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HM Treasury

Thank you, Madam Deputy Speaker. I do apologise, but I wanted to get on record the fact that I was not misrepresenting in any way what the Chancellor had said. Basically, we had moved from the idea of preference shares to massive investments in common stock. Only in today's estimates are we being asked to provide £9 billion of preference shares, when a few days ago we thought that we were going to be providing £25 billion of preference share stock. Instead, my calculation is that we have £28 billion of ordinary shares to buy, which came out of the blue. That is an extraordinary departure. The goalposts have moved so quickly and with so little scrutiny that I do not see how the House can approve today's out-of-turn supplementary estimates. Let me say something about the political impact of the statements and how the Government and the Opposition have worked. I would like to praise the Leader of the Opposition and the shadow Chancellor for what they have done in the past few weeks, which has not been easy for them. It would have been easy for them to attempt to make political gain, but instead they have acted in the best interests of the country. In this sobering time of financial crisis, they have put aside their differences and worked with the Government. The Leader of the Opposition and the shadow Chancellor deserve great credit for that. I fully respect their actions in putting the good of the country first. They have suggested amendments to Government actions and, at a time of extraordinary crisis for the country, have supported the Government to ensure that there is no panic in the system. The manner in which my right hon. Friends have conducted themselves has been admirable. They have done extraordinarily well. Indeed, today we have yet again heard a helpful and constructive statement from the Opposition Front Bench, from my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke), who posed a number of questions that are of great importance to the country. However, that does not abrogate the need for a proper parliamentary discussion about today's estimates and the Government's decisions behind them. Having the issue debated in Parliament is the tried-and-tested way of ensuring that matters of such high national and international importance are comprehensively and successfully concluded. Let me turn briefly to something that appears to be missing from today's supplementary estimates, which is the situation of Equitable Life. I cannot understand why there is no provision in the estimate for the money that the Government will have to pay in relation to Equitable Life. By not bringing that forward today, they will have to return to the House and take up more parliamentary time introducing a provision to cover the cost of compensating Equitable Life pensioners. There is no question but that the Government will have to do that, because the ombudsman has ruled against them. Unless they totally ignore what the ombudsman has said, why on earth was a small additional provision not included in today's estimate to cover the potential cost of compensating Equitable Life pensioners? If I were an Equitable Life policyholder, which I am not, I would be outraged that the Government are providing £42.2 billion of taxpayers' money to prop up the banking system while dragging their feet in supporting pensioners whom the ombudsman has already ruled should be compensated. I would be grateful if the Government could explain that omission. Let me turn to the detail of what we are considering, which is the central Government supply estimate and the documentation relating to it. This large document—the placing and open offer agreement—is what the Government have supplied as background reading, and it was great fun to spend many hours reading through it. It is about spending £37 billion of our money. I have looked at many share subscription agreements in the past, but the ones in this document seem to have so many holes in them that we could spend the rest of day going through each one. I am not going to do that, but I want to address the main points that we are considering today. I should point out that we are talking about only three banks, not the whole banking system. In fact, in his statement on 13 October, the Chancellor confirmed that Santander, Barclays, HSBC, Standard Chartered and Nationwide had all increased or were in the process of increasing their capital base without having to turn to the Government for funds. I therefore want to discuss what in the out-of-turn supplementary estimate relates only to HBOS, Lloyds TSB and RBS. There is a broad breakdown of the estimate in House of Commons document HC 1061. The details of the estimate are broken down in six separate documents, but they are far from complete and in some respects contradict each other. It is extraordinary that the preference share subscription agreements could be so different and written in such a different style. I note that the US Government's proposals, issued over night, are common for all banks, and I am amazed that the same is not true for the three banks that we are talking about. I am not talking about just the details of the dividend rates; I am talking about the style and manner in which the agreements are written. One document refers to a floating dividend rate plus LIBOR, another to a floating dividend rate of LIBOR plus 7 per cent. They may refer to the same thing, but they are written totally differently. I have personal experience of dealing with a Government preference share issue. It was many years ago, when I was running a small, expanding manufacturing company, but the principle is the same. In my case, we were helping to expand a new manufacturing company, but the issue could equally have been to support the working capital of an existing company. And we are seeing exactly the same principle today. My case involved £100,000—if we add a few noughts, we can compare it with what we are dealing with today—and it involved non-voting, fixed-rate, cumulative, redeemable preference shares. Preference shares are ranked more highly than ordinary shares, so if there is a liquidation, the holders of those shares get their money back before the ordinary shareholders. However, the holders of preference shares rank lower than creditors, so they in fact become the capital of the company. In the supplementary estimate that we are considering today, we are told very little about the terms involved. We have to look behind it to the supporting documents, which are not entirely clear. If I make errors when I talk about what I think the Government are proposing, it is because we have not had a clear, proper explanation of exactly what they are doing. In the case of a cumulative preference