Bradford & Bingley plc

Martin Vickers Excerpts

Wednesday 27th November 2013 Westminster Hall

[The Financial Secretary to the Treasury (Sajid Javid)]

I welcome you to the Chair, Mr Betts. It is a pleasure to serve under your chairmanship.

I thank my hon. Friend the Member for Shipley (Philip Davies) for securing the debate and for his continued commitment and effort in tirelessly pursuing the issue on behalf of his constituents. I have not been long in Parliament, but one thing I noted right from the start, which has been reaffirmed today, is that few colleagues so assiduously pursue their constituents’ causes as my hon. Friend. He is an example to us all. I also thank my hon. Friend the Member for Calder Valley (Craig Whittaker) for his tireless work on behalf of his constituents, as we have seen today.

Before I get into the specifics of Bradford & Bingley, I will give some context on the time, the policies that we have heard reference to today, which contributed to the banking crisis, and this Government’s response, which hon. Members have spoken about during the debate.

The nationalisation of Bradford & Bingley was one of the key outcomes of the financial crisis. The crisis was the biggest failure of economic management and banking regulation in this country’s history. Let me remind hon. Members of the events preceding the crisis. Over the decade before the crash, Britain experienced the biggest increase in debt of any major economy in the world. The total of household, corporate, financial and public sector debt reached a staggering 500% of GDP. UK banks became the most leveraged in the world.

None of that, however, caused concern or invited intervention under the failed tripartite system of regulation created 16 years ago. The Bank of England was stripped of its historical responsibility for regulating the banking system, which was given to a new Financial Services Authority. Let me quote a warning from 16 years ago by the then shadow Chancellor, my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley). During the passage of the Bank of England Act 1998, which created the failed tripartite system, he said:

“The process of setting up the FSA may cause regulators to take their eye off the ball, while spivs and crooks have a field day.”—[Official Report, 11 November 1997; Vol. 300, c. 732.]

Sixteen years later, the consensus is clear. There were fundamental flaws in the tripartite system right from the start, which are today painfully apparent to the whole world.

I respect the comments of the shadow Treasury Minister, the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), and I accept that she was not responsible for the actions of the previous Government. However, she was close to some of the key decision makers at the time, and I hoped that we would hear an apology from her on behalf of the previous Government—that was wishful thinking.

The situation that I have described is why this Government have embarked upon a fundamental reform of our system of financial regulation. We have introduced domestic legislation to increase the resilience of financial institutions to shocks. The Financial Services Act 2012 fundamentally reformed the previous, failed tripartite system by giving the Bank of England clear responsibility for maintaining financial stability; establishing the Financial Policy Committee within the Bank as a strong and expert macro-prudential authority; creating the Prudential Regulation Authority, a new micro-prudential regulator, as a subsidiary of the Bank of England; and creating a new independent conduct of business regulator, the Financial Conduct Authority.

[Martin Vickers (Cleethorpes) (Con)]

The Minister is outlining a tightening up of the regulatory regime, which I am sure all our constituents would welcome. However, does he recognise that those who have been let down by the Bradford & Bingley scandal and other financial scandals feel that regulators go native, stand back and, instead of being on the side of consumers, are too close to the people they are supposed to be regulating?

[Sajid Javid]

My hon. Friend makes a good point that has been brought up by many hon. Members. With the reforms we have implemented, and some that we are still in the process of implementing, the Government have created a stronger, more rigorous system, with regulators with a lot more teeth and a greater degree of independence.

The Government have also set up the Independent Commission on Banking, or ICB, to recommend further reforms to enhance financial stability. The Government accepted the recommendations of the ICB and are putting them into law this year through the Financial Services (Banking Reform) Bill. The Government also supported Parliament in setting up the Parliamentary Commission on Banking Standards and have accepted that commission’s main recommendations.

