Dunfermline Building Society Compensation Scheme, Resolution Fund and Third Party Compensation Order 2009

Until the Minister stood up, I had not realised that we were debating the two orders together, which is entirely my fault, because I can see that properly stated on the Order Paper, so I will be shuffling my papers between the two. If the Minister will permit me, I will start with the second of the orders, where the Minister looked, I think, duly embarrassed about using Section 75—not that the Minister should be embarrassed at what has happened, but I hope that there is a due degree of embarrassment at the Bank of England. When Parliament entrusted the property instrument power to the Bank of England under the Banking Act, that was done under the tacit assumption that the Bank of England would exercise the power competently. Clearly, it has not done so. The various powers in the 2009 Act were not designed for frequent use—indeed, we hope that they will not be used frequently—but we are entitled to some assurance that lessons have been learnt from this occurrence. Has there been a proper formal post-mortem examination at the Bank of England with a view to identifying what went wrong and why? If this had been in a commercial document, it might not have been as easy to revise it as with the stroke of a pen on a statutory instrument. The Minister referred to our lengthy discussions at various stages of the Banking Bill, and it is fair to say that he struggled to come up with any plausible way in which the Section 75 power would be used. Since then, we have had the No. 1 Dunfermline order, which made a whole raft of changes to law which some of us think could well have been made to the Bill, and had retrospection of the total amount of one hour and 45 minutes—hardly a substantive use. This order is a more substantive use of the power, but it is for a rather less substantive reason: that is, it is to correct the shoddy draftsmanship of the Bank of England. I am not going to object to the order today, because it is clearly convenient to have the Section 75 power to use in these sorts of situations. However, if the Minister had stood at the Dispatch Box during the passage of the Banking Bill and said that he needed the Section 75 power to correct drafting errors made by the Bank of England when using its property instrument power, we might have invited him to make a more targeted power in the Bill—for example, to correct property transfer instruments—but it is more likely that we would have fallen about laughing at the Government thinking it necessary to have such a power in the Bill to cope with incompetence. As I say, however, we will not object to the order; we simply hope that the Government are not proud of it. The more substantive of the two orders which the Minister introduced is the Dunfermline Building Society Compensation Scheme, Resolution Fund and Third Party Compensation Order 2009. It is really four orders in one, because it covers the compensation scheme, the resolution fund and the third-party compensation scheme, as well as the appointment of a valuer to carry out the valuation of the amount of recovery for the purposes of the Dunfermline contribution to costs order, which we debated in May. In broad terms, the order is not controversial. Indeed, I might even say that it is potentially very interesting for Banking Act anoraks—those of us who survived the Banking Bill process—because it will set up the first of these compensation schemes, resolution funds and third-party compensation orders; so it is the first time that these powers will be road-tested. We will look very carefully at the progress of the use of the powers to see whether they stand up in the light of real facts and events. I have a few questions for the Minister. First, will he update the Committee on what is happening to the Dunfermline Building Society? As I understand it, the social housing assets were initially transferred to a bridge bank, owned of course by the Bank of England, but last week the Nationwide, which of course was involved in the original transaction, also acquired those assets. Will the Minister say what the Nationwide paid for those assets relative to their face value? Does this transaction complete the work of the bridge bank that was set up as part of the Dunfermline rescue? Approximately how much—I do not expect him to have definitive figures—will be paid into the resolution fund? I think that that comes from the bridge bank. Secondly, Dunfermline has been placed into administration. Does the Minister have any information on the progress of that administration, including the likely deficit to be borne by secured and unsecured creditors, including the pension fund? If he does not have the information, will he say how it can be obtained? I could not get any up-to-date information online, which is of considerable concern. These questions are tangentially related to the work of the valuer appointed under Article 11 of the order, because the valuer will have to work out the "amount of the recovery" for the purposes of the contribution-to-costs order. I believe that the amount of the recovery is the amount that the valuer believes that the Financial Services Compensation Scheme would have got back from Dunfermline, had the FSCS paid out to depositors in the normal way under its rules and then recovered it. Will the Minister confirm that this will entitle—indeed, require—the valuer to assess the value of the business and assets of Dunfermline that would have been sold if Dunfermline had not been dealt with by the special resolution regime? The valuation is necessary irrespective of the fact that the Treasury has now determined the compensation available to Dunfermline as nil. That does not bind the valuer, who has to reach his own view on value. I ask the Minister to confirm that. Will the Minister comment on the similarities to, or differences from, the calculations that the valuer will be required to make for the third-party compensation scheme? This concerns the amounts that would have been received by the creditors, but I assume that it involves some of the same underlying issues of how much the business was worth and therefore how much would have been paid out to the creditors had the business been dealt with in accordance with the assumptions that are specified. In that connection I note that, in respect of the third-party compensation scheme, Part 3 of Schedule 2 has some detailed valuation principles about financial assistance and so on, which we have seen in other orders, and which have to guide the valuation. However, I could see no equivalent principles applying to the Article 11 valuation process—that is, the process that will apply under the contribution-to-costs order. Can the Minister explain this disparity of approaches by the same valuer to two different parts of the task that he will be carrying out, and comment on whether that might result in inconsistent valuations coming out of the process? Valuation principles are specified for one, although I do not believe that such principles have been specified for the other for the purposes of Article 11. I have a couple of other detailed questions for the Minister. The first relates to the account holder for the resolution fund. Who is that likely to be? It is required by paragraph 1(2) of Schedule 1. Why does an independent person have to be appointed to hold the money? Why could the account at the Bank of England not simply be the Dunfermline resolution fund? Why does it have to be held in the name of an individual? What does that add? My other, more detailed, question relates to paragraph 3 of Schedule 2, which says that third-party compensation is to be paid only if it is required to be paid in order to comply with the European Convention on Human Rights. What is this intended to do? In what circumstances would this proviso prevent compensation from otherwise being paid? Is this intended to restrict the operation of the rights to compensation triggered by Section 38(6) of the Banking Act? If so, why was this provision not included in the Bill? It seems quite a significant point to have been included in the order rather than the Bill. Also, has this point been consulted upon? Apart from these points, we are content with the order.