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Banking Bill

I thank the noble Baroness for the brevity with which she spoke. As I look at my daytime job in the Treasury, I have no sense that it is seeking to profiteer at the expense of the banks—quite the opposite, at times. We have already extensively discussed the issues of funding the activities of the compensation scheme. Clause 167 allows for pre-funding, and Clause 170 allows for the Government to lend in the most administratively efficient way from the National Loans Fund. The National Loans Fund charges interest on the loans it provides. Section 5 of the National Loans Fund Act requires the rate of interest to be set at a level which would cover the Government’s cost of funds if, in order to service the loan, they were to borrow money on comparable terms to the loan they were making. I should stress that each loan or class of loans has to be priced individually in this way. The Treasury cannot take a portfolio approach and subsidise certain loans from the National Loans Fund by charging a higher interest rate on others. Section 5(6) makes it clear that the Treasury may charge a higher interest rate on loans than the minimum that the section requires. The amendment would disapply that provision in relation to loans to the FSCS. The intention behind the amendment is that the FSCS should be able to borrow money from the Government at little more than the Government’s cost of funding the loan. The Government are clear that the costs of the FSCS should be borne by the financial services industry. All parts of the financial services industry benefit from the extra confidence which the existence of the scheme provides to their customers. It follows that appropriate rates of interest should be charged on loans to the FSCS, which is ultimately financed by the financial services industry through the levies that it charges. That includes the interest on any loans that the FSCS takes out, so that those loans are really to the industry. It is right, therefore, that the interest rate should be set using the same principles that apply for government lending to bodies that operate in competitive markets. The interest rate will, therefore, have at least to match the European Commission reference rate to avoid any suggestion that the loans amounted to state aid to the FSCS levy payers. There is also an underlying principle: the rate of interest on any loan should reflect the real risk of the transaction, which is important to ensure that the risks and exposures of the Exchequer—in other words, the taxpayer—are properly managed. I hope that the noble Baroness will, therefore, agree to withdraw this amendment.