House of Lords

Thursday 15th September 2011 Lords Chamber

Thursday, 15 September 2011.

11:00

Prayers—read by the Lord Bishop of Hereford.

Police Federation

Thursday 15th September 2011 Lords Chamber

Question

11:06

Asked By

[Lord Morris of Manchester]

To ask Her Majesty’s Government what consultations they have had with the Police Federation about current issues of importance to its members.

[Lord Morris of Manchester]

My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare an interest a former parliamentary adviser of long-standing to the Police Federation.

[The Minister of State, Home Office (Baroness Browning)]

There is a programme of regular ministerial meetings with the Police Federation at which it can raise matters of importance to its members. Recently, on 11 August, my colleague the Parliamentary Under-Secretary of State for Crime and Security met the Police Federation leadership on the Home Secretary’s behalf.

[Lord Morris of Manchester]

My Lords, I am grateful to the Minister for her reply, but is she aware that the Police Federation was at no time consulted on what the effects would be of cuts in spending on front-line services—which of course its members provide—and that the Chief Inspector of Constabulary warned that cuts in the policing budget could not be achieved without damaging them? Is the Minister further aware that in the past year the number of police officers has been depleted by over 4,000 and that, in the words of their own journal, “morale in the service is at an all-time low”? Yet the Home Secretary gave police officers the pledge,

“I will always back you … and fight for you”.

My Lords, was performance ever more remote from promise?

[Baroness Browning]

The Home Secretary has consistently been clear that she has the utmost respect and admiration for the bravery and dedication of the men and women of our police forces, but that does not mean unquestioning agreement at all times. The Home Secretary has a responsibility to the taxpayer to tackle the deficit and improve the service to the public. The police cannot be exempt from their share of cuts but, as I have already informed the House, there are regular meetings at which members of the federation can raise any issue they like with Ministers. I understand that, apart from the regular series of meetings that are held, additional meetings are held at certain times, such as the one with my honourable friend Mr Brokenshire following the riots.

[Lord Rosser]

My Lords, we are all grateful for the commitment shown by members of the Police Federation across the country, not least for sometimes working 20 hours a day to assist in tackling the riots and in bringing those involved to justice. However, that all costs money in extra policing at a time when police budgets are being squeezed. Bearing in mind that the Home Secretary has recently said that applications from police forces for a special grant to cover the additional costs will only be “considered”, could the Minister say whether the Prime Minister’s Statement in the other place on 11 August that:

“The Treasury is standing ready to assist police forces. Clearly, the bill for the Metropolitan police force for the past few days will be large and, if they continue to deploy in those numbers, it will get larger and the Treasury will stand behind that”,—[Official Report, Commons, 11/8/11; col. 1065.]

still represents government policy in the light of the Home Secretary’s statement?

[Baroness Browning]

My Lords, we have yet to receive from any police force its Bill in respect of the riots. We have had some indication in one or two forces—for example, I think that some evidence given to the Home Affairs Select Committee earlier in the week would have indicated the nature of the bill—but we cannot at this stage give an open assurance that every bill as presented will be paid. As we understand it, some of these bills are likely to contain quite significant sums relating to opportunity costs. I think that the House will understand that, when I stand at the Dispatch Box and say that we will honour every bill as presented, we will honour our pledge but that we will want to examine those bills very carefully.

[Lord Richard]

The Minister failed to answer the Question asked by my noble friend Lord Morris, so perhaps I could pose it again. Is it true that the Police Federation was not consulted about the effect on frontline policing of the proposed cuts?

[Baroness Browning]

My Lords, the nature of those proposals are such that, in order to give a definitive answer to the noble Lord, I will have to write to him. I will want to take careful advice as to what opportunities were given for discussion or written consultation. The noble Lord is shaking his head. I think that he would prefer a definitive answer in writing than for me to wing something at the Dispatch Box.

[Baroness Hamwee]

The topic of pensions for the police must obviously be on the mind of the Police Federation as well as on all our minds. Does the Minister have any news on tackling that issue? But thinking about retirement on a more personal basis and satisfaction for people who want to extend their working lives, is there anything that she can say about the retirement age of police officers and about making use of their experience and the investment that has been made in them for the good of the forces and of society, not losing them at a relatively early age?

[Baroness Browning]

I can tell my noble friend that public service pension schemes are consulting formally on the proposal, for example, to increase employee contribution rates. The consultation for the police pension scheme is happening within the Police Negotiating Board. The Home Secretary wrote to the Police Negotiating Board on 29 July and has asked for views on its proposal by the end of September.

[Lord Brooke of Alverthorpe]

In the light of the response that the noble Baroness gave to my noble friend Lord Richard, will she copy the letter that she is sending to him to the rest of the House? That is precisely what the Question is about.

[Baroness Browning]

When I reply to the noble Lord, Lord Richard, I would be very happy to place a copy in the Library of the House.

[Lord Hughes of Woodside]

Will the Minister, for whom I have the highest regard, have a word with her private office and her advisers? The questions posed by my noble friends Lord Morris and Lord Richard clearly should have been anticipated. She has been badly advised and put in a difficult position. She should sort her private office out.

[Baroness Browning]

I hesitate to criticise my civil servants. It is not something that I would wish to do. In terms of the issues around police federations, the substance of the Question was not specifically about that consultation. It was about how much contact Ministers had had with the Police Federation, which I answered in terms. As I have explained, I am very happy to write to the noble Lord because I do not know off the top of my head what opportunities or attempts there were for any consultation specifically on that issue. But I will inform the House in writing and it will be a substantive reply.

[Lord Grocott]

I would ask the Minister to give a reminder to her colleagues, who can sometimes be careless with statistics when they talk about the proportion of police officers who are on the beat at any given time and complain about it being a low figure. The simple arithmetic, which I know she is aware of, shows that on a three-shift system, the maximum number of people available to be on the beat, even with no holidays, sickness or days off, would be 33.3 per cent of the available force. Very misleading statistics are being given out when Ministers complain about what they describe as being the low proportion of officers on the beat. I am sure they understand that in a 24-hour system of cover, that is bound to be the case.

[Baroness Browning]

My Lords, we understand the shift patterns, but other reasons can affect the number of police officers on the front line at any given point. As I have said many times in this House, we leave matters regarding individual policing and independent decision-making on force deployment to chief constables, and rightly so. None the less, we are aware that we are asking the police to take some tough decisions, and chief officers are responding well to that. In turn, they have to make difficult decisions about back office, middle office and front-line police officers. We also rely on Her Majesty’s Inspectorate of Constabulary which, in several reports including its most recent one, has indicated some trends which I think will be helpful to chief officers and to inform the rest of us.

Public Disorder: Eviction from Social Housing

Thursday 15th September 2011 Lords Chamber

Question

11:16

Asked By

[Lord Dubs]

To ask Her Majesty’s Government what discussions they have had with local authorities about the eviction from social housing of families with members involved in rioting or looting.

[The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham)]

My Lords, during and since the riots, a number of discussions have taken place between Ministers and local authorities, and eviction was one of many issues discussed. The Department for Communities and Local Government is currently consulting on proposals to extend the existing discretionary ground for possession for anti-social behaviour to include tenants or family members who have been convicted of the sort of criminality witnessed during the recent riots, wherever that criminality took place.

