National Loan Guarantee Scheme

Mark Hoban Excerpts

Tuesday 20th March 2012 Written Statements

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

At the autumn statement, the Chancellor of the Exchequer announced a package of measures designed to ease the flow of credit to smaller businesses. The national loan guarantee scheme (NLGS) was one of these measures. Under the NLGS, the Government will allow eligible banks to issue limited quantities of Government-guaranteed debt, up to a total of £20 billion. Banks will be required to pass on the resultant reduction in funding cost through a reduction in the interest rate (by 1 percentage point) charged on new loans to small businesses: businesses with turnover of less than £50 million per annum.

The scheme constitutes state aid to participating banks and to small businesses, which the European Commission approved on 14 March 2012; the approval statement can be found by following the web link to this footnote¹.

However, the scheme is designed in such a way that banks do not retain any benefit; that means the reduction in the cost of borrowing from the Government-guaranteed debt is either passed on to the small businesses or paid to the Exchequer in the form of a fee. Details on the design of the scheme are published today; please follow this link for further information http://www.hm-treasury. gov.uk/nlgs.

In setting up this guarantee scheme, the Government are relying on their statutory powers derived from Section 228 of the Banking Act 2009. As indicated in the autumn statement of the Chancellor of the Exchequer, the £20 billion would not be an additional contingent liability for HM Treasury, as it was previously recorded when the Bank of England asset purchase facility was set up.

As such, this is an effective transfer from the corporate operations of the asset purchase facility, a subsidiary company of the Bank of England with an explicit guarantee from HM Treasury, to the balance sheet of HM Treasury.

¹http://europa.eu/rapid/pressReleasesAction.do? reference=IP/12/244&format=HTML&aged=0& language=EN&guiLanguage=en

ECOFIN

Mark Hoban Excerpts

Monday 12th March 2012 Written Statements

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

The Economic and Financial Affairs Council will be held in Brussels on 13 March 2012. The following items are on the agenda to be discussed:

Financial transaction tax (FTT)

The presidency will update Ministers on the state of play of discussions on the financial transaction tax, and in particular the technical work that is being undertaken on this file. Ministers will then exchange views. The Chancellor has made it clear on a number of occasions that the UK does not support the Commission’s recent proposal for an FTT. As it stands, the proposal will have significant negative impacts on jobs and growth. To avoid a damaging relocation of financial trading, FTTs would need to apply in all financial centres, and not just the EU.

Alert Mechanism Report (AMR)

Ministers will be asked to agree to Council conclusions on the AMR and hold an exchange of views. The AMR is based on a “scoreboard”, where each member state is assessed against 10 macroeconomic indicators, and an accompanying analysis. These are designed to indicate where potential external and internal imbalances may exist. The UK exceeds the threshold values on four indicators: real effective exchange rate, export market share, private sector debt and public sector debt.

The Commission will then conduct in-depth reviews on 12 member states, to assess whether imbalances or excessive imbalances exist. These member states are: the UK, Belgium, Bulgaria, Cyprus, Denmark, Finland, France, Hungary, Italy, Slovenia, Spain and Sweden. These reviews will be published in May. Greece, Ireland and Portugal and Romania are already under enhanced economic surveillance as part of their payment assistance programmes and are therefore not subject to in-depth reviews.

The Government support the macroeconomic imbalances procedure, on which the AMR is based. They are taking determined action to rebalance the UK economy and ensure a return to sustainable growth, including through: tough and credible action to tackle the deficit; a new strategy to increase house building and stabilise the housing market; and boosting exports and rebalancing the economy towards regional growth.

(Possible) Follow-up to the European Council on 1-2 March 2012

The presidency may inform Ministers on the follow-up to the March European Council conclusions. Ministers will then exchange views. On growth, the Council conclusions set out an appropriate time line for addressing the EU-level growth agenda, in line with the Prime Minister’s letter with 11 other member states. The Government are content with the Council conclusions. The intergovernmental treaty was signed by 25 member states in the margins of European Council. The Government welcome the signing of the treaty: it is in the UK’s interest for the euro area economies to achieve stability and growth, and for the treaty to work to achieve this.

Follow-up to the G20 Meeting of Finance Ministers and Governors on 25-26 February 2012 in Mexico

The Commission will debrief Ministers on the main outcomes of the G20 Finance Ministers’ and Central Bank Governors’ meeting in Mexico City on 25 and 26 February. The main items on the agenda were the global economy and framework for growth, IMF resources, financial regulation and commodities. The issue of IMF resources dominated the discussion, and the G20 agreed that euro area countries will reassess the strength of their support facilities in March. This will provide essential input into the G20’s ongoing consideration to mobilise resources to the IMF. At the G20, the Chancellor stressed that IMF resources to support individual countries cannot be a substitute for further credible steps by the euro area to support their currency. The next G20 Finance Ministers’ meeting will be in the margins of the IMF spring meetings in Washington.

