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Banking Bill (Money)

I am grateful for the time that the Economic Secretary spent discussing the matter because it is important. It was not aired in the Bill's earlier Commons stages, as the amendments were introduced in the House of Lords. Part of the problem stems from the fact that clause 2 defined banks quite tightly as entities authorised to accept deposits, and we will come to that when we discuss a later group. The clause almost envisaged a situation in which a bank was a stand-alone entity, or one where the bank was both a licensed deposit-taker and the holding company of a banking group. The amendments reflect the complexity of corporate structures in the UK, and they reflect the complexity of financial services groups, where a range of activities can be undertaken by a bank. The Economic Secretary presented a cut-and-dried process whereby the holding company and the deposit-taker would be subject to a transfer order, and where they are ring-fenced, in a way, from the rest of the group. Although he sought to reassure the House on the standards that would be applied before using such powers, I was less confident that the Treasury had thought through the process by which the powers would be used in practice. I cannot say that the Treasury believes that the powers will be used, because that would imply that it knows something we do not, but it must think through their implementation more carefully. Other issues will emerge. In the other place, Lord Davies of Oldham talked about situations in which a different entity could employ the people who work in the bank. A pension scheme could be shared across a number of different bank companies, and one of the amendments in the group deals with pension schemes. Within these entities, there may well be service companies that are integral to the functioning of the bank, and simply to say that transfer powers will be applied only to the holding company and the banking company might not be the best solution to the problem, although the continuity of service provisions in the Bill will help to deal with property and employees. It may not be as easy as the Economic Secretary thinks to segregate the holding company and the banking company as legal entities. At the same time, I understand the need to give reassurance to the integrated financial services companies about what will happen if part of their empire suffers problems. It would be unfortunate if an impression were given that the whole group will be sucked into public ownership if one part of it suffers problems. My hon. Friend the Member for Wellingborough (Mr. Bone) was right to raise the point about Tesco, which was mentioned in the House of Lords. A number of banks are part of different sorts of business entities, most of which will be part of a financial services company. Given the way in which supermarkets have moved into the financial services sector, we will end up with situations in which a bank, depending on how it has organised matters, could be part of a supermarket group. It is important to give some assurance about how the powers will be used. I understand why the Economic Secretary would try to avoid giving the impression that the Government can run Tesco, but it is not straightforward to say that the Government will only take on the bank and the holding company on the basis of there being an onward transfer power. I would like to touch on two more issues. The powers for holding companies also apply to the powers under clause 20, which relate to the ability of the authorities to terminate the service contracts of directors, and to vary their contract terms. We touched on this matter in Committee when we discussed whether the powers enabled the Government to intervene to prevent bonuses from being paid to bank directors. I will not rehearse those arguments, but in a case where one of the directors on the board of a holding company is responsible for the insurance division, could the Government terminate his or her contract using the powers in clause 20? There is a danger that the broad powers that apply to directors who are not related to the banking activity but are in the holding company could have an adverse consequence on their job security. The other issue was raised in the other place, and the Economic Secretary dealt with it today, but not directly. Will financial services end up redomiciling the location of their holding company? The Bill currently allows a UK-incorporated holding company to be taken into temporary public ownership. A banking group may decide, in order to safeguard its other interests and to avoid uncertainty, to redomicile its holding company outside of the UK so that only its UK activities would be affected. I wonder whether there is a risk, as we saw when HSBC considered changing its domicile last year for tax reasons, that the banks' reconsideration of where their headquarters should be based might be accelerated. If they move them outside the UK, that would be detrimental to the this country's interests. That might be an unintended consequence of the proposal, but it depends on the extent to which the proposal impacts the non-banking activities of those groups. I would be grateful if the Economic Secretary gave us some reassurance on how far the Government have gone with the process of thinking about the implementation of the powers and how they will affect integrated financial services companies. Will the powers in clause 20 that can be used to vary directors' contracts have unintended consequences, and will the changes have an impact on the competitive position of the UK as a place for financial services businesses to be headquartered?