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Banking Bill

I am very pleased to see that my noble friend’s health has improved and that he is here to speak to his amendment. He has no doubt read Hansard. I think that he would have greatly enjoyed the discussion that we had last Wednesday. It was lively and well informed, and it reflected a sincere interest in the subject, as well as some relief from the tedium and detail of other parts of the Bill. I do not intend to deal with this matter in great detail now, as time is pressing and the arguments have already been presented to the Committee. A number of noble Lords spoke to the amendment in our earlier session, raising important points about a range of issues, including the role of non-executive directors and other matters. I made three points in response to my noble friend Lady Turner and I shall set them out again briefly for the record. First, where the temporary public ownership or bridge bank tool has been used, the Government already have substantial powers in the Bill over executive remuneration. It is therefore not necessary to have an explicit provision in the Bill empowering the Treasury to appoint to a remuneration or similar committee. Secondly, where a bank is privately owned, remuneration is a matter for the bank itself; I shall return to that in a moment. Generally speaking, pay for directors and employees must be a matter for the banks in question, as it is for any company. This applies where the private sector purchaser/stabilisation option has been used. I should add that, as the regulator, the FSA has said that it will take remuneration structures into account in its risk assessments of financial institutions with, to quote its words, ““increased intensity””. I commend and support that decision by the FSA. Thirdly, where a bank is in receipt of considerable public funds, these come with conditions attached, including over executive remuneration. The banks that are participating in the recapitalisation scheme have agreed to restricted remuneration for senior executives both for 2008, for which the Government expect no cash bonuses to be paid to board members, and for remuneration policy going forward. The statement on the Government’s asset protection scheme, which the Chancellor of the Exchequer published yesterday, makes it clear that conditions will apply to the scheme, including in relation to remuneration policy. My noble friend alerts the Committee to important concerns about executive remuneration. There is no obvious reason why the remuneration of the highest paid appears to have grown at such a fast rate compared with that of other people in corporations. It is not evident that there has been either a diminution of talent, which would be seen as a supply constraint, or an increase in demand. Therefore, it is right that the scepticism expressed by my noble friend about the processes by which decisions are made should be expressed in the pursuit of understanding. There is a risk that, to some extent, we have ownerless corporations in which decisions about remuneration are made in a vacuum because of the failure of the owners or their fiduciaries, the institutional investors, fully and properly to engage on issues of remuneration. I have spoken on this subject in other venues. I have engaged with institutional investors and put the challenge to them that the very difficult situation that our banks are experiencing, along with banks elsewhere in the world, must raise some questions about the responsibilities of the owners. I ask my noble friends Lord Wedderburn and Lady Turner of Camden to draw some strength from the fact that views are being expressed in the Committee that are consistent with the anxieties that lie at the heart of the amendment. However, I do not think that this Bill is the right place to pursue this matter. My noble friend Lady Turner said that she was scared. I would like to reassure her that, as a retail depositor with a British bank, she can, I believe, feel secure that our commitment to maintain the stability of the British banking system means that her anxiety should not trouble her greatly. The actions that we have taken are designed precisely to ensure confidence in the stability of the banking system and to ensure that retail depositors do not feel scared. I urge the noble Lord to withdraw his amendment.