Financial Services Bill

I am glad that my hon. Friend—I shall call him that—mentioned that point. He has managed to put that on the record without my needing to do so, because—as we all know—Robert Maxwell is not now present to answer those charges. At least, we do not think that he is present. The House took those matters seriously and two things happened. The then Government asked Sir John Cuckney—later Lord Cuckney—to trace the funds that had been lent out and recover them. Sir John went about the task with the diligence one would expect from someone with his rich career. He was so open-minded on the issue that he adopted the American practice of calling in a judge to mediate with those who claimed that they had taken shares in good faith and should not have to pay back any money. After about five months, Sir John's patience ran out and he called the main recipients of the shares to his office. He said that he would provide lunch, and he effectively locked them up for the day so that they would come up with the funds that the pension funds said that they needed to recover their lost assets. Anyone who knows anything about Sir John's career will know that he knew where the bodies were buried and, by the end of the day, hundreds of millions of pounds were produced. The second measure taken—apart from the approval of Sir John Cuckney's work—was a major pension fund review. The Select Committee was involved—indeed, one of the Clerks at the Table was the Clerk to the inquiry. We proposed many reforms, and the Government accepted many of them. One of them was to establish the position of custodian, so we could not again have a situation in which a forceful character such as Robert Maxwell could bully the chairmen and trustees of company pension schemes to hand over the assets of the pension funds. So the custodian—we thought—would play a key role in ensuring the safety of pension funds. Once I learned that the horrors of short selling were way beyond what I had imagined them to be, I approached the pensions regulator. Quite a lot of our time in this place is naturally spent picking fights with public and private officials whom we do not think adequately fulfil their role and, sometimes, nowhere near earn the salaries that they are paid. I want to put it on record that I found dealing with the pensions regulator to be a most reassuring task—indeed, so much so that, having conducted a review, the pensions regulator has laid guidance to trustees saying that they now have a duty to ensure that they know about it, if their funds are being lent. That suggests that the single case that I took to the pensions regulator was not a one-off job, but that what had happened was more common than we had dared to imagine. Worse still, the custodian was a bank. Although the chairman saw after probing that other assets were being given back to the pension fund for the shares and gilts that the custodian bank was borrowing, without the knowledge of the chairman, trustees or members of the fund, the collateral in no way matched the value of what was being taken. For example, taking Government gilts, which, despite all our problems with public debt, are still one of the most pukka gilts in the world, and substituting gilts of equal value from fourth-world countries is not, in my view, an adequate recompense for what was being undertaken. The same goes for the shares that were borrowed in order to be used in short selling. Although those substitute shares were of the same nominal value, nobody in their right mind would think that the risks attached to them were the same as those attached to the shares that had been lent. I therefore conclude that the Government's success in rescuing the banks was much greater than that to which we have paid tribute in this House, in that if the banks had gone under, which was a genuine worry, and the practice that I am describing had been more widespread than a single pension fund—that is, if there had been many more pension funds whose assets had been lent out by a custodian that happened to be a bank—not only would the chaos of not having an acceptable medium of exchange have followed, but the whole house would have come tumbling down. I also wrote to the Financial Services Authority, which was not quite as anxious to deal with the issue as the pensions regulator. I asked the FSA whether, in doing spot checks, it looked at banks' balance sheets and at the array of gilts and other assets that it wishes banks to have so that they behave prudently and, should anything untoward happen, so that they have some genuine assets that they can draw on for their depositors, but to my mind a satisfactory conclusion was not reached. The worst scenario, therefore, was where a pension fund was having its shares lent without its knowledge by the custodian—part of one of our major high street banks—and where it was open to the other banks to borrow those assets and perhaps put them on their balance sheets in order to convince the FSA that they were in a healthier condition than they perhaps were. That was the worst scenario, unless one considers that practice to be acceptable; I think that it is not. I have asked my colleagues for their views on new clause 8, and they feel that it is too restrictive. When I first started out, I thought that short selling itself was wrong and that we should ban it. Perhaps there is a bit of that flavour in new clause 8. I am very interested in the House's view, albeit not on the details of how one might police short selling. I am obviously interested to hear people's views on how we can make that method safer. For example, it might be perfectly proper to short sell, if the share price is rising rather than falling. Those are the kinds of locking mechanisms that I hope we can establish. I want the House specifically to address the question whether we need to consider further—perhaps not here today, but in another place—how we can better protect our constituents' assets that are wound up in company pension schemes. I have given the House one example. If that were the only example, it would still be worrying, because it relates to a medium-sized fund. However, my guess is that it does not stand alone, and that other funds have had their shares and assets lent without their permission, risking the life savings of the company concerned and the members of that company's pension scheme. I wonder whether we need to consider putting a lock on what custodians can do in that regard. The House will see that, among the many measures in the new clause, one of the safeguards is that no pension fund assets can be borrowed unless the chairman and trustees know about it and unless they have consulted the membership—that is, us—if need be. I tried to table some questions to find out what was happening to the House of Commons MPs' pension fund, but, for some reason, I did not get very far towards getting an answer—I did not get an answer saying that the funds were not being lent, so perhaps that practice extends to our pension funds, just as it does to those of constituents. I ask these questions in the spirit of inquiring into what the House thinks. Perhaps we can regroup with a much more targeted amendment in the other place, but I urge hon. Members to support the new clause.