Question to the HM Treasury:

To ask Her Majesty’s Government why the compensation limit under the Deposit Guarantee Scheme has been reduced in line with a European directive that sets a limit in euros, despite the fact that the United Kingdom is not in the Eurozone; and whether they will take steps to ensure that United Kingdom citizens do not suffer as a result, if necessary by introducing a separate United Kingdom compensation scheme.

The Deposit Guarantee Scheme Directive (DGSD) updates existing legislation designed to harmonise the level of deposit protection provided across the European Economic Area (EEA), of which the UK is a part.

This is a single market measure to ensure that depositors are entitled to the same level of protection (equivalent to €100,000 per regulated firm, regardless of currency) wherever in the EEA they deposit their money; and that UK firms are not competitively disadvantaged in relation to firms in other EEA jurisdictions.

As a result of the current strength of the pound in relation to the euro, it has been necessary for the Prudential Regulation Authority (PRA) to revise the sterling coverage limit provided by the UK’s deposit guarantee scheme, the Financial Services Compensation Scheme (FSCS). However, the Government has taken action to ensure that UK depositors are not exposed to a sudden reduction in the level of protection they receive.

HM Treasury has laid a statutory instrument to ensure that depositors who are currently entitled to £85,000 of protection from the FSCS will continue to be until 31 December 2015, after which the new deposit coverage limit of £75,000 will come into effect.

This will ensure that there is sufficient time available for depositors to be made aware of the changes, and to take any necessary steps to manage their financial affairs appropriately in light of this change. It is estimated that 5 per cent of retail depositors are affected by this change.