§ Order for Second Reading read.
§ 4 pm
§ The Economic Secretary to the Treasury (Mr. Ian Stewart)
I beg to move, That the Bill be now read a Second time.
May I begin by drawing the attention of the House to the White Paper—[Interruption.]
§ Mr. Speaker
Order. Will those hon. Members who are not remaining for the debate please leave the Chamber quietly?
§ Mr. Stewart
May I draw to the attention of the House the White Paper which was published on 18 December 1984, which sets out the proposals for reorganising the trustee savings banks? That White Paper, which is the background to this Second Reading debate, contains a background to and history of the trustee savings bank movement and to the legislative arrangements which have applied to the trustee savings banks over many years. It also sets out the recent developments in the trustee savings banks leading up to the Bill and the further proposals which are described in the White Paper in the form of a letter from Sir John Read, the chairman of the central board of the trustee savings banks. That describes in particular the elements of the proposals which are not contained in the Bill.
Other documents which hon. Members may find relevant to the subject are available in the Library. They are the Treasury press notice of 18 December, a press notice of the same date by the trustee savings banks central board, the TSB group report for 1983, and the draft memorandum and articles of association of the TSB Group plc, as it is intended to be. That last item is optional reading, even for enthusiasts.
§ Mr. Jim Craigen (Glasgow, Maryhill)
There is usually a period after the publication of a White Paper when the public have time to digest its contents. Is it not a bit of an irrelevance to publish a White Paper when the Bill is introduced so quickly thereafter? Has the pushing forward of the Bill anything to do with the difficulties that the Government are running into over the privatisation of British Airways?
§ Mr. Stewart
The Government published the White Paper on the same day to explain the background to the Bill and to set out the matters that I have just described. I should have thought that that would have been helpful not only to hon. Members but also to those outside who take an interest in the proposals. The proposals themselves have been known in general outline for a couple of years or more. It is convenient for the House to have before it the way in which the Bill is formulated and the other matters which Sir John Read describes, and the White Paper fulfils that function.
The Bill deals with only those parts of the proposals which are the responsibility of Government. The trustee savings banks themselves are primarily responsible for the arrangements about their own future. In particular, they have direct and immediate responsibility for the reorganisation for the companies and bodies within the 30 group to which the Bill refers. The production of the Bill and the bringing forward of the proposals is the consequence of a long period of discussion, including close consultation between the Government and the trustee savings banks.
The second paragraph of Sir John Read's letter in the White Paper says:I confirm that you have the full support of the TSB Group in promoting this Bill. In August 1982, after lengthy and very careful consideration of the options, both by the Treasury and within the TSB Group, I announced that the TSB Group wished to reorganise into a Companies Act structure and to acquire additional capital and a wide pattern of ownership by issuing shares to the public. As the main purpose of the Bill is to permit the TSBs to take these steps, we naturally welcome it.
As I said when the Bill was published, I am glad that it has proved possible to introduce it into Parliament during this Session. That enables us to complete the statutory arrangements for enabling Trustee savings banks to obtain full private sector status without delay. I am anxious that they should be in a position to realise their potential and to play a full part in the development of the banking sector. That will increase competition and consumer choice in retail banking at an important stage in the evolution of financial markets.
§ Mr. Gordon Wilson (Dundee, East)
The Minister will be well aware of the report of the Monopolies and Mergers Commission on the Royal Bank of Scotland which sets out the desirability of the Scottish banking sector being retained with its full integrity and autonomy. As I read the Bill and the White Paper, the autonomous trustee savings banks in Scotland will be subsumed into a new company, the TSB Group, which will have overall authority. The TSB in Scotland has had a much larger and more important role to play than the TSB in England and Wales, as I think the Minister will agree. As a result, we shall see the bank disappearing and the overall effect will be a diminution in the Scottish investment sector and the control of investment operations within Scotland. Would not that be a bad thing, given the overweening centralisation of the British economy and financial sector in London?
§ Mr. Stewart
Under the existing structure with the central board, there is already a good deal of centralisation and co-operation between the individual trustee savings banks. As I understand it, there is unlikely to be any diminution of that after the reorganisation. The structural changes are needed for other reasons. If the hon. Gentleman is worried about that point, I hope that he will consult the trustee savings banks.
I visited the TSB in Scotland a few months ago and I was impressed by what I saw. In no sense did I get the feeling that the Scottish indentity or the bank's independence was thought to be in any sort of jeopardy as a result of the proposals. I certainly do not believe that to be the case. Indeed, the savings bank movement originated, like many good things in the financial sector, in Scotland. I recognise that after reorganisation the TSB will want and need to retain a substantial measure of its identity. But the proposals that we are considering today are the culmination of a process in which the trustee savings banks themselves have recognised that more cooperation and communication between them is needed. Therefore, it is partly their own banking needs which have led to the present proposals.
§ Mr. Wilson
The Minister gave an assurance that there would be no diminution in the level of centralisation 31 compared with the previous structure, which I did not entirely welcome and which was not exactly what I had in mind in seeking that assurance. Does he recognise that there is a difference between co-operation, which can be desirable, especially in the confederal arrangement which existed before, and one company, one integrated shareholding, where the majority of the shareholders throughout the United Kingdom will have the right to take investment decisions which could result in the dismantling of the trustee savings banks in Scotland in five to 20 years' time as a result of a change of policy?
Therefore, will he consider building into the Bill something along the lines of that which has been given to the TSB in the Channel Islands, where there is to be a separate shareholding which will safeguard some of the autonomy of the TSB there? It is important that there should be something in the Bill to safeguard the Scottish situation.
§ Mr. Stewart
I hesitate to be drawn into a long debate on that question at this stage. I shall be interested to hear what the hon. Gentleman says in his speech. Having listened carefully to his intervention, I think it might be helpful if I covered the remaining aspects with which I wish to deal, and, by leave, I shall reply at the end of the debate to the points that hon. Members make.
This legislation will also pave the way for the ownership of the TSBs to be established in the hands of the shareholders of the new group, with priority for those who, as depositors and staff, have contributed to the success of the TSBs. I welcome the opportunity that this will provide for spreading share ownership more widely and, in particular, for enabling those who have been involved in the business of the TSBs as customers and employees to invest directly in their future.
The Bill will enable the TSBs to reorganise on to the same basis as the major banks with which they compete in the high streets. The Bill is required to transfer the business of the existing TSBs into the new bodies being set up under the Companies Act framework and to make provision for a number of other specific aspects of the transition. I shall comment shortly on the provisions of the Bill.
Many of the proposals for the future of the TSB group do not require legislation. These are the responsibility of the TSBs and their central board, though the Government have been involved in the discussion of the overall strategy. The hon. Member for Dundee, East (Mr. Wilson), may be aware that on a number of aspects of these proposals it is for the TSBs, rather than for me, to respond.
I do not propose to give, and I cannot give, assurances about the internal arrangements of the TSB group. However, I can emphasise that the arrangements which are permitted by the Bill and which the Bill empowers the TSBs to carry through have been discussed between the TSBs and the Government and are agreed by the management of the TSBs to be in the TSB interest.
§ Sir John Osborn (Sheffield, Hallam)
While welcoming the Bill and my hon. Friend's remarks, may I ask if he is aware that some of us with an interest in the TSB and small banks generally believe that one of their great assets is that they have brought in the small saver? Has my hon. Friend had an assurance that the strong 32 character of the TSB will continue, bearing in mind that it will be competing with building societies and other banks?
§ Mr. Stewart
I recognise the contribution which my hon. Friend and many other hon. Members have made to the TSB movement and the interest which they take in it. I share his concern that the TSBs should maintain their provision for the small saver and their local connections, and everything that I have heard in the discussions leading up to the introduction of the Bill convinces me that that is still the intention and purpose of those concerned with the TSBs, and I welcome that fact.
As soon as the proposed reorganisation is complete, the new TSB banking companies will apply for authorisation under the Banking Act, and the special arrangements for the supervision of the TSBs by the Treasury and other provisions in the Trustee Savings Banks Act which at present apply to the TSBs will come to an end. The new TSB banking companies will then have the same legal status as any Companies Act company and will be subject to the same legal and prudential requirements as other major banks in the United Kingdom.
It will be clear that the Bill is a technical document. Clause 1 sets out the definitions on which the rest of the Bill is based. The existing TSB group consists of the four existing trustee savings banks, the TSB central board and the subsidiary companies which they already own through Trustee Savings Banks (Holdings) Ltd., which is described as "the existing holding company."
The new TSB group will consist of the new holding company, in which shares are to be issued to the public, and its subsidiaries— that is, the new TSB banking companies and the specialist companies, which are identified in this context in the family trees on page 7 of the White Paper. The new holding company will be called TSB Group plc, although the Bill does not refer to it by name.
§ Mr. Craigen
As the term "trustee" has a particular meaning, are we to take it that the bank will be "TSB" and will not be "Trustee Savings bank"?
§ Mr. Stewart
The hon. Gentleman was good enough to give me notice that he would raise that question. The last page of the White Paper contains a reference to that in paragraph 13 by Sir John Read:We intend for continuity purposes to retain 'Trustee Savings Bank' in the full legal title of the new banking subsidiaries.I understand that there is no objection to the use of that word in this context, although it is a matter for the Department of Trade and Industry in relation to company names. I gather that there is no difficulty in the use of the word or in the use of the word "trust", which is frequently used in banking matters and for companies of that kind.
Clause 2 deals with the central board established by the Trustee Savings Banks Act 1976, on the Standing Committee on which I served. The central board will need to undertake a wide range of operations during the reorganisation and is therefore given additional powers as necessary for that purpose. Once the reorganisation is complete, the central board becomes redundant; therefore the Treasury is given power to bring the existence of the central board to an end.
Clause 3 is the central provision. It vests the business of the various bodies which comprise the existing TSB group into the appropriate parts of the new TSB group. 33 The central board holds a number of assets, liabilities and obligations, and these will be transferred to the new group holding company. The Bill transfers the business of each of the existing TSBs to the appropriate new banking company which is to replace it. Each of these companies will be a subsidiary of the holding company. The clause makes it clear that contracts of employment are not affected, so that employees will enjoy exactly the same terms of employment after the reorganisation as before.
Clause 4 deals with the running down and eventual dissolution of the existing TSBs, which will be no more than shells once their business has been transferred to the new TSB banking companies. It provides for the trustees to vacate office once any outstanding accounts have been drawn up, and empowers the Treasury to dissolve the TSBs by order. The Trustee Savings Bank Act 1981, which consolidated earlier legislation, will also become redundant. The Treasury is empowered to repeal that Act by order, subject to transitional and saving provisions as appropriate.
Clause 5, with schedule 2, contains a number of tax provisions the purpose of which is to ensure that the TSBs do not suffer adverse tax consequences in the reorganisation which would not have applied in a reorganisation involving bodies all of which came under the Companies Act.
Clause 6 follows the tradition of earlier TSB legislation in providing for the remaining members of a class of savings bank which was established under an Act of 1819 dealing with savings banks in Scotland. These banks are not trustee savings banks, although up to now they could convert into TSB status if they wished. At present there are two such banks, one of which has announced its intention to merge with a major Scottish commercial bank at the end of this month. When the Bill is enacted, these provisions will therefore apply to the one remaining member of the class, the Airdrie savings bank, which has a number of branches in the Glasgow area.
The effect of this clause, with schedule 3, is to rectify an error in the Banking Act 1979, an Act prepared by a Labour Government, though I accept that the omission was inadvertent. The Banking Act was drawn up in terms which precluded the 1819 savings banks from seeking authorisation from the Bank of England to take deposits.
§ Mr. Robert Sheldon (Ashton-under-Lyne)
Apart from a reference to the Monopolies and Mergers Commission, what is to prevent another clearing bank from taking over the TSB?
§ Mr. Stewart
In the immediate future, the structure prevents that. As the right hon. Gentleman will know from the White Paper and from information provided by the TSB, it is the intention, after the Bill is enacted, to issue shares which would be in the ownership of the TSBs in future. It is intended also—this is a matter for the TSB movement rather than for the Government—that for the first rive years after it has become a private sector group there should be a limit on a shareholding by any one shareholder of 5 per cent. of the capital, and thereafter a limit of 15 per cent. It will be many years hence before the issue will arise whether the TSBs might be taken over by any other group.
§ Dr. Oonagh McDonald (Thurrock)
The Minister has stated the position as it is set out in the memorandum that accompanies the White Paper and the Bill, but that is not 34 written into the Bill. The Bill does not lay down any provisions that would prevent a takeover of the sort that my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) has postulated.
§ Mr. Stewart
The hon. Lady is right to say that the Bill does not contain any such provisions. We are dealing with the intentions of the TSBs, and I think it proper that they should deal with their own affairs without the involvement of the Government.
Apart from dealing with the commencement and repeals in the usual way, clause 7 provides that the Bill will have direct effect on the Channel Islands and the Isle of Man. The island authorities involved have agreed that it is in everyone's interest that the reorganisation should proceed on the same basis and at the same time throughout the British Isles, even though in a number of respects the Bill contains matters which would normally be the subject of separate legislation on the islands, or at least an extension to the islands at the option of the local legislatures. I thank the island authorities for agreeing to this procedure. I readily acknowledge that the special circumstances which follow the pattern of earlier TSB Acts do not constitute a precedent detrimental to the constitutional position of the islands.
I shall mention briefly one or two matters that have been raised in public discussion of these proposals since their introduction. After a long and distinguished history as banks encouraging thrift and savings but with few other functions, the TSBs found it increasingly difficult to compete in the market place during the 1950s, 1960s and 1970s. The committee which was established in 1971 under Sir Harry Page was invited to consider the future of the TSBs and it recommended the development of their banking services. That was followed by the 1976 Act, which was introduced by the then Labour Government. That measure created the central board and permitted the TSBs to undertake new activities.
§ Mr. Robert Sheldon
The Page report suggested that there should be a third force. The first force consisted of the clearers and the second of the National Giro. The third force was the trustee savings banks, which would look after the local community and concentrate on small savers. I reaffirmed that from the same position which the hon. Gentleman now occupies. What has changed since then? What has happened to the third force?
§ Mr. Stewart
The third force can take different shapes at different times. The trustee savings banks were enabled by the Labour Government of which the right hon. Gentleman was a member—this process is being taken further forward by the present Administration— to develop in the way they thought best in their own interests.