I turn now specifically to Bradford & Bingley. Following the difficulties Bradford & Bingley experienced in 2008, the previous Government transferred its retail deposit taking business and branch network to Abbey National after a competitive process; its mortgage business was brought into public ownership. At the time of the nationalisation of Bradford & Bingley, the UK was in the grip of a rapidly evolving crisis, as we have heard today. I cannot speak for the actions that the previous Government took to deal with the crisis, as I was not privy to the relevant discussions; nor, rightly, have I seen the papers that relate to the previous Administration, although I understand that the Treasury is handling all freedom of information requests in the proper manner.

Extensive information is already in the public domain: events leading up to the nationalisation have been looked at by both the National Audit Office and the Treasury Committee. But on the matter of information, I have to agree with the comments made by my hon. Friend the Member for Shipley, and, in particular, with the request made by my hon. Friend the Member for Chippenham (Duncan Hames), who asked the shadow Minister to use her good offices to speak to the former Prime Minister, the former Chancellor and others who were Ministers under the previous Government and closely involved in events at that time. That is a reasonable request; I hope she will act on it and get back to my hon. Friend about it. It could lead to further information that many stakeholders would find useful.

Following the transfer of Bradford & Bingley into public ownership, the previous Government made the Bradford & Bingley plc Compensation Scheme Order 2008, which was debated and approved by each House. The order provided for a mechanism through which compensation for former shareholders would be assessed by an independent valuer. As we have heard, after conducting a robust and rigorous process the independent valuer determined that no compensation was payable.

My hon. Friend the Member for Shipley asked whether it was right that the valuer should have been asked to work on the basis that there was no Government support. I believe that it cannot be right, or in the best interests of the taxpayer, that the valuer should have been asked to compensate for value that existed only by virtue of support that taxpayers themselves were providing.

Following the determination, all affected parties had the opportunity to submit requests for the valuer to reconsider his decision. The valuer considered all requests before concluding that no compensation was payable. That decision was further upheld in the upper tribunal review.

I believe that due process has been followed at every stage. Transparent and independent arrangements for compensation have been put in place and there has been a proper process in the courts. As I mentioned, there have also been investigations by the NAO and the Treasury Committee. I have to say to my hon. Friend that I have looked at the matter closely using the limited information available to me, and from what I have seen I am not persuaded that there is a case for a further investigation or inquiry.

Before I conclude, I want to respond specifically to a number of my hon. Friend’s questions. He talked about the rights issue that took place just before nationalisation. From the information I have seen, I can tell him that the Treasury had no involvement in that rights issue at all; as we have heard, the rights issue was conducted in the summer of 2008, prior to nationalisation, and was a matter solely for Bradford & Bingley’s board and senior management. Like many banks and building societies at that time or thereabouts, Bradford & Bingley was required to meet FSA regulatory capital requirements in order to continue with those regulated activities.

My hon. Friend also raised the issue of accounting standards, and in particular IAS 39, which he said was problematic and could perhaps take some blame for the financial crisis. He is right to raise accounting standards and the contribution they could have made to the crisis. The issue has been looked at extensively by authorities around the world, including the International Accounting Standards Board. The board has proposed a series of changes to IAS 39 and other, similar accounting practices. Those changes essentially mean that, in future, banks will have to hold more capital or take losses earlier on problematic loans.

My hon. Friend also rightly expressed his concerns about the future of a number of his constituents who were transferred to UKAR during nationalisation and are currently UKAR employees. He was absolutely right to say that those people have considerable expertise and experience in an important sector. My understanding is that currently over 2,000 staff are still employed in managing the closed mortgage books of both Bradford & Bingley and Northern Rock, and are doing an excellent job.

My hon. Friend may take some comfort from knowing that those people’s skills are such that it seems they will face growing demand for them: the Council of Mortgage Lenders recently said that mortgage lending in the third quarter of this year was at its highest level since 2007 and is growing strongly thanks to the Government’s policies and the economic growth we are experiencing. I am sure that the value of the skills they hold will give some comfort to the constituents he mentioned.