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Banking Bill

I appreciate the concerns expressed by the noble Baroness but hope I am able to persuade her that Amendment 159A and Amendment 159B would be unnecessary. As I hope I made clear in my last response, we have no intention of introducing pre-funding. It is not the time for doing that. However, if pre-funding were introduced our intention is that the contingency funds would be invested in the National Loans Fund, as is provided for in this clause—in other words lent to the Government as if invested in gilt-edged securities. If pre-funding were introduced, the funds built up would obviously have to be invested somewhere until they were needed. Equally clearly, the funds would have to be invested in low-risk investments which could be turned into cash quickly and in all market conditions. The Government are the best source of such investments in sterling. The Financial Services Compensation Scheme could just buy gilt-edged securities but direct investment in the National Loans Fund is more efficient and removes the need for the FSCS to have to employ advisers and administrators to manage its investments—a point the noble Baroness acknowledged in her opening remarks. As the funds invested in the National Loans Fund will have been lent to the Government, they will replace Government borrowing from other sources. At the end of each day, the Exchequer must borrow from the money market or place funds on deposit with the money market, depending on the net position reached after balancing outflows to finance expenditure again. Any funds from the FSCS will represent an inflow. Arrangements will be put in place to minimise the impact of these flows and ensure there will be no distortion of money markets—the burden of one of the noble Baroness’s anxieties. The purpose of new Section 214A(2)(f) is to enable the regulations to specify some of the detailed requirements for the investment with the National Loans Fund from the investor’s point of view. New Section 223A(2) in Clause 169 allows the Treasury to agree terms and conditions with the FSCS from the borrower’s point of view. The FSCS is an independent body so will have to contract with the Treasury like any other lender to the Government. We will need to be able to regulate both sides of the transaction but equally to keep both sides separate in our minds. There is no intention that new Section 214A(2)(f) would be used to require the FSCS to take a different approach from that I have just set out for the investment of contingency funds. If some new approach were proposed in future, parliamentary approval would certainly be required under the affirmative resolution procedure, and we could then build in any necessary safeguards to meet concerns about distortion at that stage. I hope the noble Baroness feels I have answered the main points she addressed when she moved the amendment and that she feels able to withdraw it.