---

HM Treasury

We have had a wide-ranging debate, and several points have been made to which I wish to respond. I shall aim to do so briefly, given that I opened the debate. I wish to emphasise again that the motion has two parts. The first part is designed to replenish the contingency fund, which has been drawn on for the reasons that I set out. On a technical point, I should clarify a matter raised by the hon. Member for South-West Hertfordshire (Mr. Gauke). We are not drawing on the contingency fund for the recapitalisation programme. At £37 billion, that is much larger than the entire contingency fund. So the first part replenishes the fund after the calls that were made on it because we think that it would be imprudent to wait until the normal point of repayment late in December. We want to replenish it now, in case we want to make further calls on the fund over the coming weeks. The second part of the motion is in respect of the additional capital required—the £37 billion—for bank recapitalisation. Several hon. Members have queried the way in which that sum will be treated in the national accounts. It will be for the independent Office for National Statistics to make that judgment and decide how the deals will be classified in the public finances. In the case of Northern Rock, the decision was that the figures should count as part of the public debt, but the ONS will also decide how the subsequent deals should be accounted for. It is worth underlining the fact that the impact for the taxpayer and the public finances will be exceptional. It will mainly be temporary, but the liabilities being placed on the public sector balance sheet will be backed by financial assets. Our view—and it is widely shared by, for example, the Institute for Fiscal Studies in its comments on this issue in recent months—is that the sums should not be counted in our assessment of fiscal sustainability against the sustainable investment rule. We will, of course, produce an update on where we stand against the sustainable investment rule at the time of the pre-Budget report, and all the figures will then be in the public domain. Not to have taken action would have exposed the taxpayer to greater risk, and that is the basis for the package that we have put before the House. In the debate, the hon. Member for South-West Hertfordshire and others mentioned the relative proportions of preference shares to ordinary shares. We did say last week that the Government would also consider acting as underwriter for ordinary shares, so the announcements that we have made are in line with that. Following detailed discussions between the Treasury, the banks and the FSA, it became clear that it would be necessary to build up the core tier 1 capital ratio in the banks that intended to take advantage of the arrangements that we had proposed. That required the proportion of preference shares to be limited. The desirable proportions of preference shares to ordinary shares have appeared in the announcements, and Opposition Members have read out the numbers of preference shares and ordinary shares for the three banks taking advantage of recapitalisation.