Government defeat on banking bill

http://news.bbc.co.uk/go/rss/-/1/hi/uk_politics/7868461.stm

Version 0 of 1.

Labour has lost a vote in the House of Lords on an amendment to its flagship bill to protect the banking system.

The government was defeated by 35 votes as peers backed a Conservative amendment calling for a quarterly update on the cost of the bank bailout.

Ministers must now decide whether to ask MPs to overturn the amendment when the bill returns to the Commons.

Measures in the bill include increased protection for depositors and enhanced powers to deal with failing banks

Tight deadline

Ministers are working against a tight deadline to pass the legislation as existing legal provisions used to nationalise Northern Rock and Bradford & Bingley expire on 20 February.

The government wants replacement laws on the statute book by 12 February, when Parliament rises for a week-long "half-term" recess.

Many of the proposed measures in the bill, designed to rebuild confidence in the banking system and make it easier to rescue troubled institutions, have cross-party support.

This is a perfectly reasonable amendment which has the needs of parliamentary accountability at its heart Baroness Noakes

However, peers have been pressing for stricter parliamentary scrutiny of the huge sums which have been pumped into the banking system.

In October, the government agreed to inject £37bn into Royal Bank of Scotland, Lloyds TSB and HBOS, in return for taking large stakes in the banks.

Last month, it went a step further and offered to insure High Street banks against their bad debts, a move which opposition parties said was an admission of the failure of the recapitalisation scheme.

On Tuesday, the government was defeated - by 166 to 131 votes - on an amendment calling for Parliament to receive a quarterly update on the actual and potential costs of the bank rescue plan.

The motion, put forward by Conservative Treasury spokeswoman Baroness Noakes and crossbench peer Lord Turnbull, a former permanent secretary at the Treasury, was supported by the Liberal Democrats.

Baroness Noakes said greater transparency was needed to ensure Parliament "understood" the financial implications of all the recent initiatives designed to encourage banks to increase lending.

"This is a perfectly reasonable amendment which has the needs of parliamentary accountability at its heart," she said.

But ministers said much of the information highlighted was already available to peers while other details were commercially confidential.

Reacting to the vote, shadow chancellor George Osborne urged the government not to reverse the decision in the Commons.

Liabilities

Ministers only narrowed avoided defeat on a separate amendment on Monday when a vote on allowing Parliament to approve a code of practice included in the bill was tied at 84 votes each.

The government carried the vote due to a parliamentary convention which dictates that any proposed change to legislation requires a majority.

MPs have also expressed concerns about how the bank rescue plan has been conducted.

In a recent report, the Commons Treasury sub-committee said the government had failed to reveal the full extent of public liabilities arising from the bank rescue.

The full risks to taxpayers from the successive nationalisations and bail-outs of the past 18 months should be "comprehensively disclosed", it argued.

The Bank of England revealed on Tuesday that it has lent £185bn to financial institutions since April under the terms of its special liquidity scheme.