Implementation of the Stability and Growth Pact

Following the Council decision on 24 January that Hungary has taken no effective action to sustainably correct its excessive deficit, the Commission has proposed that the Council suspend €495 million of cohesion fund (CF) commitments to Hungary in 2013. Ministers will be invited to adopt the Council decision. The suspension of CF commitments to Hungary represents 0.5% GDP and 29% of total CF commitments for the year. The Commission believes this to be both an effective and proportionate amount. The UK will not oppose the Commission’s proposal.

Information on the informal ECOFIN on 30-31 March 2012

The presidency will inform delegations about the informal ECOFIN which will be held in Copenhagen on 30 and 31 March.

ECOFIN Breakfast

Eurogroup will be meeting on 12 March. Ministers will be debriefed on the Eurogroup discussions, before formal ECOFIN starts. Ministers are likely to discuss the economic situation. Ministers may also discuss the issue of the next president of the European Bank for Reconstruction and Development. The UK supports the need for an open and transparent process in selecting the president.

Oral Answers to Questions

Mark Hoban Excerpts

Tuesday 6th March 2012 Commons Chamber

[Dan Jarvis (Barnsley Central) (Lab)]

12. What assessment he has made of the performance of the Money Advice Service.

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

The Money Advice Service is an independent body and the Financial Services Authority approves its business plan and budget. The service’s online health check was launched in June last year and received nearly half a million visits. More than half of those visits resulted in a personal action plan, providing thousands of visitors with a direct route to taking control of their finances.

[Dan Jarvis]

The Minister will know that low-paid workers in my constituency are currently missing out on the discounts that utility providers offer to customers when they pay their bills by direct debit. What work is he doing with the Money Advice Service to increase the number of low-paid workers who pay their bills by direct debit?

[Mr Hoban]

It is important that people take as much advantage as they can of the discounts on offer. The Money Advice Service is there to provide advice to people at all levels of income. Encouraging more people to open bank accounts and to take advice on direct debit services is a key part of its role.

[David Rutley (Macclesfield) (Con)]

15. What assessment he has made of the effect of Government spending commitments on the budget deficit.

--- Later in debate ---

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

The Department for Education is looking at this area. I am clear that the support that this Government have given to the Money Advice Service will ensure that people of all ages and all income levels receive the advice that they need to manage their money properly and prepare for their futures.

[Mr Sam Gyimah (East Surrey) (Con)]

T5. The Opposition’s policy of more spending, more borrowing and more debt is not credible and will result in higher interest rates. Will the Chancellor tell the House what impact just a 1% rise in interest rates would have on businesses, mortgages and the cost of servicing the colossal national debt racked up by the previous Government?

--- Later in debate ---

[Andrea Leadsom (South Northamptonshire) (Con)]

Does my hon. Friend agree that it is unacceptable that four banks in the UK have 80% of the SME business and 80% of the personal current account business in this country and that it is essential we get more competition in the banking sector? During the passage of the Financial Services Bill, will he consider again the Treasury Committee’s recommendation for a specific primary competition objective for the Financial Conduct Authority?

[Mr Hoban]

We have listened to representations from not only the Treasury Committee, but the Independent Commission on Banking, and one of the three objectives of the FCA will be to promote competition, which will get better outcomes for consumers so that there is more choice and better value for money.

[Mrs Linda Riordan (Halifax) (Lab/Co-op)]

Unemployment in Halifax has doubled since 2010, because of the Government’s failed economic policies. Will the Minister outline the urgent action that he is going to take to ensure that people get back to work in the town?

Sale of Northern Rock Plc to Virgin Money

Mark Hoban Excerpts

Tuesday 28th February 2012 Written Statements

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

On 17 November 2011, the Chancellor announced the sale of Northern Rock plc to Virgin Money. The transaction completed on 1 January 2012, following approval from the Financial Services Authority and receipt of European Commission merger clearance.

Today, UK Financial Investments Ltd (UKFI) has published a document setting out the background to and rationale for the decision to return Northern Rock plc to the private sector through its sale to Virgin Money.

The publication includes information regarding UKFI’s assessment of the Virgin Money bid against a full range of options to return Northern Rock plc to the private sector, including remutualisation. UKFI and Northern Rock plc received independent corporate finance advice from Deutsche Bank. Other information includes background on the sale process and the timing of the sale.

