There is always a fear that a Labour Government might be engaged in a policy of bank nationalisation. In order to demonstrate that this was just a rescue operation and not bank nationalisation, they created this body, UKFI, to stand between the Government and the bank itself.

Clearly, that no longer applies. There is no longer a thought that somehow this is nationalisation by the back door. Whatever else the coalition may be guilty of, it is not seeking to do that. So the whole rationale—the whole raison d’être—of UKFI has gone. Incidentally, not only was it a conclusion of the commission that UKFI should be abolished but it was also the strong view of the previous Governor of the Bank of England, now the noble Lord, Lord King. He made it absolutely plain.

The reason is clear. UKFI gets the Government off the hook in a way that they should not be off the hook and obscures what can really go on. What has happened in practice is that when the Government have had difficult decisions to take, they say, “Oh, we can’t do it. UKFI owns the controlling stake”. When, however, the Government want to intervene—for example, the removal of Stephen Hester from the job of chief executive of RBS—they use their muscle. When it is convenient to act directly, they do; when it is not convenient, they have this charade of UKFI to give them an excuse for not doing what needs to be done.

If, as a Government, you have the responsibility of the controlling shareholding, that should be quite clear and you should exercise that responsibility properly and be held to account for it. The Government say, “But we don’t have banking expertise”. Of course they do not have banking expertise. It does not matter because they can appoint the right people to the boards of the banks that they hold and, as we have suggested, they can also have a cadre of banking experts within the Treasury who can advise them on how to handle the situation.

Like the previous Governor of the Bank of England, we have said that quite simply UKFI should be abolished. I suspect that many people secretly—or at least without admitting it—realise that that should have been done long ago, but it is not too late. The case of the Royal Bank of Scotland is particularly to the point. If UKFI had not existed, the Government would have had to face up earlier to the question of what to do about the Royal Bank of Scotland Group. The commission has said that there is a very strong case, which we have advocated, for the classic good bank/bad bank split. The good bank/bad bank split is a classic technique for dealing with major banking problems: put all the bad loans into the bad bank, as was done with Northern Rock, and not only can the good bank be privatised much more quickly than the group as a whole, it can get back to lending to SMEs much more effectively.

One of the biggest economic problems we have is the difficulty of lending to SMEs. Some people say, “Money is very cheap. The rates could not go any lower: they are 0.5%”. They are not 0.5% for SMEs. A good SME is lucky if the rate of interest, including the charges it has to pay, is in single figures. Very often it is 10%, 11% or 12%. There is a real problem in this country that the banks have so much bad debt on their books, and are so scared of having any further bad debts—particularly since they have been told they have to strengthen their balance sheets and so on—that they are far too reluctant to lend. This is a real problem for the British economy.

I am very glad that my right honourable friend the Chancellor has said that he will set up an inquiry and that he has asked the Rothschild Group to look into this, given that that was the recommendation of the banking commission. I hope that this evening my noble friend the Minister can tell us the outcome of the Rothschild investigation and what the Government’s intentions are. This is important to the British economy, bearing in mind the huge size of the Royal Bank of Scotland Group.

As we have recommended, the way to clean this up is to abolish UKFI, which was there for a purpose that no longer exists. I very much hope that the Government will reconsider the Chancellor of the Exchequer’s overly hasty rejection of the modest and sensible recommendation of the commission. I beg to move.

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[The Commercial Secretary to the Treasury (Lord Deighton) (Con)]

My Lords, the intention of the amendment is to transfer into HM Treasury the function of managing the Government’s shareholdings, in particular in RBS and Lloyds. As my noble friend Lord Lawson has pointed out, the Chancellor of the Exchequer, in his Mansion House speech in June, has already made it clear that he rejects this particular PCBS recommendation.

As has been pointed out in a number comments already, UKFI was not a creature set up by this Government; it was set up by the previous Government when they made the initial capital injections into RBS, Lloyds, Northern Rock and Bradford and Bingley, with the idea of being able to manage these investments on an arm’s-length commercial basis. So that was the genesis.

This group works closely with the management of RBS and Lloyds to assure itself of their approach to the strategy and to hold management to account for their performance. RBS and Lloyds are led by their management and board in the interests of all shareholders, including the taxpayer. So, while it may be possible to imagine different arrangements to fulfil these objectives—you can make the arguments and the pros and cons of the different ways of doing it—the current ones work well, as my noble friend Lord Garel-Jones has said, and it would not make sense to change them at this stage. So, just as my noble friend Lord Lawson said it is a simple amendment, there is a simple reason to reject it—it does not make any practical sense. UKFI is working fine and the time and effort it would take to pull it back into the Treasury and to reorient all that work there would distract our efforts on the important work that is currently going on.

My noble friend Lord Lawson referred to the review at RBS in particular, which we are two-thirds of the way through, and the bad bank/good bank option. I am afraid I am going to disappoint my noble friend. I am not going to tell him what the result is but it will be ready this autumn and we will announce the outcome and the rationale behind it. The matter is being pursued with great urgency and the last thing we want to do at the moment is to destabilise the arrangements for conducting that important analysis, which is really the most important thing.

I reiterate that UKFI is staffed by some very good top people. I have worked with them and I have seen the work that they do. Frankly, we have been able to recruit top-class people to do this work on our behalf. I can assure the Committee that the Government continue to value the role that they play. It was demonstrated again, as my noble friend pointed out, by the role they played in advising the Chancellor on the successful divestment of 15.5% of the Government’s shareholding in Lloyds at 75p per share. They will carry on looking at the full range of options for RBS and managing the timing of the subsequent tranches of the sale of Lloyds back into private ownership.

I am grateful to the PCBS and the noble Lord for raising these issues, but the Government consider that UKFI has a vital role to play which it is performing well. I therefore cannot support the amendment and I urge the noble Lord to withdraw it.

[Lord Lawson of Blaby]

My noble friend will not be surprised to hear that I am wholly unconvinced by his reply; nevertheless I shall please him by withdrawing the amendment.

Amendment 99 withdrawn.