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Banking Bill

I take Members of the Committee back to my previous observation that the critical principle here is a contribution by the industry towards the cost of compensation, including by institutions that may in due course fail, so that the burden of their failure is not borne entirely by those who, through caution and prudent management, do not fail. There is a strong argument of equity there. The noble Lord, Lord Higgins, introduces an eloquent argument that seeks to align this with tax. I do not think that it is a tax, because contributions to the scheme will be there to meet obligations and claims on the scheme, and the existence of the scheme should be a source of comfort, reassurance and lower funding costs to the industry. I turn to the observations made by the noble Lord, Lord Skelmersdale. I believe that the strength of this proposal is the facility to permit prefunding as and when circumstances are appropriate. As my noble friend Lord Davies of Oldham said earlier, it is not the Government’s intention to suggest to Parliament that prefunding be introduced. However, I believe that the principle of creating a facility by which the industry contributes to the protection arrangement, from which the industry itself will benefit, is entirely proper and subject to parliamentary scrutiny and approval. The mechanism will exist at the right time—that clearly will be some time from now—to introduce an element of prefunding. Finally, in response to the noble Lord, Lord Higgins, the judgment on the scale of contribution clearly should be taken only after careful consultation and full involvement from the industry. He rightly alerts the Committee to the risk that if the contribution level is fixed at too high a point, it may be a contributory factor to failure, although none of the simulations I have seen suggest that anyone is thinking it would be set at a level which could be so damaging. Although the parallel, conceptually, with the pensions’ protection scheme is correct, I do not think that the issue is quite the same. In those circumstances, I would ask the noble Baroness to withdraw her amendment.