The publication also includes an assessment of the expected overall taxpayer returns from the Government’s intervention in the former Northern Rock which amounts to a positive net cash return. The Government provided £37 billion of funding into the two companies¹ that comprise the former Northern Rock and the return of cash from these companies to Government (excluding tax proceeds) is expected to total between £46 billion and £48 billion.

Copies of this publication have been deposited in the Libraries of both Houses.

¹The former Northern Rock was split into two entities on 1 January 2010: Northern Rock plc, a mortgage and savings bank; and Northern Rock (Asset Management) plc, the remaining closed mortgage book.

Asset Protection Agency (Interim Report)

Mark Hoban Excerpts

Tuesday 28th February 2012 Written Statements

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

The interim report for the Asset Protection Agency (APA) has today been made electronically available in the Libraries of both Houses.

The report contains commentary on key developments in relation to the APA and the asset protection scheme (APS) over the period from 31 March 2011 to 31 December 2011.

I am pleased to note the statements in the report that the likelihood of the Royal Bank of Scotland (RBS) being able to make a claim under the APS has reduced significantly and that the British taxpayer is expected to make an overall profit of at least £5 billion from the APS.

Employer Asset-backed Pension Contributions

Mark Hoban Excerpts

Wednesday 22nd February 2012 Written Statements

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

On 29 November 2011, the Government published draft Finance Bill 2012 legislation to change the tax rules in relation to employer asset-backed pension contributions, with effect from the date of announcement. These changes were designed to ensure that unintended, excess tax relief could not arise in respect of such contributions, while preserving as much flexibility for employers and pension schemes as possible.

To protect against tax risks, the Government are today publishing further legislation, having immediate effect, which will be included in Finance Bill 2012. Its aim is to limit the circumstances in which up-front relief can be given to asset-backed arrangements in line with the original policy aim and the intended effects of the November legislation.

The changes announced on 29 November were intended to provide that up-front relief to an employer would not be given where the total payments to be made under an asset-backed arrangement would vary according to the future funding position of the pension scheme. The Government have since found that there are ways in which these arrangements could be structured to gain up-front relief even though the payments will vary. So the legislation announced today is intended to deny up-front relief unless the whole total of all asset-backed payments to the pension scheme are to be of fixed amounts.

The draft legislation and tax information and impact note will be published today on the websites of Her Majesty’s Revenue and Customs and the Treasury.

Criminal Sanctions Directive on Market Abuse

Mark Hoban Excerpts

Monday 20th February 2012 Written Statements

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

The Government have decided at this time not to opt in to the European Commission’s proposal for a criminal sanctions directive on insider dealing and market manipulation, although hope to be in a position to do so in the future.

The aim of the Commission’s proposal is to establish criminal sanctions for offences of market abuse. The proposal seeks to complement the broader EU framework for tackling market abuse, which will be provided for in the larger draft market abuse regulation. The proposed criminal sanctions directive establishes that where market abuse has been committed intentionally, member states must make provision for criminal sanctions to be able to be applied.

The UK already covers all of the offences in its criminal law and also goes further by capturing, for example, acts of market abuse that are committed recklessly, as well as those committed intentionally. The Commission’s draft proposal is sufficiently flexible for member states to go further than the minimum standards specified, which is helpful to UK interests and the comprehensiveness of our existing domestic regime.

The Government’s decision not to opt in at this point in time is a reflection of the sequencing of the Commission’s proposal, rather than particular concerns as to the substance. The proposed directive is entirely dependent on the outcome of the market abuse regulation (which is currently in very early stages of negotiation), and the markets in financial instruments directive (also in early stages of negotiation) which will determine the new regulatory landscape for financial services. The Government believe that it is difficult to assess the implications, scope and way this proposal may develop considering the broader uncertainty of the market abuse framework being itself simultaneously subject to a major review.

Although the Government have decided that the UK should not opt in to the proposal now, they intend to participate fully in the negotiations in the hope that they will be able to opt in later, once these proposals are better progressed, not least as the UK already covers all these offences today in its criminal law.

Terrorist Asset Freezing

Mark Hoban Excerpts

Wednesday 8th February 2012 Written Statements

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

Under the Terror Asset-Freezing etc. Act 2010 (“TAFA 2010”), the Treasury is required to report quarterly to Parliament on its operation of the UK’s asset-freezing regime mandated by UN Security Council Resolution 1373.

This is the fourth report under the Act and it covers the period from 1 October 2011 to 31 December 2011. This report also covers the UK implementation of the UN-Al-Qaeda asset freezing regime.

Follow up to independent reviewer’s report

Following recommendations made by David Anderson QC, the independent reviewer, in his report on the operation of the Terrorist Asset-Freezing etc. Act 2010 published on 15 December 2011, the Treasury has revised the content and format of the quarterly report to provide additional information.

