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Landsbanki Freezing Order 2008

My Lords, it is my privilege to follow the maiden speech of the noble Lord, Lord Myners. A maiden speech is an important rite of passage in your Lordships’ House. The noble Lord has nicely demonstrated the qualities that he will bring to our deliberations. As he told us, he started out as a teacher and a journalist. I am sure he will find that the dual skills of dealing with an unruly class and a way with words will stand him in good stead. The noble Lord is principally known for his outstanding career in the City, including being chief executive of the fund manager Gartmore and, more recently, as a mainstay of many FTSE boards. He is perhaps best known to Members of your Lordships’ House as the author of reports for the Treasury on equity investment and, more recently, as chairman of the Personal Accounts Delivery Authority, which the noble Lord will find is still the subject of the Pensions Bill, which is keeping us busy even this week. He and I share a common history in membership of the Court of the Bank of England. I look forward to putting that shared knowledge to good purpose with him when the Banking Bill is scrutinised here in the next Session. As well as welcoming the noble Lord to this House for the qualities that he will bring as an individual, we welcome him as a Treasury Minister. It is an important role, and it has been nearly 20 years since we had a full-time Treasury Minister in your Lordships’ House. I know that the whole House will join me in welcoming the noble Lord in both his personal and his ministerial capacities. Maiden speeches are not times for controversy, but when a Minister makes a maiden speech on government business it is difficult to avoid that entirely. So I must now turn to the orders, which the Minister has introduced so comprehensively. I am afraid that we are now on to business as usual. Let me say at the outset that we support the Government in taking action to protect the interests of UK depositors in Landsbanki. If both the initial order and the amending order, which was tabled last week, are what are needed to achieve protection, they have our complete support. Questions have been raised about whether the Government were over-hasty. On 8 October, on the radio, the Chancellor of the Exchequer said that the Icelandic Government had ““no intention of honouring”” their UK obligations. But the Icelandic Government have released the text of the telephone conversation between the Chancellor and the Icelandic Finance Minister which shows that this did not appear to be quite the truth. Will the Minister clarify on what basis the Chancellor made his statement? If the Icelandic Government were still seeking a way to honour their obligations, was the initial order appropriate? Last Saturday, it was reported in the Times that a potential IMF rescue package will go ahead without any special provisions being made for UK claims. Only a few days earlier, the Treasury was briefing that the IMF deal was dependent on sorting out UK claims. There was also talk of the Government possibly lending the Icelandic Government up to £3 billion in order to help them to repay UK savers. Has that now gone away? What is the current status of the IMF negotiations? Will the Minister say whether and to what extent the UK’s position is being protected in those negotiations? What are the financial implications for UK taxpayers? The freezing order will, I assume, have to be lifted at some stage, which will mean that the assets will pass to the administrator or liquidator of Landsbanki. What will happen then? The Government will have bankrolled the repayment of deposits to UK retail depositors, not all of whom are the liability of the Financial Services Compensation Scheme. If Landsbanki’s assets are insufficient to pay all its creditors, we will not get all our money back. How much taxpayer money is thought to be at risk? What sequence of events is now expected to bring this to a conclusion? How long will it take to sort out? The Minister will be aware that the Icelandic Government and the citizens of Iceland are deeply offended by the use of anti-terrorism legislation to freeze their assets, as well as some of the Government’s language that has been used around this. Iceland has repeatedly said that it should not be tarred with a terrorism brush. When the Anti-Terrorism, Crime and Security Act 2001, one of the many pieces of rushed legislation to which we have become accustomed in the past 10 years, was considered in your Lordships’ House, we sought to confine those powers to terrorism. But that was rejected by the Government. Eventually the Government conceded a review of the legislation, which was led by my noble friend Lord Newton of Braintree. He recommended that the non-terrorism powers clearly in the anti-terrorism Act should be in mainstream legislation so that anti-terrorism powers could be clearly marked as such. The Government refused to do that. The result is that, in order to achieve the protection of UK depositors, the Government have used legislation which carried the stigma of terrorism. On reflection, do the Government not think that it would be better if a more neutral legislative home for these powers was sought? Earlier this year, the Government took sweeping powers to deal with failing banks in the Banking (Special Provisions) Act, but clearly those powers did not equip them to handle the activities of all foreign banks operating in the UK. As I mentioned, we will shortly have the pleasure of scrutinising the Banking Bill which is currently in Committee in another place. Will the provisions of that legislation be adequate to deal with situations such as Landsbanki in future? Or do the Government intend to continue to rely on the provisions of anti-terrorism legislation? I hope that the Government will not bypass this legislative opportunity to secure direct powers to deal with all potential threats to our financial system. I think that the best that can be said of the freezing order procedure is that it has been an inelegant one. Others have passed harsher judgments. Early on the morning of 8 October, the Government issued one order, but the detailed text was not available until much later in the day, which was not helpful. The following morning they issued a general licence which corrected some of the defects of the original order. Four days later, on 13 October, they issued a second general licence which revoked the first licence but reinstated much of its contents. It has been put to us that the second licence is, "““in such incomprehensible language that it remains unclear to the market generally what activities are permitted””." That was followed by a ““clarification”” issued on 17 October which purported to deal with what is and is not ““frozen funds””, but I am told that these assertions are difficult to reconcile with the wording of the order itself. Lastly, on 20 October, the Treasury issued another order which, according to the Explanatory Memorandum, makes, "““minor changes to assist clarity””." If that description of ““minor”” is correct, I fail to see why the Treasury felt that it should disapply the usual 21-day rule for laying such instruments. The impression which this has left in the financial community is of a poorly thought out sequence of events and lack of preparation. More importantly, the first order brought the markets in repos, swaps and derivatives involving Landsbanki to a halt, and this has challenged the credibility of the use of English law as the governing law in these global transactions. That in turn may well have long-term implications for the UK’s pre-eminence in the global financial services industry. Can the Minister say whether the Government now believe that, two orders, two general licences and one clarification later, all the angles have been covered? Is the Treasury planning to review the effectiveness of its actions so that it learns lessons in case we are unlucky enough to find ourselves in this position again? Will the Minister reflect on the accountability of the Executive to Parliament and whether it is adequate? Before either House of Parliament had considered the first order, a second order varying it was laid, and in the mean time it had been considerably varied by two general licences for which there is no parliamentary scrutiny. There has also been a document of clarification which, according to some, clarifies nothing and certainly has no parliamentary scrutiny. The Treasury website sets out all this information, but the Minister can see that the sequence of events poses challenges to parliamentary accountability. I am sorry to burden the Minister with so many questions on his first outing at the Dispatch Box, but these are important issues and I look forward very much to hearing his response.