The background and the financial markets have changed a great deal since the early 1970s and so have the services that are expected by customers of different types of banks. Sir John Read comments in his letter to the Chancellor of the Exchequer in the White Paper:The TSB group today is radically different from the TSB movement of ten years ago and has shown that it is fully capable of competing with other financial institutions in a fast-changing environment.The way in which the TSB movement has been able to adapt itself and to develop its business is impressive. At the same time, it has retained many of the important traditional characteristics of a movement that concentrated on small savers and local communities.
§ Mr. Craigen
How will the introduction of shareholders looking for dividends help the average customer of the TSB?
§ Mr. Stewart
The proposed public issue of shares will complete the transition of the TSBs to a fully-fledged status in the private sector. That will assist all those who have anything to do with the movement by giving them access to capital markets and the accountability which presently is lacking. The public issue will be made possible by the Bill, but that will not be a matter for the Government. Dividend policy and future profitability will be matters for the TSBs. Surely a body of interested shareholders, particularly one that includes depositors and the staff, which will have priority when the issue is made— I hope that members of the staff will take up the shares on a substantial scale— will be the best way of ensuring an identity of interests between depositors and the staff of the banks which has been the strength of the movement in the past.
§ Sir Geoffrey Finsberg (Hampstead and Highgate)
Does my hon. Friend agree that the important point, which was missed by the interventions of the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) and the hon. Member for Glasgow, Maryhill (Mr. Craigen), is that the TSB movement comprises local people in almost every town and village in the country, and that their initiative has led to the Bill's introduction? They are the people who want it and they are the depositors. That is why things have changed from 1971. As the Chairman of the Public Accounts Committee— the right hon. Member for Ashton-under-Lyne— will recall, I was a strong supporter of the Page report when I was an occupant of the Opposition Benches. However, things have moved on since then, and so has the TSB movement.
§ Mr. Stewart
My hon. Friend has summed up the position extremely well. I emphasise yet again that the Government are introducing a Bill that enables the TSBs to do what they want to do. Surely that should be welcomed on both sides of the House. The TSBs have made a great deal of progress in the past 10 or 15 years. Indeed, they have made good progress since the 1976 Act, which was another helpful stage in their development. I compliment Sir John Read and the members of the central board, the management and the staff of the TSBs centrally and at individual banks on the way in which they have responded to the challenge of major changes and on the progress which the movement has made since its legislative basis was altered a few years ago.
An issue which has been raised on many occasions is the ownership of the trustee savings banks. It has been said that the Bill is a privatisation measure but it is not what is generally understood to be a privatisation measure, which is a disposal by the Government. The Government do not own the TSBs. The money raised by the share issue will go to the banks and enable them to develop for the future. In that respect, the Bill is fundamentally different from privatisation measures. I suppose that it is a privatisation measure in the sense that it takes the TSBs into full and orthodox private sector status, but it takes them from a form of no man's land in which ownership is not established and not from the public sector.
The TSBs are not owned by their employees or depositors. Nor are they owned by the trustees or the 36 Government. Unlike building societies, they have no shareholders. Ownership is one of the issues which it is incumbent on a Government and Parliament to resolve.
§ Sir John Osborn
Can the TSBs handle this without the backing of legislation to limit shareholding to 5 per cent. in the early years and 15 per cent. later? To what extent will those shares be freely exchangeable? In about 10 years' time, will I as a member of the public be able to buy some shares or will there be severe restrictions? How will this be handled?
§ Mr. Stewart
I hope that my hon. Friend can buy shares at any time in the future after the issue takes place. I do not know how substantial my hon. Friend's resources are, but if he wished to buy more than 15 per cent. of the TSB group he might find some obstacles in his way. Provisions for dealing with this aspect will be incorporated in the memorandum and articles of the company. The provisions will operate in that sense and not by legislation. They will, of course, be subject to the ordinary provisions of company law.
The Bill is designed to end the statutory relationship of the TSBs in a special position with Government and Parliament. The Government and Parliament are responsible for resolving the questions of ownership, supervision and taxation involved in the reorganisation, the repeal of earlier legislation, and so on. The TSBs will have the responsibility for carrying out the changes. The Bill and the proposed reorganisation that will follow mark the end of an era. The trustee savings banks will cease to have a unique and an anomalous— in today's world— form of constitution. This Bill will, therefore, be the last in a long line of Bills dealing with the trustee savings banks.
I am glad that the Bill removes many of the restrictions on the TSBs' freedom of action which have constrained their progress. I am sure that the proposals we are putting to Parliament are in the interests not only of the TSBs but of their customers and their employees, and I hope that the proposals will be warmly welcomed. The TSB movement has a long history and a distinguished past. I am convinced that the TSBs have an important future. The Bill will enable them to take advantage of new opportunities, and I commend the legislation to the House.
§ Dr. Oonagh McDonald (Thurrock)
The Economic Secretary has rightly said that the Bill is designed to end a series of changes in the trustee savings bank movement. The changes began in a serious way with the Page report, which was commissioned in 1971 and produced in 1973. The report led to the first Bill which, in 1976, radically changed the operations of the TSB.
The Economic Secretary rightly said that the trustee savings bank movement had had a long and distinguished history. The first savings bank was set up in 1810 in Ruthwell in Dumfriesshire. That bank and others of its kind were designed to encourage thrift among working class people. Some of the branches seemed to have an interesting history. One of the early branches formed in Edinburgh was brought into being by a local branch of the Society for the Suppression of Beggars. Those who set up the banks frequently expressed strong moral feelings. S. W. Nicholl in his "Summary View of Report and Evidence Relating to the Poorhouse 1818" said:In every new disciple of the Savings Bank I see at least two apostates from the Poor Rate and in 15 or 20 years there is no 37 reason to doubt that the inherent and progressive principle of the Savings Bank will have not only stopped the progress but will have entirely routed the influence of its antagonist the Parish Rate.In the eyes of some of their instigators, the trustee banks were designed to encourage the poor not just to save but to save so that they would not be a burden on the rates. In some ways, one can see an early form of Thatcherism in the minds of some of those who were responsible for setting up the trustee savings bank movement. I do not mean to suggest that that was the only motive for setting up the banks; other people with philanthropic motives wanted to assist people in obtaining access to savings and the benefits that they could bring.
The banks have already changed considerably. Some of those changes might make the early founders turn in their graves. There are 2 million credit card holders among the 6 million customers, and that is some distance from the early notion of encouraging thrift. The changes in 1976 allowed the TSBs to operate full banking functions, including the ability to make loans to depositors, although those loans were restricted to members of the ordinary public and corporate loans were not encouraged. Since then, TSBs have developed deposit and credit services, cheque, savings and investment accounts and fixed term bonds. The TSB group offers insurance services and unit trusts through the TSB trust company. The TSBs operate credit cards, and the United Dominions Trust Ltd is an instalment credit and leasing company. Mortgage facilities have already become available.
As the Economic Secretary rightly pointed out, the further changes envisaged in the Bill do not amount to a privatisation measure. If this were a privatisation measure, the Opposition's attitude would differ. The Government do not own the trustee savings banks and, in spite of the doubts about the ownership, will not benefit from the proceeds of this sale. The Government's inevitable involvement is due to the history of the bank because it is under the supervision of the Treasury. The bank will now be transferred to the supervision of the Bank of England under the Banking Act 1979.
The questions dealt with by the Economic Secretary and in the White Paper make some of the issues a little clearer. The Page report referred to the ownership question. I understand that the members of the Page committee thought of raising that question when they were part of the way through their examination of the national savings movement. The Chief Registrar of Friendly Societies was asked to comment on who owned the bank.
In paragraph 250 of the Page report he admitted that the statutory framework for the trustee savings bankleft the true relationship between the depositor and his bank unclear. The wording of the Trustee Savings Banks Act 1969 indicated that the depositors were creditors of the bank, and therefore entitled, if the bank were wound up, to be repaid the full amount of their deposits plus the interest due. …On the other hand the Act, in providing for the use of trustees, did not make at all clear the extent to which, if any, the relationship between a depositor and a bank was also that of beneficiary and trustee.The Page report then comments that if the banks are to be considered as mutual organisations without shareholders, the right interpretation would be for depositors to be entitled to the full value of the bank, which would almost certainly be more than the liability to repay deposits and accrued interest, unless there had been gross mismanagement.
38 Therefore, it is clear from the Page report that the chief registrar and members of the committee inclined towards the view that the depositors were the owners. Although this is denied in the White Paper in paragraph 4.02, the Government must either accept the principle that ownership lies with the depositors or, at least, strongly suspect that that might be the case. If ownership did not lie with the depositors, the Treasury would be only too glad to get its hands on the proceeds of the sale and to rush the sale through to ensure that there is money for tax cuts in the coming financial year.
The Economic Secretary glossed over the problems about ownership. In his reply he should make it clear, given the remarks in the Page report and the fact that the Treasury is not taking the proceeds of the sale, how the Government arrived at the view expressed in the White Paper that ownership plainly did not lie with the depositors of the TSB.
We accept the fact that the structure and ownership of the TSB is not wholly clear. Nevertheless, implicit in the Page report is the notion that the TSB is a mutual concern. How far did the discussions that took place with the TSB in 1982 and have taken place since, extend? As was clear from our discussions with the TSB and as the Economic Secretary said, the matter was fully discussed with the management of the bank. But given the strong remarks in the Page report and the fact that the depositors are at least possible or partial owners of the TSB, what consultation took place with the movement as a whole to decide its future organisation?
We accept that the form of the TSB should be clarified, but choices are available. We should reconsider the strength of the remarks in the Page report. Paragraph 263 states:The suggestion has been made that the trustee savings banks should be 'hived off' to the private sector as commercial concerns. If by this is meant that they should have shareholders and operate from the point of view of ownership like commercial banks we see such a solution as neither practicable nor desirable in principle. In evidence, the Committee of London Clearing Bankers put forward the argument that trustee savings banks represent unfair competition in that they are not required, as the nationalised industries are, to realise a 'proper rate' of return on capital employed. In effect, the argument put forward by the clearing banks amounts to saying that the principle of mutuality is inconsistent with free competition. But this is manifestly not true. The principle of mutuality operates in the vigorously competitive fields of insurance and building societies and indeed in certain unit trusts. It is in our view highly suited to the needs of financial institutions such as the trustee savings banks if they play a wider role in the provision of financial services. Thus, there is no need to choose between the extremes of direct central government control on the one hand and full private commercial ownership on the other. We see no reason why the trustee savings banks, as reorganised along the lines suggested in the recommendations set out below, should not exist as mutual organisations primarily in the private sector of the economy. The principle of mutuality means in effect that the profit that accrues to the banks is indirectly distributed in kind to the depositors through improvement in services and lower costs of service rather than distributed to equity shareholders. A set of mutual banks … seems to us an excellent way of providing a competitive service for the financial needs of the small saver and small depositor.Given that the nature of the organisation needed clarification if the TSBs were to move ahead, they could nevertheless have moved forward in the form of mutual organisations.
At the time of the Banking Bill 1978 we envisaged that the TSB would continue to move towards the private sector, that that would be completed by the early 1980s 39 and that it would then be developed sufficiently to bring it within the supervisory system of the Banking Bill. That is what the then Minister said. Some of us might have preferred movement in other directions, such as towards the formation of a state bank, but that was not on the cards for the then Labour Government.
§ Dr. McDonald
I shall finish this point before I give way.
The TSB could have moved into the private sector in a mutual form. We envisaged the move into the private sector, but said nothing about the form at that stage. There is no reason why a mutual form of reorganisation should not be the form that the TSB now takes.
§ Sir Geoffrey Finsberg
The hon. Lady said that some hon. Members at that time might have wanted to move in a different direction, such as towards the formation of a state bank. Is that her view now?
§ Dr. McDonald
Given the present direction, we would not now envisage that future for the TSB. The existence of a state bank in some form is another matter. I was not referring specifically to the TSB when I made that point.
Perhaps in his reply the Minister will say something more about the reasons for rejecting mutuality. In our discussions with the TSB we understood that the main reason for rejecting mutuality as a method of development was the need for increased capital. The argument is that the public limited company form of development is essential to raise new capital. When we inquired what the reasons were for wishing to raise new capital, the TSB claimed that it was to improve the technology of the banks. They were among the first to introduce new technology and now need to make systems compatible with those of other banks because banks are being drawn into one network. The TSB wants to update technology, to introduce home banking and to extend the branch system, especially in the south, where it is not strongly represented.
§ Mr. Wilson
Will the hon. Lady accept that the Trustee Savings bank has been particularly strong in Scotland and northern England, where it originated? If it is to be the policy of the new unified board to concentrate in the south of England, it may mean that assets which have been utilised in the traditional areas for the requirements of small depositors may now be required elsewhere for industrial purposes. Areas in Scotland and the north of England could thereby be denuded of cash. Would not that be a very bad development for the areas which originally developed the TSB?
§ Dr. McDonald
The hon. Gentleman has made a point that I wish to deal with slightly later in my speech. At the moment I was wishing to explore the reasons for rejecting mutual organisation as the proposed mode of development of the TSB, but before I do so I should like to add one further point.
With the sale of shares, the TSB is generally expected to raise about £1 billion. Its assets are currently worth £700 million. I am sure that the Economic Secretary is aware that there is speculation not so much that the TSB will be taken over by another bank—such speculation occurred at an earlier date—as that the TSB might take over 40 another bank. That was mentioned in the Investors' Chronicle in December. It is described as being in a strong position because, unlike some banks, it is not suffering from ill-considered overseas lending. But if it were to take over another bank—perhaps a subsidiary in Britain of a foreign bank, which is one form that the speculation takes— it could extend into overseas lending through a takeover of that kind.
In future, the Trustee Savings bank will be under the supervision of the Bank of England and not the Treasury. Can we have an assurance from the Economic Secretary that, if a takeover of the kind that I have just described takes place, the Bank of England will supervise it, and supervise the operations of the TSB and other banks with greater care than in the Johnson Matthey affair? It would be a pity if a bank which is currently in a strong position—and is described by all the financial commentators as such—were to fall into the trap of taking over another bank and thereby inherit a lot of difficulties for itself. We want an assurance from the Economic Secretary that in the future the Bank of England will more carefully supervise what banks are getting up to than it has in the past few months.
