Kaupthing Singer & Friedlander Limited (Determination of Compensation) Order 2008

Noble Lords have debated whether the Government were entitled to take Bradford & Bingley into public ownership by relying on Section 2(2)(a) of the Banking (Special Provisions) Act 2008. If they were not so entitled, we would not be considering this order. The test in the Act is, "““maintaining the stability of the UK financial system in circumstances where the Treasury consider that there would be a serious threat to its stability if the order were not made””." On 13 November I asked for, "““an explanation of the judgment made by the Treasury that on 29 September, Bradford & Bingley triggered the purpose of the Act””.—[Official Report, 13/11/08; col. 824.]" It did not appear then—nor does it now—that there was in Bradford & Bingley a serious threat to stability on that day. In his response, the Minister frequently referred to ““maintaining stability””, but did not explain the Treasury’s reasons for considering the threat to be serious. Similarly, in his letter of 27 November, he did not refer to a ““serious threat””. Such additional information as he did give—here I wholly agree with the noble Lord, Lord Campbell-Savours, that we are extremely short of information on all these matters—went to confirm that the problems at Bradford & Bingley, although real and in need of action, did not constitute a serious threat to stability. For example, he detailed the withdrawal of deposits over the four days leading to the Treasury’s action as being to the value of £326 million. That is a significant figure in itself, but not so much within a total of £20 billion-worth of deposits. Nevertheless, I think we all agree that the market had become a place where Bradford & Bingley, in company with the much larger Royal Bank of Scotland and Halifax Bank of Scotland, was finding it close to impossible to continue. It was this wider market failure which led just 10 days later to the bank recapitalisation scheme. That leaves open the question: why was not Bradford & Bingley included in the recapitalisation scheme, having received financial assistance from the Treasury or possibly the Bank of England to tide it over for 10 days until the announcement of 8 October? That action restored a degree of confidence in some much larger banks that were in trouble. Why was this course of action not an option for Bradford & Bingley? Why was it left out? There may be a good explanation, but we have not been given it. It is profoundly unsatisfactory that the Government refuse to describe all the options they considered in late September. They constantly mention the private sector but leave out of the account that there might have been an alternative public sector solution to the problem. The Government say that they believe in competition and do not wish to manage banks at all, let alone in run-off, yet by summarily bringing the 160-year Bradford & Bingley history to a close, they have both reduced competition and given themselves a job of administration for which they are unqualified. It is high time that the Government provided the information to demonstrate that the test in the Act of ““serious threat”” was met—if it was. There were surely options open that would have better protected long-term stability, depositors and the taxpayer. The solution chosen will cost the taxpayer much more than would have been the case if Bradford & Bingley had been put in a position to continue. In their determination to be seen to be doing something, the Government have failed to see that continuity was greatly to be preferred to compensation. We never needed to be asked to consider this order.