[Lord Dubs]

My Lords, is the Minister aware that many people will find it shocking that innocent members of a family could be evicted because one member has committed a criminal offence? Are we to stand by and watch families and innocent children being turned out on the streets?

[Baroness Hanham]

My Lords, I think there would be a general view among the public that those who abuse social tenancies by whatever they do should not expect to continue to enjoy the privilege of those tenancies. It is already the case that those who are subject to anti-social behaviour orders and commit crimes within their locality are subject to eviction. The consultation on this will be a discussion of whether to extend the current powers. The noble Lord asked about the circumstances of families and children. The people who do this will be intentionally homeless, but local authorities will have the same responsibilities as they have currently.

[Baroness Hussein-Ece]

Is my noble friend aware that only 8 per cent of people in England are council tenants? Does she think it is fair or just that council tenants accused—some have just been accused and not even convicted—of riot-related offences should be selectively punished? Is she also aware that if and when these families are evicted, they will have to live somewhere? Councils will have a duty to house them, which may cost more public money?

[Baroness Hanham]

My Lords, I think there is probably a difference between people who are paying for their own accommodation and those who are being cared for or given accommodation by local authorities at a subsidised rent. As I said in my previous answer, this is not a matter that can be dealt with at the moment because the law would have to be changed to enable people convicted of anti-social behaviour or a crime committed not within their local area to be evicted. We have seen some spectacularly dreadful sights in our country recently and it is only right that we should be able to consider whether there are other ways of dealing with this. That is what is being done.

[Lord Kinnock]

My Lords, we are having difficulty getting answers from Ministers to the very specific Questions set out on the Order Paper, whether about consultations with the biggest of the trade unions in the British police service or on the question of families. As a compassionate woman herself, will the Minister tell us whether she believes that there should be a change in the law that would enable the families of people involved in and convicted of rioting offences to be evicted from their homes—yes or no?

[Baroness Hanham]

My Lords, I cannot possibly pre-empt consultation.

[Noble Lords]

Oh!

[Baroness Hanham]

Noble Lords may not like my answers, but I shall give my answers. It is not up to me to decide this matter at present. There is a consultation on whether the law around anti-social behaviour and criminality in social housing, and when people can be evicted, can or should be extended in the circumstances that we have seen in this country. I do not understand how much clearer I can be. That is the third time I have said it.

[Lord Hamilton of Epsom]

My Lords, surely we are talking here about parental responsibility. I do not think that anybody in this House can feel that parents should not be responsible for their children, particularly when they are involved in riots.

[Baroness Hanham]

My Lords, clearly, the answer to that is yes. It is also clear that a number of the parents of those who were involved in the riots did not know where their children were at the time.

[Baroness O'Loan]

My Lords, if a member of a family has allegedly committed some rioting offence and the remaining members of that family are completely uninvolved in their activities, and if they are evicted from their home and thereby lose what may be the only security they have, is it not possible that other members of the family may be driven into worse conditions and ultimately into crime?

[Baroness Hanham]

My Lords, there are always outcomes when people behave badly. There is also a responsibility within families. We have seen awful riots. People were made homeless as a result of them. There is a responsibility within families to know what their members are doing on the basis that what they do may have an impact on their family.

Arab Partnership Initiative

Thursday 15th September 2011 Lords Chamber

Question

11:22

Asked By

[Baroness Nicholson of Winterbourne]

To ask Her Majesty’s Government what they hope to achieve through the Arab Partnership Initiative in the wake of the Arab Spring.

[The Minister of State, Foreign and Commonwealth Office (Lord Howell of Guildford)]

My Lords, the Arab Partnership supports the building blocks of democratic societies—that is, effective institutions, political pluralism, free media and economic fairness—across the Middle East and north Africa. Working with a wide range of regional partners, including Governments, Parliaments, the judiciary and the media, we are supporting long-term economic and political reform. As the Arab spring has demonstrated, this is the only route to a more stable and prosperous Middle East/north Africa region. Supporting this goal reflects not only the United Kingdom’s values but also our direct national interests.

[Baroness Nicholson of Winterbourne]

I thank the Minister for that comprehensive reply. I congratulate him and his colleagues on the British Government’s robust response to and support for the Arab spring. Will the Arab Partnership Initiative incorporate some support for the public good in Iraq, where democracy is now well established with, for example, its Government’s attempts to provide health services, education, energy and a free market? Can the Arab Partnership move ahead on those fronts in all the Arab spring countries?

[Lord Howell of Guildford]

Yes, it most certainly can. There are Arab Partnership funds for Iraq but they are on quite a modest scale because—as I know my noble friend is well aware—Iraq is potentially a rich country with gigantic resources of oil, phosphates and so on. Money is not the main problem; the problem lies in technical and administrative support. The Arab Partnership is involved, for example, in the development of broadcasting and accountable institutions and upholding human rights. We are working with the Government of Iraq across the whole field of energy, education and health. There is active engagement in ensuring that this potentially brilliant country comes back to the full comity of nations.

[Lord Lea of Crondall]

My Lords, British Arabs are not unaware of the meaning of the Arab spring, yet there are none of them in this House to give us the benefit of their advice. That is despite the fact that there are 200,000 or 300,000 British Arabs—the census will give the exact figure in due course. Does the Minister agree with me that rectification of this anomaly—it is rather an invidious position—is long overdue, not only on its own merits but in terms of the perception of Britain in the Arab world?

[Lord Howell of Guildford]

That is not actually a matter for me. However, it gives me the opportunity to say that your Lordships' House is already much more representative of this various and variegated nation of ours than people often give us credit for, and it could certainly become more so. I agree with the noble Lord that it is a valid point.

[Lord Hylton]

My Lords, my question concerns Tunisia. Will the funds that have already been agreed be released immediately so as to reduce unemployment and give hope to young Tunisians? Will the Government also encourage the resumption of normal tourism right away?

[Lord Howell of Guildford]

I agree with the noble Lord that the tourism aspect is very important not only in this case but obviously for Egypt and neighbouring countries. It is a vast part of their economies. On the noble Lord’s specific question, the Arab Partnership is supporting democratic transition in Tunisia, providing technical assistance and political and economic reform—although, obviously, the Tunisians are taking the lead in all those things. We have an Arab Partnership programme worth about £1 million which is deliberately covering a whole range of assistance and support. That includes the matters to which the noble Lord referred.

[Baroness Falkner of Margravine]

My Lords, I congratulate my noble friend on the Government’s extension of the scheme to up to £110 million. As the scheme was meant to be multilateral, what other countries have contributed generously to it, particularly those in the rich Arab world which have a special obligation to help their brothers?

[Lord Howell of Guildford]

A number of countries have contributed but the partnership funds are mostly administered through the so-called G8 Deauville partnership and the European Neighbourhood Policy. The countries co-operating in this include Kuwait, Qatar, Saudi Arabia, Turkey and the United Arab Emirates. So there is a good support cadre working alongside us and our colleagues in promoting these aims.