The Economic Secretary said that there is to be a limit on the shares held by any one shareholder—5 per cent. for the first five years and 15 per cent. thereafter. In interventions in his speech, it was said that those limits are to be found in the draft memorandum and in the future articles of the company. Indeed, they are set out in the letter which accompanied the White Paper. We do not consider that that is satisfactory. We see no reason why it should not be incorporated in the Bill, which is designed to facilitate the setting up of the central TSB Group plc, which will then be involved in the flotation of shares.
In the Bill, no date or time limit is set for flotation after the assets have been transferred to the TSB group. We understand that that will be brought about by a statutory instrument at some future date as a result of consultation between the Treasury and the TSB, but there is no time limit specified in the Bill, nor is there a limit in the Bill on the number of shares to be held by any one shareholder.
We fear that the nature of the bank could change very considerably as a result of the flotation of shares. At present, the TSB has 6 million customers, with 13 million accounts. It is roughly the same size as National Westminster and Barclays. The expectation is that depositors will have a pink priority form to enable them to purchase shares. The closing date for that— 17 December 1984—has already passed. Prior to that date there was a significant increase in the number of accounts, as financial commentators recommended that in order to get the valuable shares in TSB, people should open an account with TSB and thus be able to obtain a pink priority form.
Therefore, there is an unspecified number of new account holders. Persistent questioning on my part did not elicit the information that I should have liked to have. Obviously, people have been moving in and opening accounts, and they do not really form part of the TSB tradition.
I further discovered that 40 per cent. of the depositors could not possibly take up shares. Plainly, from the size of their accounts, they had not enough capital available. Obviously, they would not be allowed to borrow from the TSB in order to buy shares in it. Therefore, a large number of the traditional depositors will not be able to take up the 41 shareholding, whereas new depositors have come in simply with an eye to taking up the shareholding. There are, in addition, 25,000 members of staff who are qualified to buy shares.
The allocation of the shares is not dealt with in the Bill and, indeed, it is not mentioned in the letter to which I referred. I know that the TSB has that matter under consideration. We should like provision to be made in the Bill to enable more of the traditional depositors to take up shareholdings., and to give staff a specific right to a number of shares. In that way some of the traditions of the TSB could be preserved. That would be better than simply saying that depositors would have priority forms and that some shares would be allocated to the staff. If those provisions were made, as the bank changed from being some—but not very clear—form of mutual organisation to a public limited company, part of the traditions would be preserved. We should like the Bill to provide that staff have not only a right to buy a certain number of shares but a definite say in the running of the bank. However, those are matters for the Committee stage.
The Trustee Savings bank has specialised in personal services. Indeed, personal customers account for 95 per cent. of the customer base. One of the features of the bank has not only been its concentration in Scotland and the north of England but the fact that, whereas other banks have withdrawn branches because they found it extremely difficult to operate in certain areas, the TSB has maintained branches in, for example, certain council estates in tough areas of Glasgow where no other bank is prepared to stay. The TSB wants to move into the more lucrative banking areas of the south of England. We do not want it to do so at the cost of its depositors and customers who, as has been rightly said, have helped to build up the wealth of that bank in the past, a bank that is now on a par with the other four clearing banks in terms of size and of the value of its assets. We are concerned that in its move into the south of England, the TSB should not neglect those in Scotland and the north who have contributed to its wealth.
We are also concerned that in its desire to move into commercial lending, which is a small part of its business at the moment, the TSB does not neglect its involvement in local communities in the north and in Scotland. We do not want to see that bank building up other forms of admittedly profitable commercial traffic while jeopardising its commitment to personal customers. We would prefer it if the Bill ensured that that commitment to and involvement in local communities remained and, in our examination of the Bill in Committee, we shall do our best to ensure that those measures are built into the Bill.
§ 5.1 pm
§ Mr. Eric Cockeram (Ludlow)
I declare an interest, being a director and trustee of one of the regional TSBs since the 1960s, which has been a fascinating period while the TSBs have been developing.
I suppose that the seeds of the Bill were sown in 1971 when the then Chancellor of the Exchequer, now Lord Barber, recognised that the national savings movement needed bringing up to date. Much of it had not altered since 1945, at the end of the war, and that included much of the TSB movement. Therefore, the Page committee was set up. It was interesting that Sir Harry Page, the chairman, who tragically died two or three weeks ago, was a former treasurer of the city of Manchester. Other notable 42 northerners, some from Liverpool, were on that committee, which was appropriate because the TSBs had their roots in the north of England and in Scotland.
The committee reported in 1973. If its conclusions could be summed up in one sentence, it would be to the effect that the national savings movement, including the TSBs, needed root and branch reform. A whole chapter was devoted to proposals about the TSBs. Shortly after that committee reported, we moved into the early months of 1974, when there was a general election, and the right hon. Member for Leeds, East (Mr. Healey) found himself Chancellor in the Labour Government. It was a tribute to him and to the common sense of the Labour Government at that time that they likewise accepted the reasoning behind the Page report and that, as its proposals were accepted in broad terms, this did not become a party political matter.
The TSBs proceeded to move more into the banking sector and away from national savings. They issued cheque books and in 1975 became members of the Bankers Clearing House to enable them to offer that facility. They offered personal loans in 1977, as well as overdrafts—two different things. Mortgages became available in 1979, as did commercial lending. The Trustcard came in as well.
It is significant that the TSBs have such a strong base throughout the country in the section of the public that, to use the jargon, used to be "unbanked", and that the Trustcard was an instant success. The TSB is now the second largest bank in the credit card business. Barclays is the largest and TSB is the second, followed by National Westminster, Lloyds and the troubled Midland, which collectively issued a card under one name. However, in pure banking terms the TSB is now No. 2 in the movement.
The TSB also acquired the United Dominions Trust, thereby being able to offer hire purchase and other facilities. It set up a trust company and has an insurance broking subsidiary. It has travelled a long way down the road to offering a full monetary and banking service to a section of the community which formerly, in broad terms, was unbanked. That is to be commended. The handling and retaining of cash in the home is not desirable these days. With modern computers and banking methods it is possible for all sections of the community to operate a bank account economically. The TSB has played a significant part in achieving that objective.
Therefore, in 10 years between 1973, when the Page committee reported, and 1983, the movement went a long way. It started off as little more than another arm of the national savings movement and a decade later it was virtually a full bank. That is a great tribute to the management of the bank, which has conducted that pretty substantial metamorphosis without any great traumas, carrying with it the good will of the customers and the staff, who had not been brought up in the banking world.
The TSB now has £8 billion in deposits, 6 million customers and 13 million accounts. It is a formidable organisation. Its reserves are in the region of £700 million and when, I hope, the Bill is passed, and after the public issue, its reserves will be over £1,000 million—no small organisation to have grown from what was little more than a part of the national savings movement.
As chairman of the all-party TSB group, I should like to comment—I am sure that other hon. Members share or have expressed this view—that there was a Bill concerning the TSB in 1976, another in 1978 and yet 43 another in 1981. There is now a fourth in 1985. There are not many organisations—except perhaps British Rail, which seems to have a Bill every year—that have had four Bills in nine years. I think that that has been due in no small part to the lack of clarity of thought in the early days after the issue of the Page report about where the TSBs were going; but, happily, in more recent years, since Sir John Read took over as chairman and formed a management team including several people who came from the non-TSB world and who brought in fresh minds and thinking, there has been an acceleration of clarity of thought so that people now know exactly where they need to go and are setting off down the road of the decision—which I believe is fundamental—that the TSB should be a company with limited liability. That has many advantages. It not only clarifies the problem of ownership which, as the hon. Member for Thurrock (Mr. McDonald) said, was one of the issues on which there was considerable doubt in the past—that doubt must be resolved one way or another—but enables the bank to raise fresh capital by the issue of shares, as is intended, following the enactment of the measure, and on a future occasion, should the need arise and should it be desirable, to raise further capital.
It is abundantly clear that anyone in the banking world today must have access to further capital at short notice, if required, as the National Westminster became sharply aware in 1975 when its shares fell to 88p and it was necessary to raise capital very quickly when the shares rose above par again. I am sure that the currently much-troubled Midland wishes that it could raise further capital now. It is essential that the TSBs have that long-stop facility. It may also be needed for highly desirable objectives, such as further expansion and additional facilities for customers. The Bill points the way ahead so that we may now wrap up the conclusions of the Page report in relation to the TSBs.
The purpose of the Bill is fivefold. First, it completes the change from a national savings organisation to a bank offering full financial services to its very wide spread of customers, the bulk of whom are in the north of England and in Scotland.
Secondly, the Bill provides a constitutional framework and removes the ambiguity of ownership which has existed so far.
Thirdly—I hope that my hon. Friend the Economic Secretary will not mind my saying this— the Bill removes the TSBs from the shackles of the Treasury and puts them under the Bank of England. That is desirable for a number of reasons, not least because, if the new TSBs are to compete with other private banks, they should share the same umbrella and regulation.
Fourthly, the Bill will strengthen the TSBs' reserves and allow further capital to be raised. As has already been pointed out, it is not a privatisation measure at all.
Fifthly, it will establish very wide ownership of the TSBs. All staff who wish to become shareholders have been assured that they will be able to do so. One hopes that the same will apply to customers wishing to become shareholders.
Those who ask what is so desirable about having shareholders and why the TSBs should not continue as a mutual organisation should consider the history of the matter. Not putting too fine a point on it, it must be 44 admitted that in the 1950s and 1960s the TSBs were in something of a rut. That was one of the reasons why the Page cornmittee was set up. At that time there was no profit incentive and no incentive for management to expand and modernise. I believe that the very existence of shareholders will prove to be in the interests of depositors, as it has been in the case of the other clearing banks. I am by no means convinced that mutuality achieves that objective. In passing, I might whisper in the ear of my hon. Friend the Economic Secretary that the same might well apply to building societies, although that does not arise under the Bill.
For all those reasons, I support the objectives of the Bill, although, like many hon. Members, I shall wish to examine it carefully in Committee. I believe that the Bill is desirable in the interests not only of the staff and customers of the TSBs but of the nation as a whole. The number of clearing banks has fallen to four in recent yars. I believe that the establishment of a fifth is economically desirable for the purposes of the country as a whole. I wish the TSBs well in the future and look forward to the early enactment of this legislation.
§ Mr. Robert Sheldon (Ashton-under-Lyne)
The hon. Member for Ludlow (Mr. Cockeram), with whom I have had the pleasure and privilege of working on a number of occasions in the Public Accounts Committee, rightly pointed out the importance of local interests in the trustee savings banks. Time and again we come back to the question of how to retain that strong local interest, which has been the driving force of the TSB and which makes it so different from many other banking institutions. The hon. Gentleman was also right to emphasise the advantages that the TSB has brought to people who would otherwise be "unbanked". I agree, too, that management was somewhat restricted before the 1976 Act. Opportunities existed but were not being taken and the success of that legislation, which I had the privilege of piloting through the House, lay in opening up opportunities for effective management of the interests of the banks themselves as well as their depositors and customers.
A total of 13 million accounts means that we are dealing with a very wide spread of the banking population. Sir Harry Page was a great city treasurer for my home town of Manchester; he was a person of great repute and standing and I knew him well. When he produced his report I thought that he had the balance right and I was most enthusiastic about it. The history of the Trustee Savings bank derives from the long neglect of people who, in the 19th century, were regarded as having insufficient means to use banking services. In those days, the banks were regarded as existing to serve people with substantial amounts of money on which they could obtain substantial returns in interest. Various enthusiastic individuals felt that that neglect of working people must be remedied and organisations such as the Yorkshire Penny bank were set up to give ordinary working people a fair deal for the disposition of their money so that they could obtain a comparable return on their deposits. All this was before small savings possibilities became available through the Post Office. There was little further development for many years.
Following 1965, cheque accounts were introduced and the TSBs were freed from their historical restrictions. That 45 was the motive behind the Page report. The question was how to retain the enthusiasm and dedication that Page found while providing for the ability to expand and advance that is necessary in the modern banking world. I had a great deal of sympathy with the solution proposed by the Page report. It suggested that the TSB should be a third force, in addition to the clearing banks and the National Giro, both of which had a clear market for their activities, with clear distinctions between the different forces.
The 1976 Act sought to advance the opportunities of the TSBs by allowing them to undertake personal loans, overdrafts, credit card facilities, small business loans, mortgages and unit trust services. That legislation was highly successful and the idea of the third force remained intact. There was to be freedom from direct and detailed Government control, which had previously played a part in shackling the opportunities open to the TSBs, and the organisation of the units was to be strengthened on a regional basis. Some people were unhappy at the idea of a regional element being brought into the small, tight local organisation of the TSBs as a means of strengthening them. In the main, the problems were overcome, although some echoes of them still remain. There was to be a central authority from within the movement to provide a central direction.
That was the Page path—the establishment of the trustee savings banks as a mutually owned third force. As a result of the Bill, instead of a third force there will be two forces. There will be the clearing banks and National Giro, and inevitably the trustee savings banks will drift towards the clearing banks. When the Economic Secretary to the Treasury talked about the end of an era he said more than he had meant to say. I believe that there is a danger that the distinguished history of the TSBs will come to an end rather more quickly than anyone would wish.
My hon. Friend the Member for Thurrock (Dr. McDonald) rightly asked what discussions had been held, not with management—clearly the Bill is the result of discussions with management—but with customers. If the ownership of the banks is uncertain, the uncertainty must lie between the management and the customers. The most important discussions should have been held with the customers. I hope that the Minister will reply to my hon. Friend's questions.
I also ask the Economic Secretary about the ownership of the TSB. He said that—as we know from the letter that was part of the White Paper—no one is allowed to own more than 5 per cent. for five years or 15 per cent. afterwards. I asked the Economic Secretary what assurances there would be on that point. He was unable to give me an assurance. That stipulation will not form part of the legislation. It will appear in the memorandum and articles of association. There is a world of difference between a promise made in the memorandum and articles of association and a provision with legislative force. All that is needed to change the memorandum and articles of association is an extraordinary general meeting. The procedure for changing legislation passed in the House is very different and much more rigorous. The memorandum and articles of association could be changed at any time—they are only promises—and that would mean the failure, collapse and demise of the third force.