This report has been revised to take account of the independent reviewer’s recommendation to publish more information about the operation of the domestic asset-freezing regime. This information can be found in the table and text below. In accordance with the recommendation at paragraph 11.5 of the independent reviewer’s report, the lists at the end of this statement provide a breakdown by name of all those designated by the UK and the EU in pursuance of UN Security Council Resolution 1373.

The Treasury has also decided to report more fully on the operation of the EU asset-freezing regime in the UK under the EU Regulation (EC) 2580/2001 which implements the UNSCR 1373 against external terrorist threats to the EU. Under this regime, the EU has responsibility for designations and the Treasury has responsibility for licensing and compliance with the regime in the UK under part 1 of TAFA 2010.

The Treasury has published its response to the independent reviewer’s report today (8 February 2012) and the next quarterly report will provide an update on implementation of other recommendations which impact on the operation of the asset-freezing regime in the UK.

Additional information, where available, is also provided for the al-Qaeda regime in the revised format adopted to meet the independent reviewer’s recommendation.

The following table sets out the key asset-freezing activity in the UK during the quarter ending 31 December 2011:

Terrorist Asset Freezing

Mark Hoban Excerpts

Wednesday 8th February 2012 Written Statements

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

Following consultation with other relevant Departments and agencies, the Treasury is today publishing the Government’s response to David Anderson’s first report on the operation of the Terrorist Asset-Freezing etc. Act 2010. This will be laid before the House today as a Command Paper.

Banking (Responsibility and Reform)

Mark Hoban Excerpts

Tuesday 7th February 2012 Commons Chamber

[Mr Umunna]

I am sure that many of those executives are watching the debate, and that they will pay attention to what my hon. Friend has said.

I will finish by returning to where I started. We are proud of our financial sector; it is an asset. We need it to help create the jobs and growth that are so lacking at present. All we ask is that it better serve the real economy in this endeavour—and that it does so more responsibly. With that in mind, I urge all Members to support our motion.

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

rose—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. Before I call the Minister, let me say that we are going to introduce a time limit of eight minutes for Back Benchers.

[Mr Hoban]

May I thank the hon. Member for Streatham (Mr Umunna) for his remarks about my right hon. Friend the Secretary of State for Business, Innovation and Skills? I am sure that the whole House will identify with them.

I welcome the opportunity to debate business lending and the reform of the British banking system. As hon. Members are well aware, we face extremely tough economic circumstances as we weather the ongoing crisis in the eurozone and fix the underlying damage that the previous Government inflicted on the economy.

The UK banking sector in particular faces a long and difficult road to repair, unwinding the irresponsible and unsustainable excesses of the previous decade. In the aftermath of the worst financial crisis in almost a century, bank balance sheets are shrinking under market and regulatory pressure. It is absolutely right that we ensure that our banks build their capital and liquidity reserves in these turbulent times. It was because of that action that all our banks passed the European Banking Authority stress tests.

It is stability that we are safeguarding for the long term by discarding the shadow Chancellor’s discredited tripartite system and implementing the recommendations of the Vickers committee. It is this Government who are ensuring that we build a stable financial sector with the capacity and the market confidence to provide sustainable lending to our most innovative, ambitious and entrepreneurial private sector firms.

[Sheila Gilmore (Edinburgh East) (Lab)]

Given that the Minister feels that the industry is more stable, is he concerned to hear the chief executive of the National Australia bank, which owns the Clydesdale and Yorkshire banks, say today that the bank might have to consider selling, or at least restructuring, the business—partly because the UK Government’s austerity programme has contributed to the harsh business environment, which is why the bank is carrying out a review?

[Mr Hoban]

The reason we have to have the austerity programme in place is to tackle the mess left by the Labour party when it was in government.

As I was saying, we are seeking to reform the sector to ensure that it can lend to businesses in the long term, but we have also taken decisive action to stimulate credit in the short term. That is why the Government secured an agreement with the UK’s largest banks to provide £190 billion of new lending to business in 2011. By the third quarter of last year, those banks had loaned more than £157 billion to UK businesses, which is 11% above their implied target. That includes £56 billion of lending to small and medium-sized enterprises—10% higher than at the same point in 2010.

I noted that during the rather long speech of the shadow Business Secretary, he talked about lending but put forward no ideas about how Labour would tackle it, yet we in government have taken action to get the banks lending to businesses and to make sure that there is a supply of creditors to SMEs.

[Mr Umunna]

rose—

--- Later in debate ---

[Mr Hoban]

I have clearly provoked the hon. Gentleman, so I shall give way.