[Lord Triesman]

My Lords, the programme is certainly to be welcomed and we share the Minister’s ambition that it should help strengthen the rule of law, democratic practice, institution building and the development of think tanks. We welcome all of that. However, can the Minister tell the House what specific targets the Government are setting and how they will measure the outcomes that will result from the expenditure of these significant sums? I suspect that the House would regard this programme as sufficiently important to wish to see a timely—not necessarily frequent, but periodic—report on progress on those specifics.

[Lord Howell of Guildford]

We will certainly try. It is not all that easy to pin down and specify the outcomes as time goes by. I know that the noble Lord will be the first to appreciate that these developments, particularly in the field of democracy, are owned by the countries themselves. We are not in a position to score specific targets and to tell them to get to this point or that point. That is not at all the language in which we conduct our affairs. Our respect is for these countries and for their efforts to struggle forward to better and more settled democratic structures. It will not be easy for any of them, but we will give our support and try to score the outcomes and results that we want.

[Lord Dykes]

Does the Minister accept that the Palestinians also deserve their Arab spring after 43 years? Will he and the Government work very hard to persuade the United States Government not to exercise a veto—well over the 30th since 1967—stopping Israel behaving according to international law?

[Lord Howell of Guildford]

As we discussed in this House earlier in the week, it would be desirable to avoid any confrontation and any vetoing. It would also be desirable for as many nations of the world as possible to carry forward their recognition of Palestine, and to move to nationhood and establish some negotiation with Israel which will point them in that direction.

[Lord Avebury]

Is it consistent with the objectives that the Minister outlined in his first Answer to my noble friend for the Government to invite Bahrain to the arms fair, which is currently being held in London, when the Bahraini security forces are gunning down peaceful demonstrators on the streets of their country?

[Lord Howell of Guildford]

On the general principle of arms sales, I am sure that my noble friend would not disagree with the proposition that nations should have the right to defend themselves and that our industry and aid for that should be carefully calibrated to do so. We control the export of arms and export licences very carefully indeed. There is no evidence that our weapons or supplies have been used in Bahrain for riot control. In fact, we withdrew 18 licences for exports just to make sure that that would be so. So I do not think that there is any inconsistency. We work with Bahrain for a more positive result and an end to the violence there, which has been deplorable.

Armed Forces: Accommodation

Thursday 15th September 2011 Lords Chamber

Question

11:30

Asked By

[Lord Lee of Trafford]

To ask Her Majesty’s Government what are the implications for defence service accommodation of ending the £1.5 billion programme to upgrade decaying barracks and married quarters.

[Lord Wallace of Saltaire]

My Lords, there are no plans to end the upgrade programme for service accommodation. However, from 2013, defence budget projections foresee a three-year pause in the upgrade of some 800 service family accommodation properties—SFA, in defence jargon—and some single living accommodation bed spaces, or SLA, each year. A further 3,000 upgraded bed spaces will be developed by 2014 and routine maintenance will continue to be fully funded. This decision reflects the substantial financial challenges we inherited from the MoD budget and our determination to protect front-line operations.

[Lord Lee of Trafford]

Is my noble friend not embarrassed that while the Government pledge support for the military covenant, of which a key element is housing, and while the Deputy Prime Minister yesterday pledged fast-tracking for 40 major infrastructure projects to help the construction industry, the MoD makes its unique contribution to joined-up government by going in totally the opposite direction and deferring essential maintenance expenditure? Apart from the obvious disadvantage to service personnel and their families, have we not learnt by now that deferring this sort of expenditure always costs a lot more in the long term?

[Lord Wallace of Saltaire]

My Lords, I am glad that the noble Lord has read the excellent speech that the Deputy Prime Minister gave yesterday morning, which I commend to the House. I am sure that many others will want to read it. We are continuing to work within the MoD budget to see whether we can generate additional funds for purposes such as these. We are being deliberately cautious in making forward projections, in contrast to the overoptimistic, even reckless, forward projections of the previous Administration in defence budgeting.

[Lord Rosser]

My Lords, when the Secretary of State for Defence made announcements in July and September on the welcome procurement of 14 Chinook helicopters, he did not give details of how they were being financed. Maybe we are now beginning to find out, as it now emerges that the housing improvement programme for military personnel, which was put in place by the previous Government, is being halted for three years. When did the Secretary of State publicly announce these specific cuts in the housing improvement programme, and through which channels? Also, what other cuts directly affecting the welfare of Armed Forces personnel are being made that have not been or will not be announced with quite the same vigour as, for example, the Chinook helicopter programme?

[Lord Wallace of Saltaire]

I should pay tribute to the previous Administration for their efforts to improve service accommodation. The current situation is that 96 per cent of service accommodation has now been upgraded. We are talking about some 2,000 service family houses and about the projection that, in two years’ time, there will be a pause in further upgrades. I am told by officials that the majority of the 2,000 houses that have not yet been upgraded will either have been disposed of or will have been upgraded by 2013.

[Lord Craig of Radley]

My Lords, does the Minister recall this quotation:

“Poor accommodation is an issue which is creating difficulties in retaining personnel in the armed forces”?

That was Dr Liam Fox as shadow Defence Secretary in 2007. Has the Defence Secretary changed his mind?

[Lord Wallace of Saltaire]

I assure the House that the Defence Secretary has not changed his mind, and I repeat: we should pay tribute to the previous Administration’s considerable efforts in recent years to upgrade service accommodation, which are continuing. A further 900 houses have already been upgraded since this Administration took office. We are very conscious of the importance of this programme. Perhaps I should also mention that alongside it, a substantial programme is to be undertaken in the next five years of service accommodation adjustment to accommodate troops who will be returning from Germany. That is not part of this pause.

[Lord Palmer of Childs Hill]

My Lords, as the Minister will be aware, at every stage of the Armed Forces Bill I have raised the dire state of houses for service personnel. I asked whether the Government could look at the use of housing associations in garrison towns to improve housing earlier than he has indicated. Will he confirm that they will urgently look at this in the light of recent revelations?

[Lord Wallace of Saltaire]

As I have indicated, the MoD recognises the importance of this to service welfare and is doing everything it can to ensure that the programme continues.

[Lord Barnett]

The Minister referred to what the Deputy Prime Minister said about increased expenditure, capital matters and infrastructure. Did the Deputy Prime Minister have the agreement of the Chancellor?

[Lord Wallace of Saltaire]

The DPM, as others do, speaks for the coalition Government as a whole.

[Lord Dannatt]

My Lords, does the Minister agree that, whereas one can count what constitutes as savings in the reduction in the housing expenditure programme, you cannot calculate in the same way the cost of the impact on morale? Is he able to tell the House, either now or later, what steps are being taken by the Ministry of Defence to engage with the service families associations to inform them about the changes to the upgrade of their accommodation, bearing in mind that many of the occupants of those houses will probably now be undergoing their second or third tour of duty in Afghanistan?

[Lord Wallace of Saltaire]

My Lords, I have asked that question of officials and I am assured that the service welfare charities and other bodies have been fully consulted on this.

[Lord Touhig]

My Lords, the defence estate represents 1 per cent of the land mass of Britain and is worth over £15 billion. Have the Government looked at disposing of some defence estate assets, a policy that I pursued when I was a Defence Minister? There is a lot of money there that could be used to improve the quality of accommodation for our service men and women.

