Cash Ratio Deposits (Value Bands and Ratios) Order 2008

Before I was interrupted, I was talking about the consultation that the Treasury has been carrying out and I was about to remark that there was unsurprising support in that consultation for reducing the ratio down to 0.11 per cent, because of course any reduction was bound to be supported by the financial community. The summary of responses produced by the Treasury also noted that respondents advocated that either changes should be made to other parameters of the scheme or the CRD scheme should be replaced by alternative arrangements. But it was clear from the consultation document that other changes and alternatives were not at all to the Treasury’s taste and were not pursued. So much for consultation. I have mentioned that the Bank has achieved surpluses of income over expenditure. As the Minister mentioned, that was due in part to overachievement against the forecasts that were produced when CRDs were last set. The total of the surplus, which I do not think the Minister mentioned, was £100 million. Even after paying quasi-dividends to the Treasury, the Bank increased its retained earnings by around £50 million, which is not a small sum. The Bank’s reserves in its most recent audited accounts to the end of March 2007 stood at around £1.7 billion, and there have to be questions asked about whether the Bank needs to be in such a comfortable financial position. My question, therefore, is: have the Government looked at whether the Bank could operate on a leaner financial basis and reduce the annual call it makes on the financial community via CRDs? I am conscious, however, that the Bank may well have to adjust its activities upwards as a consequence of the Northern Rock failures, where we are clear that the tripartite arrangements, which included the Bank of England, failed at their first real test. While most of the opprobrium is aimed at the FSA, who by the account of its own internal audit department handled Northern Rock very badly, I do not think anyone would pretend that the Bank’s procedures were perfect. The Treasury’s plans were set out in the financial stability consultation document in January. They included strengthening the Bank of England, although it was not clear precisely what that would involve in practice. To me it is clear that it will not involve doing less and spending less; it is likely to involve doing more and spending more. In addition, the Treasury Select Committee in another place was clear that the Bank rather than the FSA should be in charge of the special resolution regime for failing banks. That is the regime proposed in the document which came out in January. If the Government accept that, it would potentially increase the Bank’s costs still further. Perhaps the Minister would share with the Committee the Government’s current thinking on how the special resolution regime will operate and, indeed, how it will be funded. Does the Minister believe that the CRD funding scheme is robust enough to cope with future scope changes in the Bank’s activities? Do the Government expect to look again at funding mechanisms or indeed the quantum in the light of the emerging financial stability proposals? If they are doing that, it is rather odd that we are bothering with the order before us.