[Mr Umunna]

I am grateful to the Minister for giving way. I have to say that many of the organisations that represent our SMEs will listen with incredulity to the Minister’s suggestion that credit conditions are somehow all fine and that all is well. The fact is that, according to the Bank of England’s latest figures, we have seen a net contraction in lending to SMEs in nine of the last 12 months. It is clearly still a problem. In fairness, the Government announced that they were going to provide some credit easing—admittedly when the Chancellor said so in his speech to the Conservative party conference, although I never quite understood what he was talking about—but so far we have seen absolutely no action. When will this credit easing system come into effect?

[Mr Hoban]

I had hoped that the hon. Gentleman would come up with some ideas, yet he took a rather lengthy intervention to demonstrate that Labour has no ideas about what to do. Let me set out some of the structural measures we are taking to tackle the supply of debt and equity finance to businesses, and SMEs in particular. We are continuing the enterprise capital funds, and we are simplifying and refocusing the venture capital trusts and enterprise investment scheme to encourage more equity investment in start-ups.

[Margot James (Stourbridge) (Con)]

The issue of lending to small and medium-sized businesses is much more complex than the hon. Member for Streatham (Mr Umunna) suggested. Some months ago I spent a day at Barclays SME sector lending centre in Birmingham. It is clear that many small businesses are focusing on paying down their existing debts, building up reserves, and using their existing overdraft facilities at around the 50% mark. Does my hon. Friend not agree that that is one of the causes of the problem?

[Mr Hoban]

Indeed. My hon. Friend has made an important point which should be noted by the Opposition. Net lending takes into account not just banks’ gross lending but decisions that businesses make to pay down their debt, and that is what we are seeing. We are seeing businesses deleverage in the same way as banks are deleveraging. I do not know whether the Labour party believes that banks should stop businesses paying down their debt in order to force up the net lending figures.

[Derek Twigg (Halton) (Lab)]

rose—

[Mr Hoban]

I have already been generous in giving way, and I will be generous again in a minute.

We will implement a new seed enterprise investment scheme to encourage investment in early-stage companies, with income tax relief and a capital gains tax holiday to kick-start the programme. We will ensure that our adventurous and ambitious small enterprises receive the support that they need to become the next world leaders.

[Derek Twigg]

rose—

[Chris Williamson (Derby North) (Lab)]

rose—

[Mr Hoban]

Will hon. Members calm down for a minute, and allow me to deal with the point about credit easing?

I think that bank credit will remain the principal source of finance for businesses throughout the United Kingdom. That is why in our autumn statement we went further to ensure access to finance. Last year the Chancellor of the Exchequer announced two bold new credit-easing measures to provide up to £21 billion of new lending for UK businesses. Through the national loan guarantee scheme, we are allowing participating banks to raise up to £20 billion of funding with Government guarantees, lowering their cost of funding and enabling them to reduce lending rates to business by as much as 1%.

[Derek Twigg]

An increasing number of subcontractors in my constituency, especially in the construction industry, are having short-term cash problems, either because their contractors have gone out of business or because the contractors are deliberately not paying the subcontractors. However, when the subcontractors go to the banks for help, the banks say “We are not going to help you.” As a result, subcontracting businesses are going bust and people are being thrown out of work, although it would be possible for the banks to provide finance in the short term.

[Mr Hoban]

The hon. Gentleman should tell the businesses in his constituency to use the appeals mechanism that was introduced to enable businesses to challenge decisions by banks and ensure that they are reviewed. Since the introduction of that scheme, 40% of bank managers’ decisions have been overturned through the appeals process.

[Mr George Mudie (Leeds East) (Lab)]

When the Governor of the Bank of England appeared before the Treasury Select Committee, he deplored the banks’ refusal to meet the Merlin targets. Furthermore, he said that the Government had chosen the wrong targets, which allowed the banks to hide the fact that they were not lending properly to small businesses. Was he misleading the Committee?

[Mr Hoban]

I gave the hon. Gentleman the figures earlier. As I said, by the third quarter of last year banks had exceeded their Merlin targets for lending to businesses as a whole, and were about 10% ahead of their lending to SMEs in comparison with the same point last year.

Let me say a little more about the credit-easing measures that we are introducing. There will be a £1 billion business finance partnership to co-invest in funds that can lend directly to middle-sized businesses and further stimulate non-bank lending channels for SMEs. Those schemes capitalise on the Government’s commitment to tackling the deficit that the last Government left behind. Unlike the Opposition, we are determined to safeguard our economic stability and protect our credibility in the world market—credibility which has secured our triple A rating and kept our interest rates at record low levels, and which allows us to pursue innovative credit-easing measures to reduce costs for businesses and ensure that more money goes where it is needed.

