PAYMENTS TO DEPOSITORS WHEN INSTITUTION BECOMES INSOLVENT (Hansard, 14 February 1979)

§ Mr. Emery
I beg to move amendment no. 15, in page 28, line 3, at end insert— 'which amount shall be increased to ninety per centage of the protected deposit if the deposit was made by an individual or a partnership'. I am not sure that I carry all my hon. Friends with me on this amendment, but it is a new amendment covering a matter with which we did not deal in Committee.
I am not arguing the case for or against the deposit protection fund. There are strong arguments for saying that we do not need the fund because the protection can be provided by insurance. I am arguing on the basis that the fund will exist. But I wish to make that fund as sensible and as reasonable as possible.
As the Bill stands, a protected deposit is defined. The Bill provides that, if any deposit-taking institution or bank goes into liquidation or runs into financial problems, the depositors shall be protected. They are to be protected up to an amount of £10,000, and 75 per cent. of their deposits up to that sum will be paid back from the fund.
The amendment attempts to differentiate between companies, private individuals and partnerships. If the amendment is not accepted, the individual small depositor will have no greater protection than a company. What is more, the protection that the depositor will receive will be less than he receives at present. I cannot believe that that is right.
I have said that we should afford different treatment to companies and individual depositors, and I have some good precedents for saying that. The Policyholders Protection Act protects the small individual policyholder. Under that Act the protection is 90 per cent. for individuals and partnerships. The Minister has 1227 been in the House long enough to know that there is sense in legislation which runs in parallel and on similar terms. There is, therefore, sense in providing the same type of protection.
In Committee and on Second Reading I said that no depositor, whether British or foreign, has lost a penny of any deposit that he has placed in a City of London bank. I extend that statement and say that no one has lost a penny deposit in a British bank.
The Minister said that he had received a letter from someone who wanted his money back. I am sure that the Minister will discover that that person was not a depositor but a shareholder in a deposit-taking institution. I stand to be corrected, but the information that I have obtained shows that in this century no depositor has lost a single penny. If that is so, the Bill reduces the protection to the consumer.
Today the consumer knows that should something go wrong the financial organisations will come together, sometimes under pressure from the Bank of England, to buy out or inject money into the weak institution or, in the worst instances, to put into operation a major rescue operation such as the lifeboat. Today depositors have the massive assurance of the solidarity of British banking. They have never lost one penny of their deposits.
The Bill weakens the consumers' protection. We should ensure that we provide more than 75 per cent. protection to the weakest section of depositors.
Many individuals in banking who may not know much about banking or anything else might turn themselves into limited companies. It is argued that they should receive as much consideration as individual depositors or partnerships. I concede part of that argument, but the issue is not as comprehensive as that.
If we had to define the depositor with the least knowledge of banking institutions, we would name the private individual and not the company. It would be a private individual whether on his own or in partnership. It might be argued that the amendment was less acceptable to the major banking houses because it would involve them in more work and greater cost in reporting while failing to 1228 make a distinction between themselves and private companies, which might reasonably be regarded as small depositors.
The amendment is not supported by the clearing banks association, or by the finance houses. The big organisations are not necessarily concerned with it. I am advancing this proposal as an act of consumer protection, because I believe that if there is to be protection it should be for the small individual depositors.
The Minister might accuse me of adopting an Alice-in-Wonderland approach and say that I was fabricating a case which on the whole was based only on supposition. I could almost accept that argument. If he made it convincingly, I probably would accept it. It is unlikely that the fund will have to pay out. I realise that in saying that I am looking into the crystal ball, which is a dangerous thing for a politician to do. I do not say that that would apply on the insurance side, but I believe that the fund is unlikely to have to pay out on the banking side. I believe that in the interests of the reputation of the City of London and British banking, the same support will be sustained after the Bill becomes law as was operative before.
Therefore, if the Minister wished to argue against my amendment by saying that it was unlikely that the fund would ever have to pay out, I would accept his argument, but I would turn it on him and ask why we need a fund at all. However, I promise the Minister that I will not get into that argument because it is not relevant to the amendment and I know you well enough, Mr. Deputy Speaker. to know that you would get me back into order soon enough if I digressed into that area for too long.
I realise that I am ploughing a lonely furrow with this amendment. The bigger institutions see no major benefit from it. They argue that it could encourage people to make deposits with the less reputable deposit-taking institution or bank. That argument, however, is unacceptable, because there is at present 100 per cent. protection for any of those institutions. The clearing banks and the Bank of England have accepted that duty. Therefore, under my amendment there would be less protection than now exists.
1229 I hope, therefore, that the Minister will take this opportunity not only to make a mark for himself as the protector of small businesses but as the guardian of the small depositor. I hope that I have persuaded him that the amendment is not unreasonable. If I have succeeded, I shall have to make my peace with some of my hon. Friends.