The possibility of another body taking over the TSB after the memorandum and articles of association have been changed is not the only question. As my hon. Friend 46 the Member for Thurrock pointed out, the TSB could take over other banks. That could occur not in the obvious way but by way of a reverse takeover. The TSB could rake over a rather larger body and use its name and standing to do a reverse takeover, and that would be the end of any hopes for a third force.
That is all very sad. It is not what I expected when we started on this road eight years ago. I thought that we were bringing in more imagination and responsibility, and giving the managers of these splendid institutions powers that they would use to create strong local organisations that could play an increasingly important part in their communities.
§ Mr. Cockeram
The right hon. Gentleman comes from Manchester. He will recall the problems encountered by the District bank in trying to remain a local bank. Coming from Liverpool, I recall the problems faced by Martin's bank in trying to retain regional autonomy. The objectives outlined by the right hon. Gentleman may be desirable, but it has not proved possible to retain small regional banks. Especially since the advent of computers, there must be a national network. Has the right hon. Gentleman fully taken that point into account?
§ Mr. Sheldon
Yes, indeed. That was the most important aspect of the 1976 Act. The Act embodied an understanding of the need for some central organisation but allowed those operating in centres of population to retain their own ways of acting and to remain a part of the local community. I had hoped that that spirit would be retained, and I am sorry that we heard nothing from the Economic Secretary—who went into considerable detail— about the reasons for the failure to retain some element of it. A great opportunity has been lost and I view the Bill now before us with great regret.
§ Sir Geoffrey Finsberg (Hampstead and Highgate)
I, too, declare an interest. Since 1953 I have been either an honorary manager or a trustee of the trustee savings banks, and am now a director of its south-east region. I am also a depositor. That is an important point to which I shall return.
It is important to recognise how it has come about that we are discussing such a Bill. There is a long history. I remember being persuaded by a senior alderman in the borough which I live in and represent to join the committee of honorary managers of the local branch. Being a cautious person, I asked what I would have to do. I was told that my position would be much like that of the Paymaster General— I would sign away all my rights to sign cheques. My position would be an honorary one, but I would be expected to represent the bank to people in the locality, to persuade people that the bank was a good institution, and to work with the bank to try to increase the number of depositors.
In those days, vast sums of money were lent by the TSBs to the National Debt Office for a measly return. Over the years, the Treasury has made enormous profits out of the TSBs. If the TSBs had been allowed to lend their money on commercial terms, it would have generated very much more money for the TSBs themselves. Secretly, therefore, the Treasury has not derived much pleasure from helping us to reach this stage.
That was the start. I was then translated to the board of the London TSB. We had annual meetings at the Mansion 47 house under the presidency of the Lord Mayor. Then, as now, I was not always prepared to use only the calmest of language. I remember how at one annual meeting I exploded when the chairman of the London board said that there were certain problems involved in making it possible for our depositors to have their own chequebooks. I commented that what he really meant was that the clearing banks wanted us to remain as third-class customers, obliged to make our depositors pay for each cheque. They were not prepared to allow us to give a decent service. The chairman said, "That might have been expressed in more diplomatic language, but you are perfectly right."
The progress of the TSBs to their present state therefore met not only with less than enthusiastic support from the Treasury but with great opposition from the private sector banks. However, in time those banks realised that there was a great advantage in the entry into the field of an organisation that had found a way of interesting those people to whom my hon. Friend the Member for Ludlow (Mr. Cockeram) has referred as the unbanked. There was then a change of attitude. We were able to have cheque books, the development continued, and we had Page.
As the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) said, Page was a watershed, as he did more than look at the trustee savings banks. I contrast what the right hon. Gentleman said about Page's emphasis upon the community nature of the trustee savings banks with the way that he virtually killed the national savings movement by killing the national savings stamp and the groups that, up and down the country in every street and village, collected vast sums of money for the national savings movement. It is a difficult thing to reconcile. The right hon. Gentleman will remember the large deputation that I led to try to save the national savings stamp groups. It was an all-party issue. I found it strange that this move came from Harry Page, whom I had known well in local government circles, although I do not have the privilege and pleasure of hailing from Manchester. I visited Manchester about once a month, so I knew its rains as well as Harry Page.
I was a little startled when I listened to the hon. Member for Thurrock (Dr. McDonald) because she obviously had to delve deeply to bolster her view of the trustee savings banks. I think that I can say without fear of contradiction that no member of the parliamentary committee has ever heard the origins of the trustee savings banks described as "primitive Thatcherism". I am not sure where she got that phrase from.
§ Sir Geoffrey Finsberg
Page did not talk about Thatcherism. He was an astute enough treasurer to have said that Thatcherism, if there is such a word, when applied to rate capping for Manchester, was right and was brought on the Manchester council by its own activities. Harry Page, from his great height, would have told his councillors that in no uncertain terms.
The hon. Lady had certain other problems. She referred, for example, to people opening accounts to obtain benefit from the preferential pink form that will be available when the share issue comes. I am sure that she will have reminded herself that the moment that the Bill was printed, a stop was put on new depositors qualifying 48 for the preferential issue and that 17 December was the cut-off date. Therefore, people cannot open new accounts in order to gain preferential treatment. Equally, it has been firmly said that only accounts that have been kept open will qualify in that way.
The hon. Lady was also worried about the arrangements for purchase for the staff and customers. I shall quote from a useful document that the chief general manager of the TSB issued on 18 December to the staff. It says:There will be priority arrangements for staff and customers. The priority to TSB customers recognises our particular wish to reinforce the special relationship which has always existed between the TSB and its customers.That has been a most important element in the trustee savings banks movement.
The staff in the TSBs are different from the staff in the average high street bank. They are not the sort of people who suddenly appear out of cupboards. They are constantly in the bank, in the banking hall, meeting and serving customers— something that one finds less frequently on the part of the managers in most joint stock banks. Therefore, the TSB customer knows what the manager and staff of his branch look like and how they act. That is a useful and important factor.
The hon. Member for Thurrock said that, according to her research, 40 per cent. of TSB customers would not be able to take up the share issue because of the size of their accounts. That is a wrong assumption and one that she cannot make. She assumes that everyone with an account at the TSB has no account with any other bank. What is clearly said is not that one may purchase shares only to the value of one's account in the TSB, but that one's account in the TSB is the key to purchasing shares. I assure the hon. Lady that tens of thousands of people—I have not done the research—have accounts in the TSB and in other banks. They have those TSB accounts—the hon. Lady forgets this as well— because, until about 18 months ago, one got limited tax-free interest on one's current account in the TSB. Therefore people opened accounts there in addition to having accounts in joint stock banks.
§ Sir Geoffrey Finsberg
I hope that the hon. Lady will help me, as I should like to be accurate. Did she ask the TSB how many of its depositors had accounts that would enable them to purchase shares, or did she ask how many of its depositors had accounts with less than £500? I do not wish to do her an injustice, but unless one knows the question that she put, the answer is difficult to evaluate, as is shown by the phoney public opinion polls produced from across the water by Mr. Livingstone. They are meaningless unless one knows what the question was. Will the hon. Lady tell us what the question was? I am searching for help, not trying to be difficult.
§ Dr. McDonald
I asked a simple question. I was interested in what proportion of depositors were interested in taking up shares in the TSB once it was floated. I have given the answer that I received. If the hon. Gentleman wishes to pursue this further, he should ask the TSB about the nature of its research.
§ Sir Geoffrey Finsberg
I shall do so. If that is the case, I question not only the hon. Lady's assumptions, but the basis on which that information could have been given to 49 her. No one can say what the attitude of the depositors will be and no one knows what accounts depositors have in other banks. The hon. Lady should not put too much reliance on the 40 per cent. figure. I do not blame her for for putting it to the House, but I question that figure, from whatever source she got it, until I know the basis on which the information was supplied to her.
It is true, as has already been said today, that the TSB movement used to be Scottish-oriented. In the past 10 years, the enterprise and thrift of the south has overtaken that of the Scots, and it is no longer possible to say that Scotland is in the position that it was until about a decade ago. Until then, it was the major component of the TSB and year after year had bigger profits than the other components. However, those of us in London and the south-east always arranged to lend our resources to the north-west, the north-east and Scotland to help them in the opening and development of new branches, even in those days, when we were the poor relations of the north. I see no reason why that should not continue.
§ Mr. Wilson
I do not necessarily accept the hon. Gentleman's last assertion. However, does he agree that there is a difference between the south overtaking Scotland in terms of the development of TSB operations and what is proposed in the Bill, Which is the taking over of the autonomous TSB within Scotland? Under the previous structure, the control of the operations in Scotland lay with the trustees of the TSB in Scotland, whereas now it will lie with the group.
§ Sir Geoffrey Finsberg
The complete autonomy that existed in the days of the Glasgow and Edinburgh banks and the wide variety of Scottish trustee savings banks was surrendered after the Trustee Savings Bank Act 1981 was passed. That was when we established the central board. The hon. Gentleman is addressing his arguments to something that happened several years ago. If he still feels strongly about the matter, he might take it up as a quid pro quo for those in England who are less than happy that the control of Williams and Glyn's bank will be taken over by the Royal Bank of Scotland. Such matters work both ways, and one must occasionally accept compromises. The Bill provides the trustee savings banks that we really want. It gives the opportunity to people to continue the work that they have been doing.
I began by talking about the honorary managers, and I return to the point made by the right hon. Member for Ashton-under-Lyne about the localities. In his letter of 18 December, the chief general manager said:We will maintain our traditional role as a personal bank and continue to build on our achievements in the communities which we serve.The regional board members act as liaison officers between the regional boards and the central board. They also visit branches and "sell" the bank, not only to personal customers but to professionals and institutions, on the basis that potential customers will know that local people are very much interested and involved. I have spent some 30 years in voluntary service of the trustee savings banks, and I would not support such a Bill if I believed that it would remove the link with the communities.
Two people might be singled out on the long road during the past 20 years towards the independence of the trustee savings bank movement. One is Sir Athelstone Caroe, who did an enormous amount in this area, and the other is Philip Keens, who pioneered much, including the 50 unit trust movement of the TSB and the Trustcard. The movement owes a debt of gratitude to such individuals who dedicated themselves to the work of the trustee savings banks. They will be satisfied that the Bill provides—
§ Mr. Gerald Bermingham (St. Helens, South)
I apologise for not being in the Chamber for the beginning of the hon. Gentleman's speech. He may already have dealt with the point that I wish to raise. How will the independence of the trustee savings banks be improved by removing them from the ownership of the common people and putting them in the hands of a few shareholders?
§ Sir Geoffrey Finsberg
The hon. Gentleman has just wandered into the Chamber. He has missed at least five speeches that would have told him all about this. Clearly, he has not even read the documents or the White Paper, which make it clear that the present ownership is problematical. He does not understand that preference in the purchase of shares will be given to customers and staff. With the greatest respect to him, may I say that I hope that he does not advise his clients without having read all his documents. He did this to me once before, and or that occasion he had to say that he was sorry. His intervention, again without proper preparation, does not do him the credit that he usually deserves for his researched speeches, which are good.
The Bill deserves commendation, and I hope that it will pass rapidly through the House.
§ Mr. Ian Wrigglesworth (Stockton, South)
As one who worked in the state banking sector and in the joint stock banking sector before coming to the House, and as one who served with a former Economic Secretary to the Treasury and the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) in the Committee and other stages of what became the Trustee Savings Bank Act 1976, I share some of the reservations that have been mentioned by hon. Members about the change that will be introduced by the Bill.
I was pleased that, in introducing the Bill, the Economic Secretary to the Treasury did not make exaggerated claims about it being a brave new venture in increasing competition in banking, although he mentioned it in passing. I was disappointed that the Bill was paraded in the Queen's Speech as a great venture in providing consumers with more competition. However, if one knows what the trustee savings banks have done during the past few years, and if one reads the White Paper, one knows that that competition began a considerable time ago. The real genesis of the Bill is the lack of clarity over the ownership of the trustee savings banks following the 1976 Act.
The Bill would not have been before us, and none of the claims that have been made would have been made, had we clarified the ownership of the banks in the 1976 Act. We can all be wise after the event, but it might have been better had we gone down the road of mutuality in 1976—some of us would prefer that now—and made it clear that that was what we intended. We all expected it to be a mutual organisation and we did not raise the question of ownership during the passage of the Bill. If we had said clearly that the trustee savings banks should be 51 mutual organisations, they would have provided the genuine third force in banking that Page intended and many of us foresaw.
§ Mr. Robert Sheldon
We saw it as a third force in banking—a third force that was mutually owned. The path that we envisaged was clear.
§ Mr. Wrigglesworth
It has become clear that the definition of mutuality, unlike the co-operative sector and the building society sector, was not specified as clearly as it might have been. I do not blame the right hon. Gentleman for that. We were all involved in the debates in Committee and we saw no need for it at the time. We took it as read that they were mutual organisations and that they would remain so. All that I am saying, with the benefit of hindsight, is that it might have been better had that view been cast in black and white in the Act so that there was no doubt about it.
The lack of clarity created the desire of the trustee savings banks and the Government to introduce the Bill, which may force the former to develop in a remarkable way. Since the 1976 Act, the trustee savings banks have developed a competitive edge and have been responsible for developments in banking that have been of great benefit to consumers. They have a proud tradition of including within their commercial objectives clear social purposes. Those social purposes—helping less well-off people to have banking facilities, even though they got only low rates of interests on their deposits—formed a desirable role and many of us would like to see it retained.
Although I shall not oppose the Bill, I hope that some of the propositions that the trustee savings banks have made, and which the Minister referred to, can be set more firmly and that we can be given stronger guarantees about some of the undertakings that have been provided. I hope that some of the proposals, such as those on share ownership, will not be mere gestures.
I also hope that the banks will not follow the example of the polytechnics that want to become universities. I hope that they will pay more than lip service to their character and traditions and, while being fully commercial and successful, will seek to continue with their traditions.
I have a number of questions for the Economic Secretary and I hope that I shall be able to pursue them in Committee so that we can amend the legislation to set more firmly the undertakings given by the chairman and by the Economic Secretary.
I hope that the Economic Secretary will tell us more about how the flotation of the shares will be organised and controlled. He has given us little information about that and he should not expect hon. Members to be satisfied until further details are made available.