[Richard Fuller]

In referring to the “non-bank” ways in which credit easing could be used, my hon. Friend has identified one of the best ways of establishing responsibility and reform in our banks: through the creation of powerful alternative mechanisms enabling our small and medium-sized businesses to raise finance.

--- Later in debate ---

[Mr Hoban]

My hon. Friend makes a very important point. For too long businesses have been dependent on banks for their finance. We need to broaden the range of sources of finance that is available to business. This model works well elsewhere in the world. There has clearly been a market failure here, and our business finance partnership is aimed at tackling that failure. There are people out there who are willing to bring forward ideas to enable more investment to go into small and medium-sized businesses.

[Mr Michael McCann (East Kilbride, Strathaven and Lesmahagow) (Lab)]

While we think about how to address these problems and encourage alternative forms of finance in the future, what will we do about the small businesses that are going bust now because they are not getting access to finance and do not have the time to go through what is a bureaucratic appeals process?

[Mr Hoban]

The challenge is to ensure that banks are ready to lend and have the resources to do so. Project Merlin has delivered that. It is a more ambitious programme of ensuring the flow of credit to the economy than the previous Government tried or the current Opposition have even thought about.

The credit easing schemes we have proposed are supported by businesses throughout the country, as well as by the CBI, the British Chambers of Commerce and the Federation of Small Businesses. These schemes, coupled with our reforms to the financial sector, will ensure that the UK banking sector continues to provide the fuel for a private sector recovery.

After the excesses of the last decade, it is clear that we can build a sustainable financial sector and a sound economy only by reforming the regulation and structure of banks. Yesterday the House held the Second Reading debate on the Financial Services Bill, at which the shadow Chancellor, the right hon. Member for Morley and Outwood (Ed Balls), found himself in the awkward position of being forced to defend the failed tripartite system of regulation that he designed. He did not strike the same contrite note that the shadow Business Secretary has struck today. The Bill debated last night abandons the dysfunctional tripartite system and returns micro and macro-prudential regulation to the Bank of England, making the Bank the single point of accountability for financial stability. It also creates a new and strong conduct regulator to promote competition and protect consumers. Through these changes, along with the Basel reforms, living wills and new resolution regimes, and the reforms to the structure of banking from the Vickers report, we are remedying what the Chancellor called

“the biggest failure of economic management and banking regulation in our country’s history.”—[Official Report, 6 February 2012; Vol. 540, c. 43.]

That failure was, of course, presided over by the Labour party.

We need to build a foundation for the sustainable flow of lending to households and businesses across the country, and we must take a lead in building a financial sector that is based on the principles of responsibility, prudence and sustainability. In fulfilling that commitment, we must act on bank remuneration in order to tackle excessive and irresponsible levels of pay.

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

Yesterday, Ernst and Young said UK bank lending will shrink for the first time since 2009. It has predicted lending will shrink by 2.2%, with further shrinkage in 2013. Given that, does the Minister think Project Merlin has been a resounding success, or will he choose not to continue with it next year?

[Mr Hoban]

Project Merlin set lending targets for banks. At the point of the third quarter, the targets for lending to all business had been achieved and those for lending to small and medium-sized enterprises had just been missed. Project Merlin therefore has certainly achieved in respect of its goal of getting credit flowing to the economy. I agree that businesses face challenges in borrowing money. They need to have a viable plan, and we need to work more closely with businesses to ensure that the support is in place to enable them to make successful applications for bank funding.

[Mark Field]

We have a very large holding in RBS and we clearly will not be divesting ourselves of much of that holding for probably the next 10 years or so. What thought has the Minister given to using RBS, with its expertise and huge distribution network, as a mechanism for credit easing? I am sure that all Members hear from business people that these problems are not going to be solved unless we ensure that our SMEs have access to the capital that they so desperately need.

[Mr Hoban]

The national loan guarantee scheme will be open to all banks, including RBS, Lloyds, Barclays and HSBC, and we are currently taking that work forward.

Under the last Government, we witnessed the growth of the bonus culture, where bonuses could be paid in cash, in one year, and were never clawed back in the event of failure. We are changing that culture. Bonuses under the Financial Services Authority code are paid out over at least three years, in shares, not just cash, and failure can be punished by clawing back bonuses, and at both RBS and Lloyds cash bonuses will again be limited to £2,000.

[Chris Williamson]

Will the Minister give way?

[Mr Hoban]

Let me make some more progress.