Mr. Deputy Speaker
The hon. Member for Honiton (Mr. Emery) has had two victories already this evening.

§ Mr. Denzil Davies
Much of the substance of this amendment was discussed in Standing Committee. I tried to explain then why we had decided to go for a figure of less than 100 per cent. I tried to deploy the arguments on both sides, bearing in mind that some people wanted 100 per cent. protection. We had ultimately to accept that there should be a certain amount of risk because without risk some institutions would be encouraged to pay a higher rate of interest than would otherwise be prudent, knowing that they could be protected.
This is not a matter of large versus small. A larger organisation might decide to pay a higher rate because of the protection that was available.
The hon. Member for Honiton (Mr. Emery) has said two or three times that no depositor has ever lost money with a British bank. I do not know how he defines a British bank, but I see the hon. Member for Monmouth (Mr. Stradling Thomas) present. I will not regale the House with the trials and tribulations of my uncle some years ago in West Wales, but the hon. Member for Monmouth will probably recognise the situation to which I am alluding.

Mr. Deputy Speaker
If the Minister wants examples, I, too, can give one. My wife has a bank. I deposited money with it and I never saw the money again.

§ Mr. Davies
I hope that the hon. Member for Honiton will not again tell us that nobody has ever lost money deposited with a British bank. I am grateful to you, Mr. Deputy Speaker, for corroborating my argument.
In considering the amendment, one could say that there was no reason to bring in partnerships. That would be a 1230 fairly easy debating point for me to score. Why should a firm of accountants in the City of London—perhaps 40 firms in a partnership—get 90 per cent. protection when a small business man in West Wales who forms his own company can get only 75 per cent.? The accountants are far more sophisticated than the small West Wales business man. One cannot therefore draw that kind of distinction.
It is difficult to determine what figure to choose. We think that 75 per cent. is fair, but in choosing the figure one cannot differentiate between individuals and companies. There is great difficulty in that, and it would be unfair to small businesses that incorporated for good reasons. Therefore, on this occasion I cannot help the hon. Gentleman, and I advise the House not to accept the amendment.

§ Mr. Ian Stewart
With your intervention, Mr. Deputy Speaker, with the presence of my hon. Friend the Member for Monmouth (Mr. Stradling Thomas) in the Whip's seat, and with the Minister's speech, the Celtic fringes of the kingdom are exerting their effect in a less happy way than occurred earlier in our proceedings.
My hon. Friend the Member for Honiton (Mr. Emery) said that he thought he might not obtain the support of his colleagues for the amendment. I have to say that, for reasons similar to those advanced by the Minister, I believe that it would be wrong to go to a figure of 90 per cent. On Second Reading I said that I wondered whether 75 per cent. was not too high to provide the incentive to prudence which is clearly needed in this scheme. Since then I have given the matter greater thought and reached the conclusion that a figure lower than 75 per cent. would not be proper.
On the other hand, I feel, equally, that a figure higher than 75 per cent. would remove a critical element, namely, that a depositor must have some regard to the nature of the riskiness of the institution with which he makes the deposit. I therefore feel, as does the Minister, not entirely in sympathy with the proposal in this amendment, although I compliment my hon. Friend on the way in which he has presented his argument since it has raised a number of interesting points lying behind the choice of the percentage figure.

§ Mr. Emery
By leave of the House, may I thank my hon. Friend the Member for Hitchin (Mr. Stewart) and the Minister for their answers? I do not entirely accept them. The point of most relevance concerns the variation between partnerships and the private individual. I take the point that a large partnership of major accountants in the City should not be excluded in this way. I was trying, as a matter of consistency, to use the same type of judgment as had been used in the Policyholders Protection Act.
I give notice that I shall try to urge some of my noble Friends in another place to raise this point as it applies to the individual, since such an approach might whittle away some Treasury resistance. I beg to ask leave to withdraw the amendment.