[Lord Wallace of Saltaire]

I assure the noble Lord that the Government have looked at that, although I suspect that we will not follow the example of the Icelandic Government in considering selling large chunks of the defence estate to Chinese investors.

Business of the House

Thursday 15th September 2011 Lords Chamber

Timing of Debates

11:37

Moved by

[Lord Strathclyde]

That the debate on the Motion in the name of Baroness Wheeler set down for today shall be limited to two hours and that in the name of Lord Myners to three hours.

Motion agreed.

Armed Forces Bill

Thursday 15th September 2011 Lords Chamber

Order of Consideration Motion

11:37

Moved by

[Lord Wallace of Saltaire]

That the amendments for the Report stage be marshalled and considered in the following order:

Clauses 1 to 14, Schedule 1, Clauses 15 to 26, Schedule 2, Clauses 27 to 29, Schedule 3, Clause 30, Schedules 4 and 5, Clauses 31 to 34.

Motion agreed.

Welfare Reform Bill

Thursday 15th September 2011 Lords Chamber

Order of Consideration Motion

11:37

Moved by

[Lord Freud]

That it be an instruction to the Grand Committee to which the Welfare Reform Bill has been committed that it considers the Bill in the following order:

Clauses 1 to 31, Schedule 1 , Clause 32, Schedule 2, Clauses 33 and 34, Schedule 3, Clause 35, Schedule 4, Clause 36, Schedule 5, Clause 37, Schedule 6, Clauses 38 to 48, Schedule 7, Clauses 49 to 69, Schedule 8, Clauses 70 to 88, Schedule 9, Clauses 89 and 90, Schedule 10, Clauses 91 to 99, Schedule 11, Clause 100, Schedule 12, Clauses 101 to 136, Schedule 13, Clause 137, Schedule 14, Clauses 138 to 141.

[Lord Foulkes of Cumnock]

My Lords, in the debate on this yesterday, the government Chief Whip said:

“I hope that it is noticed that I am stressing Grand Committee, not the Moses Room … I fully recognise that a number of noble Lords who use wheelchairs and have other mobility restrictions would find the Moses Room difficult, and I therefore discarded that as an option”.—[Official Report, 14/9/11; col. 753.]

She went on to describe the options that were being considered by the Director of Facilities. I know that a number of Members, particularly on the Cross Benches, supported the Government on the basis of that assurance. Just before I came into the Chamber, I was told that this information was wrong and in fact the Moses Room is going to have to be used. On the basis that the House made its decision on misinformation, I hope that this matter can now be reconsidered. I hope that the noble Lord the Leader of the House will give an assurance to the House that since we made that decision on the basis of totally incorrect information, it is now right for the House to consider the matter again.

[Baroness Anelay of St Johns]

My Lords, I am disappointed that the noble Lord, Lord Foulkes, did not seek to alert me to the information that he had, nor has he given any information to justify what he has just said. No doubt whoever said this to him did so in good faith, but they are wrong. The basis upon which the House made its decision yesterday stands.

[Lord Bassam of Brighton]

My Lords, I apologise for this intervention, which is, I confess, rather opportunistic. However, I have been given a copy of our forward business. I hate to say this but it lists Grand Committee on the Welfare Reform Bill as being held in the Moses Room. I assume and hope that this is a typographical hangover from an earlier iteration of the forward business. However, the House deserves to know, on the record, that we will not be using the Moses Room for Grand Committee on the Welfare Reform Bill. That seemed to be a clear undertaking that was given to the House yesterday.

[Baroness Anelay of St Johns]

My Lords, I am grateful to the noble Lord, Lord Bassam, for pointing out what is clearly a typographical error. If that is the source of information to which the noble Lord, Lord Foulkes, referred, it is a pity that he did not make that clear. He may have other sources of information. The assurance that I gave stands. I am not accustomed to having the veracity of my statements challenged, which is clearly what is happening. This is opportunistic. May we please proceed to the business in hand?

[Lord Foulkes of Cumnock]

To be absolutely clear, I am not going to say who it was, but there is no more reliable person in this Chamber than the person who told me.

Motion agreed.

NHS Future Forum

Thursday 15th September 2011 Lords Chamber

Debate

11:41

Moved By

[Baroness Wheeler]

To call attention to the extent of the implementation of the recommendations of the NHS Future Forum in the Health and Social Care Bill; and to move for papers.

[Baroness Wheeler]

My Lords, this is an important debate. It is the first opportunity for the House to discuss the NHS following the First Reading of the Health and Social Care Bill last week. It takes place in the context of the continuing debate, controversy and deep unease over key aspects of the Bill, its incoherence and complexity even in this, its fourth iteration.

When the Future Forum report was published in June, hope sprang eternal among the many critics of the original Bill—patient groups, specialist groups for patients with long-term conditions, medical and other staff, trade unions, carers and Members across both Houses—that the report and the Government’s response to its core recommendations signified a major change of approach and strategy. My noble friend Lord Darzi was among those who recognised this change in the language and approach of the Future Forum and the Government’s response, welcoming the stated main thrust that the quality of service and care should remain the organising principle of the NHS.

We on these Benches welcomed the Future Forum report in the context that it had not covered all aspects of the Bill. We pay tribute to the work that the forum undertook in the eight weeks that it had to consult, deliberate and produce its report. My noble friend Lady Thornton, in response to the Minister’s Statement on the forum on 14 June, recognised that the Government’s proposed changes in response to the forum were indeed significant. Crucially, however, she urged Members across the House not to suspend their critical faculties but to wait for the publication of the revised Bill to ensure that the rhetoric was matched by the reality. We now have the reality before us. Three months on from the Future Forum report, fundamental questions remain about the post-pause Bill. Even after the Committee stage and Third Reading in the House of Commons, we are still no clearer about why this massive upheaval is needed. What is the Government’s future vision for the NHS? Who will be responsible and accountable for making decisions that will benefit patients and improve the NHS?

At the heart of the continuing problems are two issues that are fundamental to the ethos of an NHS that is free at point of need and provides a national public service. First, there is the importance of the Secretary of State having a continuing duty to ensure that we have a comprehensive NHS. Secondly, we must address the real concerns over Part 3 of the Bill, which places competition at the heart of the NHS and sets up an economic regulator that still has substantial powers to promote competition in the NHS. The Future Forum was clear on these issues and the recommendations are welcome and straightforward. However, the amendments to the Bill do not reflect that or translate the Future Forum’s intentions into legislation.

The Commons deliberations have failed to resolve the issue of the Secretary of State’s duty and role in relation to the NHS. Indeed, as the noble Baroness, Lady Williams, said in her recent Observer article, “confusion thickens”. My honourable friends in the other place, supported by authoritative legal opinion, have underlined that if the Bill becomes law then the duty to provide a National Health Service would be diluted and lost. The Government argue strongly for greater freedom for clinical commissioners from political interference. However, as the noble Baroness, Lady Williams, has said,

“to throw out accountability in order to tackle petty interference is to undermine democracy itself”.