dividend, if a company cannot pay a dividend, it does not have to do so. However, when its trading recovers, the dividend is collected in subsequent years. For example, a return of 5 per cent. might not be paid in year one or year two, but a return of 15 per cent. would be paid in year three. That dividend would be paid before anything was paid to the common shareholders. Why have the Government not made the preference share agreements cumulative? According to the documents, they are non-cumulative. There is therefore a possibility of there being no return at all for the taxpayer from the preference shares. In my case, the preference share dividend was paid, the shares were redeemed and the company flourished. I would hope that that is the outcome that we want from the banks. However, the Government have done some extraordinary things. First, there is the non-cumulative aspect of the preference dividend. Secondly, the notional preference dividend is an extraordinary 12 per cent., at least until 2013. After that date, it splits, and Lloyds TSB will pay 7 per cent. on the preference dividend, while HBOS and RBS will pay that amount plus LIBOR. I do not understand how that will work if the Government are planning to put Lloyds TSB and HBOS together as one company. That is not explained in any of the documents or in the supplementary estimate. The rate of inflation is 5.2 per cent. at the moment. I could understand the Government setting the notional preference dividend at 12 per cent. if they thought that there was going to be an explosion in inflation. At this stage, however, it appears punitive, and it will prevent the company from making any preference share dividends. In the United States, the Government have come up with a 5 per cent. preference dividend. Another issue that concerns me greatly is the restriction on when the preference shares can be redeemed. They cannot be redeemed before 2013, plus five years from the date of issue plus one day. That makes them a medium-term investment. The decision whether to pay a return on them is entirely a matter of discretion for the board of directors. That is made clear in the documents. If I were one of the directors, I would not declare any dividend before 2013, given that the directors would not be allowed to pay an ordinary dividend until all the preference shares had been redeemed, and that they could not redeem the preference shares until at least that date. If they repaid the preference shares at that point, there would be only one dividend payment. If that were divided by the minimum number of years that the preference shares had been held, the rate of return for the taxpayer on the billions of pounds invested in those preference shares would be 1.4 per cent. We have already seen outrage in the financial press at the idea of preventing the banks from paying ordinary dividends until the preference shares have been redeemed. I cannot imagine why people would want to invest in banks that they know cannot pay a dividend until at least 2013, and possibly much later, when there are at least five other banks in which they could invest. That is a huge error on the part of the Government. They do not seem to have thought this through, and it is their rush to take action that concerns me most. I would have liked them to say that they would look at the provisions for preference shares, think the matter over in more detail and come back to us early next week with a properly thought-out motion that we could discuss before debating the supplementary out-of-turn estimate. The problem with agreeing to the estimate today is that a Bill was automatically generated under the motion passed last night on which we are allowed no debate whatever. We will be allowed only to vote on it. My suggestion to the Government is that they follow the American example of having a much lower preference dividend rate, and that they allow dividends on the ordinary shares. Let us face it, we are going to be huge holders of the ordinary shares, and such a provision would get a return for the taxpayer right away. I want to make a couple of points relating to the massive common share issue, which is totally new and has had no parliamentary scrutiny. Originally, we were told that Lloyds TSB, a strong bank, was to take over HBOS, so that there could be a market solution to HBOS's problem. We were told that we were going to throw away the competition laws to allow that to take place. I am not sure that that was the right thing to do at the time, but the principle was that the two banks were being put together to provide a market solution. I really want the Government to explain why Lloyds TSB is not being allowed to go its own way, like Barclays and the others, now that we have nationalisation—or part-nationalisation—on a massive scale. It is a much stronger bank. We would then have only two banks in part-nationalisation. I have seen no ministerial statement, either in the House or in public, on that issue. Finally, I turn to the supplementary estimate that we are being asked to consider today. There has been an enormous amount of talk across the Dispatch Box about the terms and conditions that would be put on these companies. I have hunted high and low through the documents to find out what kind of controls are to be placed on the directors. When I was in business and a mere £100,000 was being invested, we had a thick booklet to tell us what we could and could not do. Our emoluments were controlled. Only two pages among the several hundred pages of documents before us deal with this issue. They state that the directors cannot have a cash bonus this year, but they can have a bonus in stock. Most bonuses are in stock anyway, so no control is being placed on these greedy bankers about whom there has been so much fuss. The Government might be trying to hide the fact away, but there is nothing in the documents that will control those emoluments. That is an extraordinary omission. At the same time, however, the documents set out a wholly unacceptable condition—my hon. Friend the Member for South-West Hertfordshire was right to correct me on this earlier. They state that, for three years, the level of lending must be at the 2007 level—the very time when too much lending was going on. The Government are imposing only very limited conditions on the directors, yet they are imposing a condition on the banks that is completely wrong for them and for the country. There are no time scales on these investments. The documents just have blank spaces where the time scales are supposed to be. They say 20—something. This week, we have been debating important issues, but not ones of fundamental significance, yet we are being asked today in a three-hour debate to approve a blank cheque for £42.2 billion. That is just plain wrong.