Through the disclosure regime, we have provided more transparency than ever before, revealing the executive pay of the five highest-earning non-board executives for the Project Merlin banks last year. We are consulting this year on extending the requirement to cover eight executives at all banks operating in the UK, and UK banks now also have to disclose the aggregate pay of all their key risk-takers. These are some of the toughest rules in the world. It is because of our pressure and our leadership that the Commission’s capital requirements directive—CRD IV—contains proposals for additional regulations on remuneration disclosure which closely follow the recommendations of the Walker report.

[Mr Tom Harris (Glasgow South) (Lab)]

The Minister points out that the so-called “cash bonus system” emerged under the previous Government. Perhaps he can remind me, but I do not recall many Opposition day debates promoted by his party against the bonus culture. Did he personally, as a member of the shadow Treasury team at the time, mount any kind of opposition to or campaign against that bonus culture?

[Mr Hoban]

Clearly we had more power in opposition than we thought; we seem to be being blamed for the bonus culture and what was happening in the banks. As the hon. Gentleman will recognise, we have seen a bonus culture develop in this country and action needs to be taken. It is a bit rich for Labour Members to be criticising us, given that they were in government for the past 13 years and had the power to do something about the situation.

[Chris Williamson]

rose—

[Mr Hoban]

I will give way to the hon. Gentleman, as I do not want him to feel missed out.

[Chris Williamson]

I am grateful to the Minister for giving way, at about the 35th time of asking. Will he now accept that it would be appropriate to repeat the bankers’ bonus tax and create 100,000 new jobs and 25,000 affordable homes, and give a boost to the construction industry, which is on its knees as a result of his Government’s policies?

[Mr Hoban]

I was going to discuss the bank payroll tax a little later, but let the hon. Gentleman just ponder for a while why the person who introduced that tax, the former Chancellor, described it as a “one-off” and something that was not workable because it did not change the behaviour. What we have done is introduce the bank levy, which the Labour party opposed when it was in government, and every year that is raising £2.5 billion more than the bank payroll tax raised in a single year. That is the product of well-thought-through taxation policy. We have gone ahead and imposed that bank levy, but the Labour party, when in government, opposed it.

Let me discuss the interaction of bank bonuses and capital. We agree with the interim Financial Policy Committee that capital levels, not bonus payments, have to be the priority. Banks must strengthen their balance sheets as a foundation for lending to families and businesses. That is why the FSA is rigorously scrutinising bank distribution plans, and it will not approve plans unless they are consistent with required capital levels, ensuring that banks maintain the capital they need in order to finance businesses. It is because of our leadership that bonus levels have already started to fall. According to the Centre for Economics and Business Research, City bonuses tripled under Labour, and when the shadow Chancellor was Minister for the City they were £11.6 billion. At the time, the shadow Business Secretary was carefully drafting the contracts to ensure that people could earn those bonuses. Last year, bonuses were almost half that figure, at £6.7 billion, and we fully expect them to fall further this time. Thanks to the action we have taken, bonus pools have come down and Labour’s cash bonus culture has been ended.

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

The Minister may be aware that the number of bank branch closures is beginning to rise again, as is the number of branches with restricted opening hours. Will he tell the House what decisive action he has taken to reverse those trends?

--- Later in debate ---

[Mr Hoban]

The hon. Gentleman needs to reflect on what is happening in banking. I think his hon. Friend the hon. Member for Edinburgh East (Sheila Gilmore) even got as far, in last night’s debate on the Financial Services Bill, as suggesting that people should not use online banking so as to keep bank branches open. People are changing the way that they access banking and are thinking about whether they need to go into bank branches. We need to ensure that branches are there to meet needs where that is commercially viable, but there is no free lunch here. If the cost of maintaining branch networks continues to rise and insufficient numbers of people use them, the cost will be passed on to the customers who use the branches. The hon. Gentleman needs to think quite carefully about how many additional costs he wants to impose on bank customers in order to keep branch networks viable in that way.

[Anas Sarwar (Glasgow Central) (Lab)]

Is the Minister aware of today’s announcement by the Clydesdale bank about its restructuring programme, which it says is taking place as a result of the UK Government’s austerity Budget, which is causing difficulties for the bank and a difficult economic climate? It employs 2,000 people in my constituency. There are real concerns about job losses in Glasgow and about the closure of branches of that bank, which was going about its business in a meaningful way.

[Mr Hoban]

If the hon. Gentleman had been here a little earlier, he would have heard my reply to his hon. Friend the hon. Member for Edinburgh East, who asked about exactly the same problem. The reality is that there are issues facing banks in the UK, and Clydesdale needs to reflect that. The hon. Member for Edinburgh East also raised the issue of the austerity programme, but that is in place to tackle the problems the Labour Government left behind.