The health professionals remain deeply concerned, as seen in the letter in last week’s Times from the BMA, the royal colleges of nursing, GPs, midwives and psychiatrists, and the governing bodies for the physiotherapists and occupational therapists. They warn that the new Bill will destabilise the NHS and requires further significant amendments. They say:

“Though the language may have changed, the Government remains committed to opening up the NHS further to market forces as a priority”.

The Patients Association sums up the ever increasing complexity of the Bill and the NHS structure when it says:

“It is unclear how the original commitment from the Government to streamline the NHS and remove bureaucracy will be met by current changes—one layer of bureaucracy being replaced by another”.

How does a Bill which adds more layers and bodies—increasing the number of statutory bodies from 163 to 521—substantially increases costs and fails to provide a clear rationale why it is all necessary succeed in improving quality of care and promoting integration?

At one of the many excellent seminars that noble Lords have had on the Bill at its various stages, we were promised by the Under-Secretary at the Department of Health an organigram of the proposed new NHS. That was perhaps a rash promise in view of the sheer number of organisations it has to include, but its production would at least help us to try to understand how the reforms will work as a whole and how they stand some chance of improving the quality of patient care. We know that there is a very real risk that the increased complexity added to the NHS structure will slow down or prevent decision-making, either through more bodies becoming involved in decisions or where it is not clear which organisation is ultimately in charge. How do these reforms support effective and speedy decision-making?

After the forum report publication, David Cameron said, “We have listened, we have learned and we are improving our plans for the NHS”. Nick Clegg was beside himself with joy when he declared a great victory for his party, with 11 out of 13 demands for change laid down by the Liberal Democrat conference being achieved. However, the reality is that the scorecard result is far more modest, as a number of prominent Liberal Democrats have recognised. The Future Forum made important recommendations which have not been dealt with by government amendments to the Bill, and which the Government have consistently blocked Labour, and a few Lib Dems, from amending.

In passing, as a former chair of the Labour Party conference committee in charge of the conference’s agenda programme, I have been following with interest the attempts to block debates and votes on the NHS at next week’s Lib Dem conference. For what it is worth, in my experience, keeping issues off the agenda usually results in the people affected going straight to the media and getting even more coverage than they would have had anyway, so I shall watch developments with interest and be very thankful that I am not the one defending that position on the conference platform.

In respect of the Future Forum report, I place on record for the avoidance of doubt that, of course, we recognise that the Government have acted positively on a number of its recommendations, including the change to clinically led commissioning and clarity on the wider input from health professionals. They have also clarified some of the accountability issues of clinical commissioning groups and have recognised that the timetable for reform could not be achieved. However, many concerns and issues remain in these areas and we will pursue them as we deal with the Bill clause by clause in the coming weeks.

I return to the second major area of concern: competition and the role of Monitor. The forum raised strong concerns about promoting competition as an end in itself. Recognising the problems with the original Bill, the report recommended that it should be changed to make it very clear that Monitor’s primary duty is not to promote competition but to ensure the best care for patients. Specifically, it recommended that Monitor’s powers should,

“promote choice, collaboration and integration”.

This is still missing from the Bill. The Government have also ignored the spirit of the Future Forum recommendations that sought a greater balance between competition, and co-operation, collaboration or integration. Compare and contrast the 90-odd clauses of the Bill on the regulatory regime for competition with the woolly references to organisations having to,

“act in an integrated way”,

with no definition of integration.

The Bill remains as lopsided as ever and, for a Health and Social Care Bill, there is actually precious little about social care. However, that is a whole debate in itself.

The Future Forum further recommended that the Bill be changed to clarify that Monitor be a sector regulator for health, not an economic regulator. While the duty to “promote competition” has been removed, it has been replaced with a new duty of “preventing anti-competitive behaviour”. This flipping of the language does not substantially affect how Monitor carries out its duties, its cost and its reach across the whole NHS.

Moreover, although the Bill moves away from referring to economic regulation, Monitor is still to be given sweeping pro-competition powers, including concurrent powers with the Office of Fair Trading under the Competition Act 1998 and the Enterprise Act 2002. These powers, alongside the power to license every provider to the NHS, have not been changed by the amendments. Monitor therefore remains an economic regulator in all but name. How will the Government address these concerns and issues? How will the issue of the role of the Secretary of State and the role of Monitor be resolved so that the service does not face constant legal challenges in the future about who is ultimately responsible and accountable for decisions, or about how commissioning has been undertaken and contracts awarded?

There are other issues. On transparency, the Future Forum recommended that all providers of NHS-funded services should hold their board meetings in public. The Government rejected this recommendation in their response to the Future Forum. This means that decisions about NHS services will be made in private, and could be marked “commercial in confidence”. The Government have similarly failed to bring greater transparency to clinical commissioning groups and foundation trusts by allowing substantial loopholes and leeway. There is a get-out clause for CCGs that want to avoid meeting in public. The wording of the Bill states,

“except where the consortium considers that it would not be in the public interest to permit members of the public to attend a meeting or part of a meeting”.

Foundation trusts can exclude members of the public from a meeting for special reasons with no explanation about what these are. This leaves this clause open to abuse.

There is also the important issue of the private patient cap and cherry picking by private providers. Professor Field, the Future Forum chair, admitted that the issue of the private patient income cap was not looked at by the forum and stated that,

“the feeling was that the private patient cap should actually stay”.

The Government have tabled no amendments to the clause abolishing the private patient cap. The implications of the abolition of the cap and increasing financial constraints that the service is operating under are already beginning to be seen. The Government’s amendments on cherry picking in the Bill only require that a provider be transparent in how it chooses its patients, and do not deal with preventing providers from picking the easiest and most profitable patients. All in all there is a very mixed and confused picture of implementation and translation into the Bill of the forum’s recommendations.

Finally, I come back to the Future Forum itself, as we now learn that its work is to continue with listening exercise mark 2—this time on education and training, integrated services, public health and information. Can the Minister give us more details of this? How does he envisage that this work will be fed into the Bill and what impact it will have on its parliamentary passage? Are we to have further amendments to, for example, the integration and information clauses? How long do the Government envisage the role of Future Forum continuing? Is it to be a permanent listening body—another body to be placed on the much awaited organigram? If so, when will the normal rules of public appointments and declaration start to apply to its membership? Are we to have further “pauses”?

Noble Lords will recognise that I set great store by getting the promised organigram. I am really looking forward to receiving it. When it comes, I will be asking myself three key questions. First, is this the structure to take the NHS forward into the future and provide the integrated care pathways that people with long-term conditions must have? Secondly, how will this help the NHS to deal with the Nicholson challenge of £20 billion savings over five years? Thirdly, will it now be easier for patients to find their way through the system and be clear who has responsibility for making decisions about their care? I think I already know the answers.