We have had an undertaking that shares will be given to staff and customers. What proportion is it intended should go to the staff and what proportion to the customers? May we have undertakings on those figures? I should like to have the details laid down in the statute, so that they cannot be changed in the memorandum and articles of association at a subsequent EGM.
Regional charitable foundations are to be established. That is a good idea, but may we be told how many shares will be vested in the foundations, how large they will be, what sort of work they will do, who will control them, whether they will have a relationship with the regional 52 boards and what will be their relationship with the whole banking movement? Will they simply be independent charities doing the same sort of work as many other charities? If they are to have an impact and to carry on the traditions of the TSBs, they will have to retain links with the banks—not just a shareholding in the banks, but a closer involvement. Can the Economic Secretary give us some assurances on those matters?
Such undertakings will reduce the fears of some hon. Members. There is unease about the direction that the banks will take once the Bill becomes an Act. The Economic Secretary will ease the passage of the legislation through Parliament if he will give us firm guarantees and will consider amendments in Committee to enshrine undertakings in the statute. If that happens, all hon. Members will wish the legislation well and will hope that the TSBs succeed in their new form.
§ Mr. Michael Brown (Brigg and Cleethorpes)
I welcome the Bill. It is not a privatisation measure, but a technical Bill, which is required because of an omission from the 1976 Act, which made a practical contribution to the development of the TSBs.
I acknowledge the view expressed in 1976 about how the Trustee Savings bank should develop, but it is inevitable that the status and constitution of the bank now have to be made clear. It is important to establish in legislative form the future ownership of the TSB. It is important that there should be shareholders and accountability, and that will be provided by the Bill. As every hon. Member who has spoken in the debate has made clear, it is also important to retain the character and tradition of the bank; we should not merely pay lip service to its tradition and character.
I have absolute confidence in the managers of the bank and in the boards, which include members such as my hon. Friend the Member for Hampstead and Highgate (Sir G. Finsberg) and many other people in public life. Their continuing association with the TSB will ensure that its character and traditions are retained.
I have a particular affection for the Trustees Savings bank and the character of savings that it has established, particularly in the part of the country that I represent. It has brought the concept of banking to small investors and savers. It is probably agreed on both sides of the House that the TSB is an ideal bank for those who still fear the idea of having a bank account with one of the traditional banks. The TSB introduces them to banking, cheque books and banking services, which are so important to our way of life.
I am pleased that employees and depositors will be given priority in the ownership of shares, though I do not agree with the hon. Member for Stockton, South (Mr. Wrigglesworth) who believes that the pattern of share ownership needs to be established in legislative form.
If I am fortunate enough to serve on the Standing Committee on the Bill, I shall ask my hon. Friend the Economic Secretary about his proposals for ensuring that employees and depositors have a genuine opportunity to become substantial shareholders. I shall also pursue the question of the maximum shareholdings. I understand that it is envisaged that the maximum initial shareholding should be 5 per cent. and that eventually the maximum could increase to 15 per cent. I have slight misgivings 53 about the figure of 15 per cent. Fears have been expressed about that proportion; they may be groundless, but 15 per cent. seems a little high.
It is important that we take on board the point made by the hon. Member for Stockton, South to reassure the outside world. It would probably be helpful if, in Committee, we were fairly specific about how the floatation takes place. The Government's record with regard to share flotations of other newly privatised companies is very honourable. However, the Trustee Savings bank is a unique institution and it is probably not quite right to use the word "privatised". Nevertheless, it is important to ensure that the country as a whole has confidence in the way in which the flotation takes place. It would therefore be helpful if my hon. Friend the Economic Secretary could give us some idea about that in Committee.
On the whole, I think that the measure is inevitable and, indeed, very important. I note the remarks of, I believe, the chairman of the Trustee Savings bank, which were echoed by my hon. Friend the Member for Hampstead and Highgate. The chairman said that the Bill, which is welcomed by the Trustee Savings bank, would not in any way make changes to the important contribution that it makes in maintaining its traditions as a personal bank. He also said that the bank was proud of its achievements in the communities which it was established to serve. I acknowledge the point that my hon. Friend made and see no reason why the legislation should alter that important community relationship.
However, in this modern world of complex and complicated banking it is right and proper that depositors with the Trustee Savings bank should be able to share in the advantages that accrue to those who use the traditional banking system. There is no doubt that in the past the TSB's depositors have to some extent been second-class banking citizens. However, I acknowledge that during the past few years the TSB and the House, through the contribution of the 1976 Act, have done much to ensure that the TSB's depositors are not second-class citizens.
The TSB is a very fine institution and I wish it well. The Bill can only strengthen the important contribution that it makes to banking to this country.
§ 6.2 pm
§ Mr. Jim Craigen (Glasgow, Maryhill)
The hon. Member for Brigg and Cleethorpes (Mr. Brown) hopes to retain the character and tradition of the TSB movement, but that hope is somewhat inconsistent with this Bill's objectives. The Bill effectively throws out of the window any concept of the TSB as a third banking force in the United Kingdom.
The Government should be embarrassed by the Bill on three main grounds. The first concerns the issue of ownership. The Bill seeks to authorise the selling of an unowned business. Ministers say that the TSB wants shareholders. The TSB's managers, or at least some of them— the ones that count—say that the Page report presaged the Bill. But, as my hon. Friend the Member for Thurrock (Dr. McDonald) pointed out, the committee, which reported in 1973, clearly said that the trustee savings banks should not be "hived off'. Indeed, the review body of the late Sir Harry Page went out of its way to say that the need for shareholders was "neither practical nor desirable". Therefore, we are changing the whole concept of the TSB movement.
54 I agree with some of the points made by the hon. Member for Ludlow (Mr. Cockeram) about the fact that the TSB has been improving its services, has gained a better image and has improved its marketing during the past decade, but that has been without the benefit of shareholders. If a Labour Government had proposed nationalising the TSB, all hell would have been let loose. My hon. Friend the Member for Thurrock says that the Bill does not mean privatisation. I suggest that it is closet privatisation. A Conservative Government propose to sell an £8 billion-plus business and expect hon. Members to jump up and down with joy.
The second major ground of embarrassment for the Government concerns, ironically, the decision that the Chancellor of the Exchequer announced today about the reintroduction of the minimum lending rate. The White Paper says that the Government attach great importance to competition in the banking sector. Last week we had the undignified spectacle of the Prime Minister being dragged by the hair by the banks over the setting of interest rates. Last week it was not the Chancellor of the Exchequer who decided that the interest rate should increase to 10.5 per cent. but the National Westminster bank, and that started the ball rolling. Now the Government have done a U-turn over the free operation of market forces. That is the message that the Chancellor of the Exchequer signalled this afternoon. I have never heard the Chancellor give such brief replies to each and every question. Unfortunately, Mr. Speaker, I did not catch your eye then, although I had a question that I wanted to put to the right hon. Gentleman on that very point.
I just wonder why the Government have been such a willing partner in the conversion of the TSB into A.N. Other plc. If the Government really wanted more competition in the banking sector, why did they not say to themselves, "Let us have a bank that is different and a bank that is not going to follow the leadership over higher interest rates"? Higher interest rates will affect not only those with mortgages but local authorities, which will have to pay more for the borrowing that the Government have authorised.
I am disappointed that a reasoned amendment was not tabled. The Government have given insufficient consideration to the concept of a mutual bank that is set up for the benefit of customers and staff and holds out the prospect of lower interest rates and improved customer services.
I entirely agree with the point made by my hon. Friend the Member for Thurrock about the staff's opportunity for greater participation in the running of the trustee savings banks. However, I have noted some press comment that people in certain quarters feel that perhaps the staff union is too strong in the TSB. Once these new faceless shareholders come into being there can be no guarantees about what will happen in connection with anything to do with the TSB, never mind the customers or staff. The trustee savings banks will be under first-time ownership. Shareholders will expect dividends. My goodness, what an inviting prospect they face. Look at the reserves of the TSB. It did not get involved in the debt-ridden problems of Latin America or elsewhere. Perhaps its constitution saved it from such follies.
Some managers say that their accountability should be clarified. It will be clarified when the shareholders tell them, "Your responsibility is to us boys, not to the customers." Misgivings have been expressed about the 55 restraints imposed on the percentage of shares that can be taken up. The shareholders of today may not be the shareholders of tomorrow. Much will depend on the price of shares.
The Government should be shamefaced over the involvement of the TSBs in the community. The White Paper acknowledges the developments of TSBs over the generations. In Scotland and the north-east of England they have developed particularly well. In Scotland, one fifth of the adult population—I am included—has a TSB account. The reason for that is historical. Many of our grandparents and parents believed in thrift and opened an account with the TSB.
I declare an interest as a TSB depositor. Historical significances have been brushed aside. Traditionally, in Scotland, people invested in the TSB, whereas in the south of England and elsewhere they invested in building societies. Imperceptible differences in house purchase have occurred which are not always recognised.
Industrial and commercial development in Scotland and elsewhere depend upon savings deposits being used for the regeneration of areas in which people invest their money. I fear that those priorities will be changed.
The TSB has an extensive retail network of branches in many parts of the country, but there is an underlying weakness in the south of England. Money is spent on opening branches in the south of England in the hope that the new TSBs will muscle in on the other banks. Do the Government think that the other banks will sit back and allow that to happen without challenge?
Charity foundations put patronage into the new board's hands. Which charities will be involved and what choices will be made about the good works that they want? The hon. Member for Dundee, East (Mr. Wilson) talked about the Channel Islands. Why cannot there be a similar guarantee for the Scottish TSB on the allocation of shares?
The Minister does not flannel me by saying that the TSB in Scotland will be able to issue its own bank notes when the rest of the realm is moving to coin. More than the sentimental sop of a bank is involved. I want to know from where it will be controlled. That is significant for the depositors and staff.
The Bill is an open sesame— a mouth-watering prospect of shares in an £8 billion-plus financial and banking network. It is a great temptation. Shall I decide to buy shares now and sell them later?
§ Mr. Craigen
I am thinking about that.
The Bill involves more than that which is contained in it or the White Paper on which it is based. It is an amber light which leads to a green light for the building societies. I suspect that there will be an almighty gold rush by the building societies. They will all want to become plcs. At least they will be urged in that direction by those who see a substantial profit in the transformation of such organisations.
Protections against takeovers, which are not in the Bill, are insufficient. As the White Paper says, a 170-year-old savings movement, which has had a "special statutory relationship" with the Government, will be transformed so that it is on all fours with any joint stock bank.
Competition will be stiff. No one will get his own way. The managers might look for bigger salaries in line with 56 managers of joint stock companies, but the shareholders might have different ideas. Despite the bland assurances this afternoon about takeovers being unlikely, the TSB could become the Trojan horse for a foreign bank entry into the country.
There is a prospect of a cartel. There are multiples of 5 per cent. or 15 per cent., and an annual general meeting might decide that it does not like a particular agreement.
This Bill is not good. In some ways it is sinister. I am in favour of improving the services provided by the TSB to its depositors and customers, but the imposition of shareholders is another matter. There is no guarantee from any quarter that the shareholders to come will be the depositors of the present.
It is claimed that there has been a rush in demanding the pink forms needed to buy shares. I am reminded of the parable of the labourers in the vineyard, when all the latecomers expected to take the advantages and assets of a movement built up over generations by depositors past and present.
§ Mr. John Mark Taylor (Solihull)
Like the hon. Member for Glasgow, Maryhill (Mr. Craigen) I shall have to think carefully when the time comes about whether I want to be a shareholder in an incorporated TSB. I have to declare an interest, as others have, in that I am a depositor with the Trustees Savings bank. The professional firm in which I am a partner uses some of the very good, progressive and commendable banking facilities which the TSB provides these days.
I draw two conclusions. As many hon. Members have said, incorporation of the TSB seems to be desirable, not least to clarify the TSB's status—which is complex if not confused— and to clarify the ownership and proprietorship of the TSB.
The hon. Member for Maryhill made some interesting points, as did other hon. Members, about whether there should be a bank among our financial institutions that was different. That interesting question certainly does not answer itself, but the fact remains, which is particularly poignant today, that in the end the banks cannot determine to be different simply for the sake of being different.
If the advanced services that people require in an increasingly complex fast-moving and computerised banking world can be provided by other banks, the TSB must provide them too. Therefore, the TSB is driven by its perfectly worthy need and ambition to stay in the banking game to provide modern services. The corporate basis for the TSB will facilitate that.
Secondly, interest attaches to the sheer number of the depositors with the TSB. That number is so great that the potential spread of equity on the far side of incorporation and the allocation of shares is such that the membership and the interest and participation in that bank will be wide. That is likely to be extremely healthy for the TSB in terms of public ownership, using that phrase in its best sense. It will mean that there will be a wide and general participation in a major institution which affects our daily lives and contributes to the services that we all want
We shall have to wait and see what the share take-up turns out to be. The British Telecom share take-up was refreshing. I doubt whether the experience of BT employees will in any way discourage TSB depositors. Some people are doubtless both TSB depositors and BT 57 employees and I am sure that they will be looking forward to their second opportunity to participate in a major national asset with their own assets.
Since we are all talking about the TSB, I should in fairness declare that I have nothing against the big four banks, but neither am I against them being kept on their toes. The TSB, with its large number of depositors, can play a part in ensuring that we all get the best terms because we are free to move our business elsewhere if we want to do so.
Several interesting historical views have been offered to the House in the debate, on the different parentage of the different branches of the TSB. In my part of England, near Birmingham, the origins of nearly all the TSB branches can be traced to the Birmingham Municipal bank which played an important role in the life of Birmingham and its suburbs and served its citizens well. For many of them, it was their kind of bank. I take note of the number of hon. Members who have said that that atmosphere of the bank is worth preserving for that reason and I am in sympathy with that view. Not only was it for many their kind of bank but for some it became a point of first entry to other financial institutions.
I feel sure that the founding fathers of the Birmingham Municipal bank would be fascinated if they knew how their original idea had grown, matured and succeeded, and had come to this day and this measure that we are debating. I support the Bill enthusiastically.
§ Mr. Gordon Wilson (Dundee, East)
Before I develop my main remarks on the Bill, it is worth while putting on record my admiration for the energy and initiative that has led to the rejuvenation of the trustee savings banks. There is no doubt that over a period of years and with a long history they have built up strong local associations and not only perform a useful purpose but provide a service and a loyalty in a locality that is much appreciated.
