Lord Livermore (Lab)

My Lords, in response to the amendment from the noble Baroness, Lady Noakes, I hope to explain and provide some clarification around the expenses within scope of the mechanism under the Bill, as well as clarify the Government’s rationale for our approach. The key purpose of the Bill is to ensure that there is a source of funding for recapitalisation of a bank in resolution, where that bank does not hold the necessary resources to allow it to be bailed in. In addition to the core expense of the recapitalisation payment, other expenses are likely to be incurred. There are two in particular. First, there are likely to be a number of ongoing expenses incurred by the Bank of England, or by a Bank of England-owned holding company or operating company, when running a bridge bank, beyond those concerned with simply injecting new capital into the failed firm. This could, for example, include additional staffing costs and advisory fees incurred by the Bank of England to support its ability to operate a commercial bank. Secondly, there will likely be a set of ancillary expenses incurred by both the Bank and the Treasury in undertaking a resolution of this type. As set out in the Government’s consultation response, this could include, for example, the costs of receiving professional advice, such as on legal or accountancy matters. It may also include the costs of appointing an independent valuer, as required under the Banking Act. As such, the persons other than the Bank of England referred to in the legislation whose expenses could be met using the new mechanism are expected to be the Treasury and any other Bank of England-owned legal entities that are not the Bank of England itself. The noble Baroness asked why the full set of costs are not specified. It is important that the Bill is not overly prescriptive, allowing the Bank to respond flexibly when costs arise. The noble Baroness, Lady Noakes, also raised concerns about the treatment of litigation costs. As the noble Baroness, Lady Vere, noted, this arose at Second Reading as well. Depending on the circumstances, these again may be covered by the relevant part of Clause 1 addressed by this amendment—for instance, where the Bank of England is subject to litigation concerning the resolution and recapitalisation process. Given the fast-moving and unpredictable nature of bank failures, the Government believe that it is prudent to ensure that there is broad provision to cover these potential additional expenses incurred by both the Bank of England and other persons such as the Treasury. Ultimately, the alternative is that the cost of such expenses may need to be met by the taxpayer. I wish to reassure noble Lords that in determining whether to include certain ancillary expenses in its request for funding to the Financial Services Compensation Scheme, the Bank of England is subject to the usual obligations under public law to act in a way that is reasonable and it will need to factor this into any assessment of what is in the public interest. In addition, the legislation does not allow the Bank of England or any other person to claim expenses that arise exclusively for preparing for bank insolvency. I hope this provides the noble Baroness with a helpful explanation of the Government’s approach, and I respectfully ask her to withdraw her amendment.