11:55

[Lord Ribeiro]

My Lords, I thank the noble Baroness, Lady Wheeler, for introducing the debate. The Future Forum addressed four core themes, many of which she has covered: choice and competition, patient involvement and public accountability, clinical advice and leadership, and education and training. The latter, as she correctly described, is still work in process under Julie Moore, who led the forum’s work on education and training. The Government have accepted that deaneries will oversee the training of junior doctors and dentists, and that that will be under the umbrella of Health Education England. That should give some reassurance to the profession, but it remains unclear who should be responsible for quality assurance of training. I do not believe that a “one size fits all” approach works, particularly with respect to the craft specialties. In this, I include surgery—here I must declare an interest as a past president of the Royal College of Surgeons. Prior to the introduction of the postgraduate medical education and training board, known as PMETB, currently responsible for quality assurance, colleges had the responsibility for accrediting training. I believe that the craft colleges are ideally placed to undertake the quality assurance of training, ensuring professional clinical input under the auspices of Health Education England.

Turning to clinical advice and leadership, the forum called for multiprofessional involvement and leadership at all levels of the system. The NHS commissioning board is a good place to start. I welcome the Government’s statement that the NHSCB will establish close links with the royal colleges and other professional bodies to entrench partnership-working at the national level. The board will have a medical director and a chief nursing officer—rather reminiscent of the old days of matron, senior medical officer and administrator, who used to run hospitals before the 1974 reforms. The board needs to be independent and free of political interference.

The role of the Secretary of State has been clarified in the Bill. I know, after following the debates in the other House and the views expressed by the noble Baroness, Lady Wheeler, that there is still concern about the role, but I believe that it is clearly expressed in the newly amended Bill. The Secretary of State will have a mandate to provide clear direction to the board, and the board will then be accountable to the Secretary of State.

One of the biggest problems that any Secretary of State faces is the reconfiguration of services—in particular, hospital services. The King's Fund this month produced a report, Reconfiguring Hospital Services. The report highlights the urgent need for clinical reconfiguration of hospital services in some locations to improve the quality and safety of patient care. The ability of politicians to interfere with the process of reconfiguration is well known, and the sight of MPs of all political persuasions on the picket line outside hospitals threatened with closure is not uncommon. The evidence presented by Chris Ham of the King's Fund of the Ontario experience in Canada suggests that an independent body can make hard decisions. The health service’s restructuring commission set up in Ontario in 1996 to restructure hospital services not only achieved its mandate but saved $1.1 billion in a total spend of $17 billion. This amount was then reinvested in other services.

The commission drove the establishment of clinical networks, a recommendation made by the Future Forum, and invested in home care and long-term care to facilitate hospital closures where required. Chris Ham also noted that the process used was not dissimilar to that used in this country to support the closure of mental and learning disability hospitals in the 1990s. The Government then transferred funding ahead of hospital closure to develop community services.

We must learn from these lessons. The Secretary of State should not be concerned with operational matters, but should be focused on strategy. Liberating the NHS implies liberating the service to rely more on professional clinical leaders. Armed with evidence, backed by research—another new responsibility for the Secretary of State—evidence-based practice can be used to reform the health service.

I believe that delay is not an option. The impact of specialisation, and in particular the European working time directive, of which we have heard much in this House over the past few years, will make it impossible to provide emergency surgical cover in all hospitals with accident and emergency departments in England. The development of trauma centres in London will create a new paradigm shift in acute care management. Reconfiguration of emergency services will be an inevitable consequence of this change, which will ultimately affect all hospitals in England. The Darzi principles, mentioned by the noble Baroness, Lady Wheeler, are important. They introduced quality outcomes based on the effectiveness and safety of the services delivered, and the quality of the patients’ experience remains a fundamental principle on which, I believe, the Health and Social Care Bill can build.

12:02

[Baroness Jolly]

My Lords, I thank the noble Baroness, Lady Wheeler, for securing this timely debate and for her thought-provoking speech and I thank the noble Lord, Lord Ribeiro, for his speech. I believe I speak for all my colleagues on these Benches when I say that we welcomed both the listening exercise, a process to which we contributed enthusiastically, and the report of the NHS Future Forum. We also welcome the Government’s commitments to implementing the bulk of the Future Forum’s recommendations. However, there are three broad areas—I think we shall revisit these three areas throughout the debate—on which I would appreciate further clarification from the Minister, in particular on accountability, local government involvement, health education and workforce planning.

First, it is important for the functioning of the NHS as a whole to get the Secretary of State's duties and powers absolutely right. We on these Benches have long advocated the devolution of power away from Whitehall wherever possible; and the Secretary of State should not be able to micromanage the health service. But there is a balance to be struck. The Health Secretary must remain ultimately accountable to the electorate, through Parliament, for the system as a whole; and, on the other side of the coin, he or she must have appropriate powers to intervene where the system has broken down.

Therefore, I am pleased that the Secretary of State will now have an express duty,

“to secure that services are provided in accordance with this Act”,

rather than, as hitherto, merely to,

“act with a view to securing”,

their provision. This wording ought to ensure that the Secretary of State will continue to be accountable to Parliament for what goes on in the NHS, while also recognising that day-to-day operational control rests with clinicians and managers.

I welcome, also, the clarification of the Secretary of State's powers of intervention in cases of substantial failure, and in particular the requirement that he or she be transparent in publishing the reasons for any such intervention. Set against these powers, the Secretary of State also has an express duty to promote the autonomy of other actors and players in the health service. This is a laudable duty, because it militates against political meddling. However, can my noble friend reassure me that this duty will not hamper the Secretary of State’s power to intervene when necessary in cases of failure? If there is a chance that it might have that effect, will he consider appropriate amendments to ensure that the right balance is struck?

Secondly, I am delighted to see local government attracting a greater role in the health service under the Bill. Assuming that the provisions are properly fleshed out and implemented, there is another opportunity here to press the localism agenda that is common to both parties in the coalition. The new health and well-being boards represent an opportunity to put more power in the hands of elected local representatives and their communities and so bring health and social care together in a meaningful way, but even after the Government’s amendments, the Bill leaves almost all the detail of this to regulations. Will this House have sight of the draft regulations before the end of Committee in your Lordships’ House? Will the regulations, in particular, detail appropriate outcomes, incentives and levers so that health and well-being boards are able to ensure that the integration of health and social care services actually takes place in their communities? What will happen, for example, where a clinical commissioning group and its health and well-being board cannot agree on the contents of the joint strategic needs assessment or health and well-being strategy? What recourse will there be where a clinical commissioning group strays significantly outside the provisions of the relevant local assessment or strategy? The duties of consultation and co-operation set out by the Government’s amendments are welcome, but I am concerned that they do not go far enough. There will be some situations where the health and well-being boards will need to have real teeth in order to get the job done.

Bringing public health back into the purview of local authorities is a hugely welcome development. I am glad to see that local authorities will be required under the Bill to appoint a director of public health, but can my friend reassure the House that directors of public health will be sufficiently senior and independent? They will need to have sufficient tools and resources at their disposal, financial and otherwise, to hold local authorities to account and make sure that they take their public health responsibilities seriously. In particular, will the department require each local authority to establish the post of DPH at an appropriate level of seniority, reporting directly to the chief executive? Can the public be confident that they will be adequately qualified? Will the Minister consider including this in the Bill, or at least setting it out in regulation or guidance?