It is from that point that I should express the unease that has developed in me as the debate has progressed. That was not allayed by the exchanges I had with the Minister earlier. We are about to pass the point of no return in relation to the trustee savings bank. It has been argued that the main change was occasioned in 1976 under the Act of that year. But the changes that were made then, which were largely useful and gave additional powers and discretion to the management of the trustees savings banks and led to the amalgamations and mergers, are in danger of being wiped out by a complete change in the composition of the bank, which will lead in turn to centralisation.
When the Minister told me, as if it might be a blandishment that would be of some help, that there would be no diminution in the degree of centalisation if the Bill were passed, my worries were not relieved because there is a great danger of centralisation as a consequence. Prior to the Bill there was a confederal structure, with a central board with autonomous units which co-operated and worked together to make the changes and the image and provide the service to customers that was remarked upon earlier. That will now be encompassed in a new central board with shareholders who, with the directors of the main hoard, will call the tune in future.
Several years ago we had a great debate on the Royal Bank of Scotland, to which reference has been made. It is probably worth while to put into context some of the 58 points that were made in that debate. It was argued by the Government, among others, that there were advantages in the royal bank being taken over by or merged with other institutions. The argument was set out plainly in The Scotsman on 16 December 1980 in a statement by Mr. Peter Balfour, chairman of the Scottish Council (Development and Industry) who was then a member of the royal bank's board. In an address to the company's annual general meeting he said:In Scotland we are paying the price of the massive and increasing centralisation in London and the South East of the real decision-takers in industry, politics and the trade unions. As a result, the real needs and concerns we all feel in Scotland are becoming more and more remote from the understanding and the thinking of these people.
A year later in the Financial Times is the statement:The existence of banks controlled in Scotland is possibly one of the factors which has enabled Edinburgh to survive as an important financial centre, with a set of traditions and a financial community independent of those in London.It was against that background that we heard assurances from the Minister that there would be no diminution in centralised control—
§ Mr. Ian Stewart
I do not recall my exact words when replying to the hon. Gentleman's intervention earlier—I shall say more on the subject when replying to the debate—but to avoid doubt at this stage, I hope that he will appreciate that I was endeavouring to explain that there was already central control. I said that I did not believe that there would be any diminution of local management and independence resulting from the change. It was not the other way round.
§ Mr. Wilson
I am grateful for that clarification. Although we have assurances, including ministerial assurances, the reality is that when financial control is expressed in any company it is the majority shareholding that counts. Only if assurances are encompassed in legislation can they achieve any material change. The necessary power must be sought from Parliament.
The company that was after the royal bank, Standard Chartered bank, through its managing director gave assurances along the lines of those given by the Minister. He said:It is absolutely not our intentionto detract from the role of the royal bankbut I must add the rider that overall group constraints have to be subject to overall group policy.It is clear from the charts on page 7 of the White Paper that what was an effective confederal structure is to be replaced by seven subsidiary companies all under the control of the group company, TSB Group plc. As I said, once the shares have been issued by TSB Group plc, it will become the master.
Who will have control of the bank's investment policy when it has been restructured? Will it be TSB Group plc or TSB in Scotland? In other words, if there is disagreement within the management structure— for example, about where investment should take place—who will make the final decision? It seems that control will remain with the new board, which will be answerable not to its regional boards, as it might be under a federal structure, but to the shareholders.
In that context, the letter from Sir John Read on page 13 of the White Paper makes it clear in paragraph 10 where power will lie. He writes: 59The shareholders will then have the responsibility of electing the directors at the Group's Annual General Meetings. The individual banks and other companies in the Group will have their own boards, appointed"—an important word—by the main board of TSB Group plc, and will include"—generously—regional bank representatives, executive directors, and independent directors as at present.The qualifications for service will be decided not by the regional boards or communities served by the subsidiary companies but by the main board in London, be it at Milk street or elsewhere. In other words, a bank with a substantial penetration of the Scottish banking market will be removed from discretionary decision-taking in Scotland, and that brings home some of the remarks of Mr. Peter Balfour, to which reference has been made.
Who will be in charge of marketing, advertising and investment policy? Under the unitary structure which is being imposed on the depositors of the bank, without their consent—their views have not been taken into account, although they may be deemed to be the owners of the reserves and assets of the bank—the decisions will be taken at the centre.
The structure of the new group is not intended to be completely uniform. As the hon. Member for Glasgow, Maryhill (Mr. Craigen) said, and as I pointed out in an intervention, special arrangements are being made for the Channel Islands and Isle of Man by which the local subsidiary will have 49 per cent. of its shareholding locally, and thus will have a different structure from the other subsidiaries.
The reason given for the difference is that different taxation laws exist. I agree that different tax regimes exist in those places—they are sometimes debatable, but they exist—and to a degree they have their own laws, though the Isle of Man legal system is based largely on English common law.
In Scotland, on the other hand, we have a legal system which has many differences from that in the rest of the United Kingdom. That applies to banking and other civil obligations. As the Government have conceded, in consultation with the TSB, that there should be special arrangements for the Channel Islands and the Isle of Man, special arrangements should be made to safeguard the autonomy of the TSB in Scotland. Indeed, if people in the streets of Scotland were told today that the TSB was at present a United Kingdom bank, many of them would disbelieve it. The TSB in Scotland is marketed in those terms, yet the Scottish people will find that it is a figment of their imagination, because the final power will not reside in Scotland.
A significant 'change is being made because the Bill provides not just for a new structure but for the transfer of assets. Liabilities and obligations are also mentioned. Assets are to be transferred out of a Scottish environment and into the London investment scheme. We in Scotland must face the problem that, although we have a vigorous banking set-up, big brother exists in London, and, unless we are careful, assets in Scotland will be snapped up. We have seen the way in which the joint stock insurance companies, which were extremely active in Scotland at one time, have largely been absorbed by their competitors 60 in the south. Only the mutual insurance companies have managed to remain healthy, and they might be considered among the leaders in the insurance business.
I regard the Bill as dangerous and I am critical of the Labour party over it. Given the problems that the Bill is likely to create and the opposition to it that has been expressed by Labour Members, the least they should have done was table a reasoned amendment. Although the Government have a 140 majority in this House, I urge the Minister to take account of the real worry which I and others, including the hon. Member for Maryhill, have expressed about the autonomy and function of the TSB in Scotland. The Bill should be amended to take account of our special circumstances. In view of the decision of the Monopolies and Mergers Commission over the royal bank takeover, the Bill should be amended to ensure that the TSB's staunch reputation in Scotland is safeguarded, for the bank has a valuable role to play if given a chance.
§ Sir Hector Monro (Dumfries)
I do not intend to take up the detailed arguments of the hon. Member for Dundee, East (Mr. Wilson) but I shall share with him a recognition of the historical origins of the TSB movement. I hope that in future the new organisation will recollect its associations with Scotland. Short of naming local directors, I am sure that the hon. Gentleman and I can make a few valuable suggestions.
I am hardly a regular member of the group of Finance Committee pundits who talk on these matters and it may seem odd that I am about to say a few words on the Bill. I do so for only one reason, and that is historical. The savings bank movement began in my constituency of Dumfries in 1810. It would be wrong to pass the Bill without a word of tribute to Dr. Henry Duncan, minister of the parish of Ruthwell near Dumfries. Besides being a doctor of divinity, he had some commercial experience as a young man. He began the savings bank movement in 1810 in a small house in the village of Ruthwell. He accepted deposits of a shilling and upwards at a time when the banks would not take less than £10. It should be borne in mind that at that time the average farm worker earned less than £10 a year. They could hardly deposit their savings with other banks in the tiny amounts that Dr. Duncan thought would be valuable in future. The new bank was vital to those who earned especially low wages but who wished to begin saving.
Dr. Duncan's savings bank began its operations in 1810 and in the first year deposits totalled £151. After four years, they had reached over £1,000. All the deposits were put into a locked box with three padlocks. The box could be opened only if all the three trustees were present with their individual keys. The cash was sent to the British Linen bank at Dumfries, where it earned a rate of interest of 4 per cent. From this humble beginning, the movement spread rapidly to Dumfries. In 1875, it inherited the bank of Ruthwell and only a few weeks ago it joined the royal bank group as the last but one of the independent savings banks in Scotland, leaving only Airdrie on its own. The Annan bank has served the community well in agriculture and commerce over a long period.
Dr. Duncan masterminded the 1819 Act and assisted in the development of savings banks everywhere. Because of his thrift and foresight itis right to call him a father of the savings bank movement. Besides his restoration of the seventh century Ruthwell cross and his authorship of many 61 books, he was the moderator of the General Assembly of the Church of Scotland. Shortly after that, at the time of the disruption, he fell out with his colleagues and was one of the original members of the free church.
Moving on many years, to last year, we should recall the death of Andrew Rintoul, who lived near Newtonstewart and who was chairman of the Glasgow savings bank for many years. He was the first chairman of the trustee saving banks central board, the body which was recommended by the Page report. He had a fine record of service to the TSB movement. It is only right on this occasion to recall that my hon. Friend the Member for Galloway and Upper Nithsdale (Mr. Lang) served as a trustee for many years.
I am glad to record that the TSB movement has taken a close interest in Dr. Duncan. It purchased the old cottage in Ruthwell in 1953 and established a museum there. In 1974 we celebrated the bicentenary of Dr. Duncan's birth. The ceremony was attended by the great-great-grandson of Dr. Duncan. I remember that it took place in the middle of the 1974 general election campaign. It was well worth a few minutes of diversion to attend that memorable commemoration. The museum has been well looked after and I hope that all the financial experts in this place will visit Ruthwell and kneel at the shrine of Dr. Duncan, who began the savings bank movement.
I wish the Bill well. I hope that Dr. Duncan will smile happily and proudly on the movement which he started, which has such good prospects in future.
§ Mr. Gerald Bermingham (St. Helen's, South)
I begin by telling the hon. Member for Hampstead and Highgate (Sir G. Finsberg) that I told Mr. Speaker that I would be late in contributing to the debate for personal reasons. I assure the hon. Gentleman that I ascertained carefully the content of the speeches that preceded his. I am well aware that the ownership issue is well known throughout the House and the savings bank movement. My reason for speaking in this debate is that I have a great fear about that divide. I am not worried about expanding the services of the TSB movement. Indeed, I welcome that move 100 per cent., and my support for that part of the Bill is wholehearted.
I have a number of reservations about the way in which the Bill has been brought to the House and they lead me to ask the House to reject it tonight. I have made known my feelings to my colleagues on the Opposition Front Bench. I am aware that the Bill has been considered carefully by the Examiners of the House and that the legality of the Bill has been questioned. If I am treading on ground that has already been covered by others, I make no apology for doing so.
No one knows where true ownership of the movement lies. We are all aware of the 1817 Act and the Scottish legislation that was introduced in 1835. I am not proposing to enter into a history lesson, but it is clear that those who started the savings movement created a form of banking in which money was put out for certain specific purposes, and as such they became trustees. A trustee is someone who holds on behalf of someone else and not on his own behalf.
The Treasury has said openly, frankly and rightly that it does not own the trustee savings banks and that this is not a privatisation measure. One is forced to ask who wants the Bill in the form in which it appears before us. 62 It is not necessary to ask who wants the services of the trustee savings banks to be expanded, because the answer to that is, "Everybody." Who wants the new TSB group to be a plc? Is that what the depositors want? The fact is that they have not been asked. Do those who will use the expanded services want the new group to be a plc? Again, they have not been asked.
Who wants the new group to be a plc? Apparently this is the wish of the managers. Why is this? Why do they want to sell off something which they do not own? Why do they want to create a limited company? There has been much argument about neutrality and perhaps that is the only reasonable solution. However, there is a problem. If I am thinking along these lines, and I am merely a lawyer, many more of my kind who are outside this place will be asking the same question. I tempt fortune when I say that the Bill might run into a little trouble with the English courts. If anyone tests the right to sell or to float the trustee savings banks as a public company, I shall not guarantee what the result of the test will be.
Secondly, why does the management want to sell off the trustee savings banks? Why does it want to raise funds by the sale of shares? If the shares are bought, the management will be on a Telecom-Amersham type of deal. We are talking about assets of £8 billion. There are 6 million depositors and 13 million accounts. The banks are not trapped and bedevilled by many of the problems that face other commercial banks. How will a flotation price be pitched? We have been given no idea about that. How will that be done so that a massive profit is not reaped on the day of flotation for those who are lucky enough to get in on the deal?
The ordinary citizens will not be the people to get in on this deal. We have seen what happened with British Telecom and Jaguar. We have had the placings, as the City so nicely puts it, and the agreed numbers. We will have that type of change again. We do not even know what the memorandum and articles of association will say. I say to the Economic Secretary in the kindest possible way that all the assurances in the world from him will not be worth anything if they are not written into the legislation. That is the only way in which the provisions can be made to stick. I have sufficient experience as a lawyer to know that memoranda and articles of association can be changed. One need only have the agreement of 51 percent. of the shareholders and their views can be judged by a show of hands or a written poll. I foresee a time when limitations will be written into the memorandum and articles of association restricting a shareholder to 5 per cent. of the equity. It does not take much thought to work out that 11 institutions holding 5 per cent. each of the shares will be able to change the memorandum and articles of association.
After five years, a shareholder will be able to hold up to 15 per cent. of the shares. We know that shares change hands. Already we have noted that BT shares have moved from the personal sector to institutions. We have seen what happened with Jaguar and Amersham. I foresee that, shortly after flotation, the shares will begin to move.
The institutions may not need to wait five years before building up to their 15 per cent. stake. Let us face it: a valuable asset will come on to the market. I know that it is to be written into the legislation that priority must be given to depositors and to employees, and that is well and good. What statement will be made stipulating that a certain percentage must not go abroad? We have already 63 had the flotation of British Telecom shares in Japan and New York, so we know that this new idea is accepted. What guarantee do we have that the flotation of shares will be limited to this country and that a percentage of shares will not be floated abroad? Flotation provides one of the easiest and quickest ways of enabling a company to enter the English banking sector. Shareholders are thereby able to join a bank that does not have the commercial worries of other major joint stock banks.