On corporate governance, the previous Government failed to tackle the bonus culture and failed fundamentally to reform corporate governance. The Business Secretary has announced a package of measures to tackle the disconnect between top pay and company performance. Shareholders need the information and powers to hold boards to account on pay. We will give them that and we expect them to use those powers. The Institute of Directors, the National Association of Pension Funds, the CBI and the Association of British Insurers all support the Government’s ambitions. As Otto Thoresen, the director general of the ABI, said when he wrote to bank chairmen last December,

“it can no longer be business as usual for this remuneration round”.

Across the board there is consensus that we need to tackle excessive pay and this Government are answering that, but it is not an easy task. Across the economy, and especially in the banking sector, the previous Government allowed an unjustifiable sense of bonus entitlement to grow, whether in the public or private sector. Under them, a bonus became a right, not a reward, and simply par for the course. After 13 years of Labour Government, we now have a substantial challenge ahead—dismantling the culture of excessive pay in the banking sector. We have already gone some way towards dismantling that culture, but we still have a long way to go.

[Mr Umunna]

Will the Minister at least concede that this issue and the kind of perverse incentive structures we have heard about, with rewards for failure and excessive pay in the boardroom and the City, have grown over the past three decades under different Governments of different colours? Will he have the humility to accept that?

[Mr Hoban]

The culture of bonuses did change under the previous Government. There was a tripling of bank bonuses between 2001 and the peak of the financial crisis. That is what we saw happening.

[Mr Gordon Marsden (Blackpool South) (Lab)]

What were you saying about it at the time?

[Mr Hoban]

Well, one thing is for certain: I was not designing the contracts that gave the big payouts.

It is time that the banking sector demonstrated leadership, and the coming bonus round is another chance for it to demonstrate leadership on pay. As we empower shareholders to drive remuneration policy, the banking sector has to be at the vanguard of the debate on responsible executive pay.

[Mark Field]

The Minister is being admirably forward-looking in his speech by trying to present where we should go for the future rather than focusing too much on some of the battles of the past. One of the biggest concerns in this area is about institutional shareholders who have large stakes in FTSE 250 companies and in our banks. How are we going to embolden them to use the notional power they have as shareholders? Many of them have 5%, 6% or 7% shareholdings and could do something. What is going to ensure that there is a culture of change such that they become shareholder activists rather than shareholders who sit on their hands and their dividends year on year?

[Mr Hoban]

My hon. Friend raises an important point. The reforms outlined by my right hon. Friend the Business Secretary ensure that shareholders have the information they need to act. We are also giving them the power to vote and their votes will have a binding impact on future pay plans. The pervading culture today and the sense of concern in the wider economy mean that institutional shareholders need to play their part by looking after the interests of the people who invest in their funds—the people whose pensions are dependent on good returns from their investments. Those shareholders owe an obligation to their customers to exercise their rights to determine the pay policies of boards. We need to focus on that in coming years. My predecessor, Lord Myners, talked about it a great deal. Our reforms have provided the tools and we must ensure that we use them to hold institutional shareholders to account.

[Mr Mudie]

The problem for the public is that the Minister can lecture private shareholders in private banks to use their power to limit bonuses in their banks, but Ministers, who are the owners of RBS, have not intervened and used shareholder power to get good behaviour in the bank they own. Why?

[Mr Hoban]

We have been very clear as shareholders that we expect RBS to act as the back marker on bonuses. We have been keen to ensure that it restricts cash payments to only £2,000 a year. It is not just the Government who agree with that view. In an article about RBS, the right hon. Member for Edinburgh South West (Mr Darling) pointed out that the Government should not run RBS; they should not get involved in the day-to-day business of banks but should run them at arm’s length. That was a structure set up by the previous Government and I understand that the Leader of the Opposition supported it. [Interruption.] The shadow Business Secretary says that we should change it, but he should speak to his leader. The right hon. Member for Doncaster North (Edward Miliband) clearly endorses the structures set up by the previous Government. They should sort out their internal differences—it is not as though they are brothers.

I have spoken for quite some time and others want to speak, so I shall conclude. This Government have secured the stability of our economy by tackling the dreadful deficit left behind by our predecessors. This Government have secured the stability of our financial sector with tough regulatory reforms. This Government are supporting our entrepreneurs in rebalancing our economy, away from the unsustainable and wasteful spending under the previous Government. We are securing stable interest rates through our commitment to tackle the deficit. We are reducing the bureaucratic burden on businesses by slashing red tape and overhauling planning. We are unleashing private sector ambitions by cutting corporation tax to the lowest rate in the G7 and the fifth lowest rate in the G20. We are ensuring that our most ambitious and dynamic businesses have the finance they need to lead recovery in every part of our economy and our country.

[Several hon. Members]

rose—