Finally, education and training formed one of the four headline areas tackled by the Future Forum in its report, but is more or less absent from the Bill. While we welcome the retention of the functions of postgraduate deaneries within the NHS, the current system of medical education and training is overly complicated and was in need of reform well before the Bill appeared. However, given the impending demise of strategic health authorities, there is a danger that the existing system may disintegrate before anything can be set up to replace it. The Future Forum recommended, and the Government accepted, that Health Education England ought to be established as soon as possible with a clear mandate. I would be grateful if the Minister would update the House on progress so far on setting up the new system and the likely timetable for completing this work.

The Future Forum also recommended that education and training should be confirmed as a vital part of the core NHS, rather than established as a separate system. In the Government’s response to the Future Forum report, we were promised,

“an explicit duty for the Secretary of State to maintain a system for professional education and training as part of the comprehensive health service”.

This does not appear to have been implemented in the Bill as it stands. Will the Government bring forward an amendment in Committee to make good on this commitment?

We also understand that employer training networks—which, thanks to Future Forum, will now be known as local education and training boards, LETBs—are in the process of being set up. We welcome the move to bring healthcare providers more into the process of education and training. Will the Minister reassure the House that these organisations will be required to operate transparently and will be properly scrutinised by Health Education England?

As a result of the Government’s response to the Future Forum report, we now know in broad terms what the arrangements will be at local provider and national level, but can the Minister tell the House how strategic regional workforce development, hitherto carried out by strategic health authorities, will be carried out under the new system?

This has been a timely debate that has given us all plenty to think about at our party conferences. I will take the opportunity to update the noble Baroness, Lady Wheeler, on what will happen at the Lib Dem conference next week. There will be a debate on Wednesday in prime time, immediately before the leader's speech. In addition to that, our Minister will hold an open surgery. There will also be a Q&A session in the conference centre. There is no secrecy here. In addition, all parliamentarians involved in health will be available at a plethora of fringe meetings. I am more than confident that our membership will take every opportunity to engage us in debate.

I return to this one. I am sure that the House will agree that the issues of accountability, integration and education are critical to the smooth running of the NHS. We look forward to working with the Minister on these issues when we finally go into Committee later this month.

12:11

[Baroness Pitkeathley]

My Lords, like many noble Lords I have very personal feelings about any health Bill and have taken part in debates on many since I have been in your Lordships' House. Let us remember that the Bill that will shortly be considered by this House is the Health and Social Care Bill. I am grateful to my noble friend Lady Wheeler not only for securing this debate but for reminding us that at the moment there is precious little about social care in the Bill.

Social care has been one of the great commitments of my working life. The other has been about enabling disadvantaged individuals—clients, carers and patients—to speak up for themselves and to contribute to policy formation. How I judge proposals for change to health and social care services is therefore simple: will the new arrangements lead to services that are more organised around individuals and more integrated among all the providers of care, such as health services, carer services or voluntary and privately provided services? Therefore, I am delighted by the emphasis placed on integration and collaboration by the Future Forum report. I am not surprised, because calls for better integration always result from consultation with users, carers and the third sector, and the forum made excellent use of the networks of members from patient and user organisations.

I draw noble Lords’ attention to page 20 of the Future Forum report, which reminds us that the provision of integrated services is rarely dependent on structural change. It states:

“The reality is that the provision of integrated services around the needs of patients occurs when the right values and behaviours are allowed to prevail and there is the will to do something different”.

I will illustrate how we can do something different by telling noble Lords about Trevor. He is an Afro-Caribbean man in his 30s and a severely ill bipolar patient. He is treated by both health and social care services. He is an in-patient on many occasions. Staff try to get him to attend daycare when he is not in hospital so that his medication and behaviour can be monitored. Noble Lords will know that the average day care centre is not very suitable for a man like Trevor and he rarely attended, resulting in frequent breakdowns and hospital admissions. Last year staff decided to try a personal budget for Trevor. They worked with him to decide how it should be spent. He decided that he wanted karate lessons. For nine months he has been going to karate lessons almost every day in his local gym. He has become very good at karate, he is fit and stable and he has had no hospital admissions in that time. Moreover, when he is asked what benefit he has gained, Trevor says that he feels good and is a better father to his children.

Now this took place in one of the commissioning consortia pathfinder areas, but it is rare. We have not yet dealt with the problems caused by the mismatch in timing in the development of personal healthcare budgets and social care budgets. I fear that there will not be as many examples of such innovative practice as we need to see going forward.

Harry Cayton, writing in 2006 about patients as entrepreneurs, said that we got very near to enabling patients to have some real autonomy with personal budgets, but we stepped back from the brink as we were afraid of losing control and of what they might do with it. He said that we must not be afraid in the future. I am sure that that is absolutely right, but I fear that we are still afraid.

We still have the problem that commissioners may be focusing on the wrong problems. If you talk to a group of GPs, you will find that they are very clued up about the diagnosis and treatment of cardiovascular disease and even about its prevention. That was entirely appropriate when we had the worst record in Europe on cardiovascular disease, but the problems that face us now are not like that. They are about chronic illness and long-term care, and we still have a long way to go before we are innovative in that area.

The new amendments place a duty on local commissioning groups to consult health and well-being boards and HealthWatch is to ensure the involvement of patients and the public in policy and commissioning decisions. I worry that the plans for local healthwatch bodies have the potential to create conflicts of interest, as they are accountable to local authorities, the very bodies that commission and provide the services that HealthWatch is to monitor. Moreover, the consortia, as the noble Baroness, Lady Jolly, has reminded us, are under no obligation to abide by the views of the health and well-being boards, so I think there are some real questions about how much influence those boards can have. I very much endorse her call for them to have sharper teeth.

In addition, although some progress has been made toward coterminosity—that awful word—between consortia and local authorities, the populations for which consortia will be responsible will in fact be based on the practice lists, not on geographical boundaries, so there may be the sort of problems that those of us who have been around a long time have seen many times before of health and social care professionals trying to work across geographical and administrative boundaries.

My principal worry about the patient and public involvement issue is that all my experience shows that structural change does not bring about integration and collaboration, either within a service or across services; it is people and proper communication about the assessments of need and the point of view of the patient that bring that about. That was the example that I gave about Trevor.

However well intentioned the changes—and I am sure that they are well intentioned—that have been made as a result of the Future Forum’s work, have they really led to systems and structures that are in fact more complex and more difficult to find your way around, even for the professionals who work in them, let alone consumers when they are concerned and anxious? If you can ever find a flow chart about the new system—and they are pretty hard to find—they make your hair curl, as they look like one of those very elaborate electrical wiring diagrams. That is pretty difficult for any user, carer or patient to follow. I am concerned about the staff who are trying to administer such complex structures, anxious as they often are about their local position and jobs. They are anxious about the different paces at which different things are happening at local and national level, and I think that the complexity of the system will make that even worse.

I am also concerned about the mismatch that we now have in timing between a very major reorganisation of the NHS, in spite of promises that were once given about there being no such thing, and the very major reorganisation of the social care system as a result of the Dilnot commission, about which we still await government proposals. Will the NHS changes be set in stone by the time any decisions can be reached about social care?