Who has the right to sell shares? Would it not have been much better to create a mutual association? There would then not have been any problems with shareholders and fears of what might happen during the five-year period or afterwards. The Government with their built-in majority may overwhelm the views of my hon. Friends who will support me in opposing the legislation and the Bill may be considered in Committee. I must warn the Government that it is not good enough to introduce a Bill that does not contain a schedule setting out the memorandum and articles of association. It is not good enough to have legislation that does not state that the 5 per cent. and 15 per cent. shareholdings cannot be altered, that the majority of shares must remain in the United Kingdom and that certain factors apply to charitable donations and foundations. I shall not repeat the comments of my hon. Friend the Member for Glasgow, Maryhill (Mr. Craigen) on those points. I am always suspicious when I read the throwaway lines in Government papers—for example, the reference in paragraph 14 of Mr. Read's letter to charitable foundations that will hold special shares. We are not told about the terms and conditions applying to that new class of shareholder.
This badly drafted Bill is based upon a false premise—that one can sell what one does not own. The Bill is unnecessary, because there is no need for this new statutory form of TSB. There is the much better, more acceptable and carefully thought through form—that of mutual foundations. That form should, perhaps have been written in to the 1976 legislation. That was the road we should have taken.
It is not too late for the Government to think again. For once, the Bill contains nothing for the Government's coffers. The Government can therefore stand back, reappraise the subject in the light of the arguments advanced in the House and return with an expansion of the TSB which is in the TSB's interests. That action would receive the support of the whole House, because all hon. Members are for the enhancement of the service, improvement of its functions and development of the bank. I am sure that the whole country does not support the idea that some people should make a profit from the banks and institutions that belonged to our forefathers.
§ Mr. Tony Blair (Sedgefield)
The debate has given rise to certain points. Is this the right way to proceed with the TSBs? That question involves whether the TSBs should have gone mutual or, as the Government have proposed, should have become a public limited company. If the TSB public limited company is the right route to follow, it can be said that we are debating Hamlet without the Prince of Denmark. The vital issues associated with a public limited company concern the allocation of shares and protection from takeovers. Neither of those issues is 64 dealt with in the Bill. We have only assurances contained in the letter from Sir John Read to the Chancellor of the Exchequer, which are not binding. It is important to establish the terms of the argument. Are the Government saying, "This is what we always wanted for the TSBs and this is the culmination of that process."? Are they saying, "I know that we want the TSBs to follow a different route but I am afraid that the commercial realities dictate that we cannot do that"? The Government seem to have been saying the latter.
Undoubtedly, the last 10 years have seen an enormous and extraordinary transformation of the Trustee Savings bank. It has been stated that the Bill is the end of that process of change. That the trustee savings banks should change has never been an issue. The clarification of ownership could provide a sufficient reason for that change to occur. That clarification obviously had to occur. That substantial change has taken place without controversy between the two main parties. It was recognised at all times that a balance had to be maintained between making the Trustee Savings bank able to hold its own and grow in a modern commercial world and preserving the special traditions and character of the trustee savings bank movement. That character involves particularly the strong regional and local participation in and identification with the Trustee Savings bank. The hon. Member for Dundee, East (Mr. Wilson) pointed out how people in Scotland regard the Trustee Savings bank as a Scottish institution. My relations, who have had the good fortune to come from Glasgow, were heavily involved in the Trustee Savings bank. They always regarded that bank as an institution that differed from the ordinary joint stock bank.
The question is whether that balance between commercial reality and the special traditions of the TSB has been kept. It is not doubted that the Bill will enable the TSB to live comfortably in the real world. The anxiety expressed during the debate is whether its special character will be lost in the process. If it is, we shall not merely have abandoned the legacy of the past, we shall have failed to take an opportunity to provide a different vision for our banking system in future. We value the TSBs for sentimental reasons and because, at best, they have symbolised the notion of community banking.
Two parallel movements have taken place during the past 10 years. First is the extension of the services of the TSBs and the second is the reorganisation of the TSBs, which was partly a centralisation process and partly an attempt to allow the TSBs to function more efficiently and without Government constraints. It is extraordinary to think that when the Page committee reported there were still about 70 different associations.
The Page committee acknowledged the need for the TSB to become tighter as an organisation and progress to a range of banking services for customers, especially lending. It is true, however, that the Page committee envisaged that lending should be to the ordinary public rather than corporate lending.
I must inform the hon. Member for Ludlow (Mr. Cockeram) that the movement from the Page committee was not initiated by the Labour party. It is best illustrated by the Bill. It is right to say that the Bill is inconsistent with the Page committee in its original intentions.
§ Mr. Cockeram
Will the hon. Gentleman accept my point that although the Page committee was set up by and 65 reported to a Conservative Chancellor, it fell to the subsequent Labour Chancellor to announce the then Government's decision because of the short lapse of time between the two events? The then Chancellor, the right hon. Member for Leeds, East (Mr. Healey), accepted the recommendations of the Committee. To that extent, does the hon. Gentleman not agree that there was a bipartisan approach to the reform of the national savings movement, which was the core of the issue put to the Page committee?
§ Mr. Blair
That is right. However, it is worth emphasising that the Page committee and the Labour Government believed that if the TSB was to develop, it should be in the direction of mutual banking. That was made plain.
My point is that, although the 1976 legislation was introduced without opposition, the consensus on all sides of the House was that the TSB would develop along the lines of a mutual bank. The importance of developing in that way was put clearly by both the Paymaster General in 1976, who moved the Second Reading of the Trustee Savings Banks Bill, and by my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon). The TSB was to become what was called a third force in banking and was to be a different form of banking from that of the clearing banks.
The concept of the TSB as a third force in banking survived much of the structural, economic and commercial changes that took place in the TSB during the 1970s and early 1980s. The Government's view is that at one time there was a consensus that the TSB should progress through mutual banking, but that changes in commercial reality make that no longer a sensible option. There were significant changes in the commercial operations of the TSB, yet the concept of mutual banking survived.
The attitude of the management of the TSB changed in mid-1928. Until 1982 the TSB was always supposed to be in favour of moving in the direction of mutual banking. On Second Reading of the Trustee Savings Banks Bill in 1976 the Economic Secretary made it clear that corporate lending would create great dangers and that the personal customer service was ideal for trustee savings banks.
In 1978, when the TSB management submitted evidence to the Wilson committee, which was set up to review the function of financial institutions, it continually stressed the need for a third force in banking. The idea was alive then. It is clear from press reports between 1979 and 1981 that the idea then was that the TSB would become the third force in banking and a mutual bank.
For many reasons, the desire was to preserve the special traditions and character of the TSBs. I wish to emphasise the reasons why it was thought so important for the TSB to become the third force in banking and to be a mutual bank. First, the banks catered for the small depositor and the family—those who were otherwise unbanked within the system. That was true when it was established in the early 19th century and it remains true today. That feeling was reinforced by the fact that for many years, and to an extent today, the TSB has been an arm of national savings. The hon. Member for Hampstead and Highgate (Sir G. Finsberg) pointed out that successive Governments took a lot from the TSBs. The case for the TSB being kept under the control of its depositors is strengthened by that degree of Government involvement and by the slightly parasitic relationship between the Government and the TSBs.
66 Although I agree that it is clear that depositors do not own the TSB, their rights are quasi-proprietorial because of the traditions, and the relationship with the national savings movement. A point that has not been made, and should be made by the Conservative party, is that if the Government were truly committed to a wide share ownership or to wide participation of people in our institutions, the mutual banking route would be better than the plc route. In a mutual bank there would not be ownership of shares but there would be participation in accordance with the traditions of the TSBs.
The responsibilities to the traditions of the TSB are still acknowledged by its management today. It makes it clear in advocating the plc route that it realises that the traditions must be upheld. It has been put to the TSB that it is better to become a public limited company because it can raise money more easily and is accountable to shareholders. I understand that there has been no process of formal or informal consultations between depositors and the TSB management about the right route for the TSB. That is a weakness. A curiosity arising from the uncertainty of ownership is that it makes it more difficult to say who should be involved in what happens to the TSB It would be wrong if the uncertainty resulted in depriving depositors of the right to participate in the consultation process.
The concept of the TSB as a third force in banking has been all but dropped from either the White Paper or the Bill, and the only protection that depositors have—this worries us considerably—is not in the Bill but in the letter from the chairman of the TSB to the Chancellor of the Exchequer. Indeed, the Bill in a sense is really an enabling measure; it vests the property in the plc and allows it to float shares, but it does not itself deal with the requirements that are necessary to ensure that the character of the TSB is observed. As far as I can see, that is left exclusively to the TSB management to determine.
Two essential points arise. First, there is the question of share allocation. There is absolutely no way at this stage of judging what allocation of shares there will be to the depositors or to the employees. The hon. Member for Solihull (Mr. Taylor) spoke of the need for wide ownership. We simply do not know how many shares depositors will have. There is no indication— the Minister may say that there is—whether any thought has been given to the number of shares that depositors or employees can expect.
The hon. Member for Hampstead and Highgate suggested that my hon. Friend the Member for Thurrock (Dr. McDonald) was wrong in saying that as many as 40 per cent. would not be able to take up shares. He made the point—it is a fair one in a sense—that there are many people who may not have much money in the TSB but may have money in other accounts. But that is to say that there may be fewer than 40 per cent. who cannot take up shares; in other words, there may be a very high proportion of depositors who want to take up shares. If we are to judge the measure properly, we should be told what figure is in mind for depositors. That is crucial to the spreading of share ownership.
With regard to takeovers, 5 per cent. for five years is the greatest amount permitted, but that is still considerable. It could still mean that large numbers of depositors could not get the opportunity to own shares. After five years the figure is to be fixed at 15 per cent., but that is only in the articles of association, and there would be no great difficulty about changing it.
67 My hon. Friend the Member for Glasgow, Maryhill (Mr. Craigen) eloquently explained the attractiveness of TSB, and I doubt whether many people will wrestle with their consciences, in the way that he did, about buying. The plain fact is that there is no guarantee that, after a five-year period, there could not be a substantial change in the nature of the TSB.
The Minister should tell us the basis upon which the matter is being put. If it is being said that it is no longer possible to have the notion of a third force in banking, or to go down the road of mutuality, we can judge the argument on those terms. But it is wrong for the Government to protest that this is merely the end of a foreseeable process when what has taken place is a considerable change of course. I should like to know specifically from the Minister why the Bill, even if it goes down the plc route, cannot contain adequate safeguards to ensure that the tradition and character of the TSB is observed. If that does not happen, whatever the rhetoric from Government or management, the reality will be substantially different.
§ Mr. Ian Stewart
By leave of the House, Mr. Speaker, I hope that I may have an opportunity of responding to the debate.
Before dealing with the general questions which have been raised, I should like to mention quickly one or two practical questions which were put to me. The hon. Member for St. Helens, South (Mr. Bermingham) referred to the memorandum and articles. They are available in the Library. I do not at this stage want to enter into a debate with him about company law, but my understanding is that special resolutions, which are usually required for changes in articles, are likely to need a higher percentage of support than he suggested.
The hon. Member for Dundee, East (Mr. Wilson) raised with me in an intervention, and also in his speech, the question of possible direct shareholding in TSB (Scotland). I said that I would come back to that. It embodies a principle as well as the point that the hon. Gentleman raised. The local shareholding which it is proposed to make available in TSB (Channel Islands) is not provided for in the Bill. It is a proposal which the TSBs have put forward under their own powers. It would not be appropriate to insert a statutory requirement in the Bill itself either for or against such a thing. It would have been possible, if TSB (Scotland) had wanted to have such an arrangement— I imagine after discussion with other members of the TSB group— to put forward a suggestion that TSB (Scotland), or any of the other TSBs, should have that degree of independent shareholding. That is not the way in which the proposals have come forward, and far be if from me to suggest that they should do so in that way.
The hon. Gentleman also spoke about control. The structure of the group will be different. The holding company will be at the top rather than in the middle, as shown by page 7 of the White Paper. The top company will be a holding company and not a banking company. The banking, as I understand it, will be controlled by the boards of the four main banks, and the other business within the group will be controlled by the boards of the companies which do that particular business.
§ Mr. Gordon Wilson
I do not see any reason why, in the public interest, we should not insert certain provisions, whether the TSBs like it or not. The Minister says that the banking operations will be carried out by the subsidiary companies. Who will have control of the assets of those subsidiary companies? At the end of the day, will it not be the holding company, comprising the shareholders, which will have the right to say yea or nay with regard to disposal of the assets?
§ Mr. Stewart
The technical position would be the same as with any holding company and group, but in the case of the TSB group, as with many other quoted companies, the operating subsidiaries generally run their business, and not the holding companies which happen to be parent companies of the group. Clearly, the TSBs themselves have seen the need for a form of co-ordination of their activities, and that is reflected in the existing structure. I tried to explain earlier that there is a change in the structure, but it is not as if there is no central function as things now stand. The proposals have been worked out both by the individual TSBs and by the centre.
The hon. Member for Thurrock (Dr. McDonald) asked me at the outset of her speech about the timing of the flotation. I understand that the TSBs hope that it can take place by about next winter. It is not for the Government to determine. The vesting is a formality which must take place before the decision for the issue itself. That depends on several factors such as market conditions, the date of publication of accounts for quotation in a prospectus, and so on. Those are matters that the TSBs themselves will be able to settle.
I should like to refer briefly to the main issues that have been developed during the debate, because they are fundamental. I shall try to cover the main points that were raised by Opposition Members as well as my hon. Friends.
There is an oddity about the Bill, which presents some difficulties to me and the House. I readily admit that, because it is inherent in the situation. If the TSBs were already Companies Act companies in the private sector, if they were part of the banking group in that form, and wanted such a reorganisation, they would come to the House with a private Bill. They would be answerable for the way in which they had approached the House, and it would not be a Minister standing at the Dispatch Box who would tell them how to do it. At the other end of the reorganisation are the Government's existing responsibilities, laid down by a century and more of legislation on the statutory structure and powers of the TSB movement. Apart from the vexed question of ownership, to which I shall refer, the Government have responsibility for supervision, taxation and constraints—in this case, the removal of constraints on the ability of the TSBs to undertake an increased range of business.
Therefore, there is a Government interest. It is not, as has been frequently said during the debate, a Government financial interest. The Government are disinterested in that respect. They are disinterested in the issue, in that aspect of the future of the TSBs— and properly so. It was suggested that the Government might consider taking the resources of the TSBs into their own hands. That has never been the intention of the Government or of any of the proposals that have been considered. The idea is to allow the TSBs to develop in the way that those responsible for them have come to the conclusion is the best way forward in today's conditions.
