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Banking Bill

I congratulate the noble Baroness on introducing a debate on this subject. It is a matter of significant public concern that directors have paid themselves excessively in the past, and that this payment has not been linked to the success of the enterprise and in many cases has gone on at excessive levels when the enterprise has underperformed. We are not talking just about banks: this is a general problem. One reason for it, given by the noble Lord, Lord Borrie, is that you have a charmed circle of executive and non-executive directors, all of whom are setting each other’s pay. Thus very often the incentive for downward pressure towards realistic levels of pay is missing. The question raised by the noble Baroness is one aspect of the more general debate we have had on the Government’s role as regards its stake in largely or wholly owned public banks. The answer that the Minister has given is that it will be an arm’s length relationship. We talked earlier about the role of directors, who will be independent. If you go down that route which the Government clearly are going down the outcome that the noble Baroness seeks is achieved by ensuring that the independent directors, as I argued earlier, are a diverse lot and do not come with a vested interest in keeping salaries and bonuses high. If some of the directors do not come from a traditional bank—bank directors, as it were—that will be a good way to keep the pressure on. This is an important issue, but no more important an aspect of the management of the bank than other things that we have discussed in this and other debates, such as the way in which the bank lends to small businesses and the attitude that it takes towards repossessions if it is conducting mortgage business. Therefore, while this is important, it does not warrant separate legislative provision. We will have to rely on directors appointed by the Government to exercise their judgment and wisdom in reflecting a wide range of views about how banks should be governed, and that must include executive pay.