69 Clearly, that raises several points of principle. I have been asked by many hon. Members about the Government's attitude to the recommendations in the Page report on the third force in banking. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) and other hon. Members referred to the local commitment and regional identity of the TSBs. Whatever may have been the position in 1973 or even when the 1976 Act was before the House, the Government and I and the TSBs do not believe that the mutual structure would be appropriate, either for today or for the future. It is important that we look forward and not backward in making our provisions for the TSBs in future.
I mentioned immediate practical considerations that have weighed substantially with the TSBs and the Government in considering the matter. Direct accountability is very important for those who are competing in the commercial environment of the retail banking sector today. Direct account-ability to shareholders will be given through boards of directors and the holding company structure in a clear-cut way that will allow decisions to be taken that are in the commercial interests of the TSBs, and, in that sense, in the commercial interests of the depositors.
I have a strong personal concern that the depositors with the TSBs should feel that there is a continuing identity with the TSBs between themselves and the banks they use. I support the proposals by the TSBs that regional boards should continue and that there should be charitable foundations with favourable proposals for local interests. I support the idea that the depositors and the staff, who are by definition depositors, should have substantial priority.
The hon. Member for Sedgefield (Mr. Blair) raised a fair question when he asked about the Government's attitude to that. He asked about the Government's choice. A pattern has been worked out through discussion between the Government and the TSBs as to what is best for their own future. I do not come to the Dispatch Box to propose legislation for the TSBs that is not in their best interest. I hope and believe that a large number of depositors will apply successfully for shares.
I have been asked about the number of shares, the scale of priority, the terms of the issue and so on. Those are not matters that the Government can resolve or decide. I realise that that presents a dilemma. It is an enabling Bill. It allows a process to continue and be completed that has been fully explained in Sir John Read's letter, which is in the White Paper. However, if hon. Members are anxious to learn more specifically about the proposals that it will be the responsibility of the TSBs to carry through, through the TSB parliamentary group or another means of communication, Sir John Read, members of the central board and other representatives of the TSBs may want to take into account what has been said during the debate and in Committee and respond so far as they can to the questions that have been raised.
I have considered carefully what my position would be if I were asked such questions, because it has occurred to me that the House might be interested in some of those details, as I am, but I cannot take such decisions for the TSBs. The details of the flotation will have to be worked out by the TSBs with their advisers, the Stock Exchange and so on. It should not be Parliament that makes those decisions. It should not be Ministers, even a Minister as well disposed to the TSBs as I am. Parliament must 70 provide the framework in which the change can take place, and the matters must then be resolved by the TSBs themselves.
§ Mr. Blair
Is not this the problem? Because of the uncertainty of ownership, when one talks about the TSBs advocating a certain course of action, all that one can refer to is the TSB management. In a sense, the depositors are a casualty of the uncertainty of ownership. The question that the Minister must answer to satisfy people is this. Why was not some attempt made to ascertain the views of the depositors? Unless the Government stand up for the depositors, they have no one else to turn to.
§ Mr. Stewart
I was going to refer to ownership. I shall do so now. Rather than answering the hon. Gentleman's specific question, I shall make some comments that cover the points that he made.
There is not just uncertain ownership; there is a lack of ownership of the TSBs. Parliament must resolve that problem. It is true that a mutual ownership could have been chosen, but I do not believe that that is right, and those who are responsible for the business of the TSBs also do not believe that that is right. Then there is the question of consultation. Again, there is a problem with the constitutional position. There is no formal means, and no easy informal means, of ascertaining the relative interests of those who are party to the TSBs in one form or another. There are trustees, managers, staff and depositors, so far as one can have access to them in this respect.
The proposals in the chairman's statement in 1982 received a good deal of publicity at the time, both generally and within the group, but I understand that there was very little reaction and that no strong case was put forward in favour of mutual ownership rather than the structure proposed. Whatever might have seemed sensible to Sir Harry Page in the early 1970s, it is simply not practical in today's conditions if one wishes this group of banks to be able to hold its own competitively with the four clearing banks.
As for the "third force", one cannot describe the market in such simple terms as one could 10 or more years ago. The barriers of function in banking, instalment credit, and so on have been considerably broken down and the financial institutions in retail banking can no longer be parcelled out into three separate groups— clearing banks, National Giro and TSB— each with a different constitution. I hope that in some respects the clearing banks will become more like the TSB rather than vice versa, because the TSB's great tradition of attention to the needs of customers is important commercially as well as historically as an element which is becoming increasingly important to customers of banking services today.
The question of consultation is thus linked with the lack of ownership. Until 1976, if a TSB closed down the surplus went into what was known as a "closed banks fund", showing that no one knew where to look in terms of ownership. The management and central board of the TSB have taken great care to consider all these matters within the movement before putting their proposals to us and I believe that those proposals constitute an appropriate way forward. We feel that we should support, as it were, the private Bill element in this by creating enabling legislation to deal with those aspects which remain the responsibility of Government.
§ Mr. Robert Sheldon
The Minister has not dealt with the 5 per cent. limit on ownership and the fact that after five years it will be possible to apply for and obtain, by takeover or other means, 15 per cent. of the shares. The Minister has said that the memorandum and articles of association will deal with that. Will he accept an amendment to enshrine the limit in the legislation so that it will not be possible for anyone to obtain a greater proportion in the future?
§ Mr. Stewart
I do not think that it would be appropriate for the legislation itself to include specific provisions about the flotation or about the subsequent conduct of the TSB as a private sector company. I take the point that the 5 per cent. limit in the memorandum will expire after five years, followed by a provision in the articles restricting any single shareholding to 15 per cent. We are talking about a time a considerable way off and we must not forget that legislation relating to the structure of financial institutions has been shown in recent years to become out of date very quickly. Enshrining in statute specific requirements on that or various other aspects, thus setting the TSBs apart from other banks for an unlimited period until Parliament decided to change it, would not in my view be in the best interests of the TSBs. I am therefore not persuaded by the right hon. Gentleman's argument.
I believe that the overall purpose of the Bill is helpful to the TSB and its depositors, and I hope that the House will give it a fair wind today.
§ Question put, That the Bill be now read a Second time:—
§ The House divided: Ayes 204, Noes 37.73
|Division No. 61]||[7.35 pm|
|Alexander, Richard||Chapman, Sydney|
|Amess, David||Chope, Christopher|
|Ancram, Michael||Clark, Hon A. (Plym'th S'n)|
|Arnold, Tom||Clark, Dr Michael (Rockford)|
|Atkins, Robert (South Ribble)||Clarke, Rt Hon K. (Rushcliffe)|
|Atkinson, David (B'm'th E)||Clegg, Sir Walter|
|Baker, Nicholas (N Dorset)||Cockeram, Eric|
|Baldry, Tony||Colvin, Michael|
|Beaumont-Dark, Anthony||Coombs, Simon|
|Bellingham, Henry||Cope, John|
|Bennett, Sir Frederic (T'bay)||Cormack, Patrick|
|Best, Keith||Couchman, James|
|Bevan, David Gilroy||Cranborne, Viscount|
|Biggs-Davison, Sir John||Currie, Mrs Edwina|
|Blackburn, John||Dicks, Terry|
|Boscawen, Hon Robert||Dorrell, Stephen|
|Bottomley, Peter||Douglas-Hamilton, Lord J.|
|Bottomley, Mrs Virginia||Dover, Den|
|Bowden, A. (Brighton K'to'n)||Dunn, Robert|
|Bowden, Gerald (Dulwich)||Durant, Tony|
|Brandon-Bravo, Martin||Dykes, Hugh|
|Bright, Graham||Edwards, Rt Hon N. (P'broke)|
|Brinton, Tim||Eggar, Tim|
|Brooke, Hon Peter||Evennett, David|
|Brown, M. (Brigg & Cl'thpes)||Eyre, Sir Reginald|
|Browne, John||Fairbairn, Nicholas|
|Bruinvels, Peter||Fallon, Michael|
|Buck, Sir Antony||Favell, Anthony|
|Budgen, Nick||Fenner, Mrs Peggy|
|Bulmer, Esmond||Finsberg, Sir Geoffrey|
|Burt, Alistair||Fletcher, Alexander|
|Butcher, John||Fowler, Rt Hon Norman|
|Butterfill, John||Fox, Marcus|
|Carlisle, John (N Luton)||Franks, Cecil|
|Carlisle, Kenneth (Lincoln)||Fraser, Peter (Angus East)|
|Carlisle, Rt Hon M. (W'ton S)||Freeman, Roger|
|Chalker, Mrs Lynda||Gale, Roger|
|Channon, Rt Hon Paul||Gardiner, George (Reigate)|
|Garel-Jones, Tristan||Pym, Rt Hon Francis|
|Gower, Sir Raymond||Raffan, Keith|
|Greenway, Harry||Rathbone, Tim|
|Gregory, Conal||Renton, Tim|
|Griffiths, E. (B'y St Edm'ds)||Rhodes James, Robert|
|Gummer, John Selwyn||Rhys Williams, Sir Brandon|
|Hamilton, Hon A. (Epsom)||Roberts, Wyn (Conwy)|
|Hamilton, Neil (Tatton)||Robinson, Mark (N'port W)|
|Hawkins, C. (High Peak)||Roe, Mrs Marion|
|Hayward, Robert||Rowe, Andrew|
|Henderson, Barry||Ryder, Richard|
|Higgins, Rt Hon Terence L.||Sackville, Hon Thomas|
|Howarth, Alan (Stratf'd-on-A)||Sainsbury, Hon Timothy|
|Howarth, Gerald (Cannock)||Sayeed, Jonathan|
|Hunter, Andrew||Shaw, Giles (Pudsey)|
|Johnson Smith, Sir Geoffrey||Shaw, Sir Michael (Scarb')|
|Kilfedder, James A.||Shepherd, Colin (Hereford)|
|Knight, Mrs Jill (Edgbaston)||Shersby, Michael|
|Lang, Ian||Sims, Roger|
|Lawrence, Ivan||Skeet, T. H. H.|
|Lee, John (Pendle)||Smith, Tim (Beaconsfield)|
|Leigh, Edward (Gainsbor'gh)||Soames, Hon Nicholas|
|Lennox-Boyd, Hon Mark||Speed, Keith|
|Lightbown, David||Speller, Tony|
|Lord, Michael||Spencer, Derek|
|McCrindle, Robert||Spicer, Jim (W Dorset)|
|Macfarlane, Neil||Stanbrook, Ivor|
|MacKay, Andrew (Berkshire)||Steen, Anthony|
|MacKay, John (Argyll & Bute)||Stern, Michael|
|Maclean, David John||Stevens, Lewis (Nuneaton)|
|Major, John||Stevens, Martin (Fulham)|
|Malins, Humfrey||Stewart, Allan (Eastwood)|
|Malone, Gerald||Stewart, Andrew (Sherwood)|
|Mates, Michael||Stewart, Ian (N Hertf'dshire)|
|Maude, Hon Francis||Stradling Thomas, J.|
|Maxwell-Hyslop, Robin||Sumberg, David|
|Mayhew, Sir Patrick||Taylor, John (Solihull)|
|Merchant, Piers||Taylor, Teddy (S'end E)|
|Meyer, Sir Anthony||Tebbit, Rt Hon Norman|
|Miller, Hal (B'grove)||Thompson, Donald (Calder V)|
|Mills, Iain (Meriden)||Thompson, Patrick (N'ich N)|
|Mills, Sir Peter (West Devon)||Thorne, Neil (Ilford S)|
|Miscampbell, Norman||Thurnham, Peter|
|Mitchell, David (NW Hants)||Tracey, Richard|
|Monro, Sir Hector||Twinn, Dr Ian|
|Montgomery, Fergus||van Straubenzee, Sir W.|
|Moore, John||Viggers, Peter|
|Morrison, Hon C. (Devizes)||Waddington, David|
|Morrison, Hon P. (Chester)||Walden, George|
|Moynihan, Hon C.||Waller, Gary|
|Mudd, David||Warren, Kenneth|
|Neale, Gerrard||Watson, John|
|Norris, Steven||Watts, John|
|Onslow, Cranley||Wells, Sir John (Maidstone)|
|Oppenheim, Phillip||Wheeler, John|
|Osborn, Sir John||Whitney, Raymond|
|Ottaway, Richard||Wiggin, Jerry|
|Page, Sir John (Harrow W)||Wolfson, Mark|
|Page, Richard (Herts SW)||Wood, Timothy|
|Parris, Matthew||Woodcock, Michael|
|Peacock, Mrs Elizabeth||Yeo, Tim|
|Percival, Rt Hon Sir Ian||Young, Sir George (Acton)|
|Portillo, Michael||Tellers for the Ayes:|
|Powell, William (Corby)||Mr. Michael Neubert and|
|Powley, John||Mr. Peter Lloyd.|
|Proctor, K. Harvey|
|Atkinson, N. (Tottenham)||Fatchett, Derek|
|Barron, Kevin||Fields, T. (L'pool Broad Gn)|
|Beith, A. J.||George, Bruce|
|Bidwell, Sydney||Godman, Dr Norman|
|Boyes, Roland||Howells, Geraint|
|Caborn, Richard||Hoyle, Douglas|
|Clwyd, Mrs Ann||Lamond, James|
|Cox, Thomas (Tooting)||Maynard, Miss Joan|
|Craigen, J. M.||Meadowcroft, Michael|
|Dalyell, Tam||Michie, William|
|Dixon, Donald||Mikardo, Ian|
|Miller, Dr M. S. (E Kilbride)||Wareing, Robert|
|Nellist, David||Welsh, Michael|
|Patchett, Terry||Wigley, Dafydd|
|Pavitt, Laurie||Wilson, Gordon|
|Powell, Raymond (Ogmore)||Winnick, David|
|Sheldon, Rt Hon R.|
|Skinner, Dennis||Tellers for the Noes:|
|Smith, C.(Isl'ton S & F'bury)||Mr. Gerald Bermingham and|
|Spearing, Nigel||Mr. Peter Pike.|
|Stewart, Rt Hon D. (W Isles)|
§ Question accordingly agreed to.