I want to say a word about prevention. It is always a balancing act between quality and affordability. Services which prevent crises rather than intervene once crises have occurred are always vulnerable at times of financial restraint. How are commissioning boards going to see services that are not at present urgently needed but which are a good investment because they prevent crises developing? For example, I believe that some research about telecare shows that if you spend £1 now, it saves you £4 down the line. Will such investment be made?

I hope that the Minister will reiterate the Government’s commitment to prevention in heath and social care and will assure the House of their commitment to ensuring that social care is given equal status and importance with healthcare and that the reconvened Future Forum will have a clear programme of work and a timetable with regard to the integration of services. The temptation to focus social care on those with high needs and no means is very great. One of the ways of countering this short-sighted view is to remind ourselves that social care must achieve the same status as healthcare in future. In other words, it is not the province of the poor and feckless. It is in all our interests, and especially in the interests of commissioners, to ensure that it is understandable, which means that the current proposals are far too complicated. It must also be free from fear about affordability and provide dignity, safety and peace of mind. I remain to be convinced that the Bill that will shortly be before us will bring that vision closer.

12:22

[Lord Rea]

My Lords, I thank my noble friend Lady Wheeler for providing us with an overture, if you like, to our forthcoming debates on the Health and Social Care Bill and for her excellent speech. I apologise for missing part of it. There was an unexpected closure of the Jubilee line, which I am afraid is not uncommon.

Despite the listening exercise and the Future Forum report and a huge raft of government amendments for Report state in the other place—there were 700 amendments just for changing commissioning consortia into clinical commissioning groups—the Bill remains largely intact, not altering its unstated aim of opening up the NHS to a wider range of providers, including, not exclusively, the profit-making private sector.

There have been some improvements arising from the Future Forum report. I welcome the inclusion of hospital doctors, public health specialists, nurses and lay members in the clinical commissioning groups. Will the Minister confirm that they will have among their members or closely advising them an expert healthcare public health specialist, whether clinical or non-clinical? It is vital in helping them to plan.

I think there are too many loose ends in Schedule 2, which describes the membership and structure of the clinical commissioning groups. Too much has been left to regulations. Surely the composition of the groups should be stated in the Bill or in a schedule and some indication of the number of CCGs should be given. Are there going to be 100, 150 or 300? There should also be some indication of their catchment populations. As my noble friend Lady Pitkeathley has just said, it is going to be very difficult to arrange for coterminosity with CCGs being based on practice populations. Many feel that the population of 300,000 covered at present by the average PCT is too small for proper planning purposes, and some are already merging. Doubtless these issues will be covered in much more detail during the passage of the Bill.

A further change, which has been welcomed, is in the wording of the duties of Monitor. As the noble Baroness, Lady Jolly, has said, “duty to promote” competition has been converted to “prevent uncompetitive behaviour” in contracting. In practice, I think the changed wording may not be very different. Uncompetitive tendering or contracting surely means that before a contract is made with an NHS body, the independent and third sectors must be asked to make a bid. There are now a large number of British, European and American for-profit healthcare corporations ready and waiting to put in such bids. As we all know, many are already working inside the NHS. I do not think the change of wording is very meaningful. It enshrines in law what has been going on at an increasing rate since the Government of the noble Baroness, Lady Thatcher, first introduced compulsory tendering in the mid-1980s.

Private corporations have an advantage over third sector or in-house NHS bids because the complexity of public contract regulation and case law is now quite formidable and developing further. There are quite draconian remedies and penalties for breach of regulations. There is a real risk that there will be a deficit of suitable expertise within each commissioning group. They will probably have to bring this expertise in from outside, although I understand there are words in the Bill that seek to prevent this. Perhaps the Minister will comment on that. Like clinical commissioning groups, third sector or NHS bodies are also unlikely to have enough in-house expertise in procurement law and may not have the resources to bring it in from outside. Commercial organisations, on the other hand, need to have recourse to it in their everyday work in order to survive in the commercial world and large firms will have considerable in-house expertise. This gives them an advantage in making attractive proposals that are compliant with regulation, and of course they may also be loss leaders—the more likely the larger the firm.

I do not have time to go through every change following the Future Forum’s report. Nick Clegg, for the Lib Dems, has said that 13 of their 15 requirements for the Future Forum have been secured. Closer scrutiny of these shows his assessment to be somewhat overoptimistic. One example concerns cherry picking by private providers. The Liberal Democrats had a requirement that new private providers should be allowed,

“only where there is no risk of cherry picking, which would destabilise or undermine the existing NHS service relied upon for emergencies and complex cases, and where the needs of equity, research and training are met”.

In fact, private providers will be able to cherry pick by choosing to take on classes of patients with fewer complications, and will remove these patients from NHS hospitals which will thus lose the tariff payment that they would otherwise get. Unfortunately, there is no time to go through the other 12 Lib Dem requirements. Suffice to say that I am happy to supply any noble Lord with a list of these.

In conclusion, this has been a useful preliminary canter for our forthcoming debates. I hope that we will get further suggestions from the Future Forum regarding what has been discussed by a number of noble Lords; that is, research and training opportunities, and regulations and changes which will solidify the role of the Government in promoting these activities.

12:30

[Lord Warner]

My Lords, I, too, welcome my noble friend’s ability to secure this debate today because it gives us a chance to limber up for the marathon that now approaches in a few weeks’ time. I also endorse her view and that expressed by my noble friend Lady Pitkeathley with their timely reminder that this is a health and social care Bill. I should declare my interest as a member of the Dilnot commission on the funding of social care. It is important that we do not shut the door on changes in social care in this Bill that would help the NHS to face some of its challenges for the future. I have in mind particularly some of the non-financial aspects raised in the Dilnot report, such as assessment and integrating better the assessment of people for adult social care and NHS continuing care. That is one of the great and difficult boundary issues in our modern world.

Let me be clear at the outset that I fully support the need for continuing reform of the NHS. I certainly do not view the proposed changes with the same level of horror as many of the Government’s critics do. As a former Minister responsible for NHS reform, I remain a strong supporter of more patient choice and competition among a greater diversity of providers of NHS services, with an economic regulator holding the ring. We need to finish the job of separating the commissioning function from service provision. We need to give clinicians a larger role in commissioning services and to accelerate the transfer of more care and treatment to community settings across the health and adult social care divide.

However, as I have set out in a book about my own experience of trying to reform the NHS, the forces of opposition to reforming this icon are formidable. I notice the noble Lord, Lord Fowler, in his place. He has, I suspect, had a very similar experience. The Government launched this blockbuster of legislative change on an unsuspecting NHS. If you do that, it is hardly surprising, if you have such a poor narrative of why this change was necessary, if you get a rather considerable adverse response. Rebellion from the usual suspects—many of whom were my old sparring partners—was totally predictable.

The NHS is a provider-dominated service with a huge element of public monopoly provision. That is the reality of today’s NHS. It is the reality of the NHS over a long period. If you attempt to change that, you must expect vociferous opposition. It should have come as no surprise that with such a poor narrative the Prime Minister felt the need to call time out and attempt to regroup. Today, we are having a peep at the regrouping, or at least at the bits we know about because the Future Forum is still at work. I hope that the Minister can lift the veil a bit more on this and explain to us what further homework the forum has been set and how long it has been allowed to complete it.

What are we to make of the changes that the forum has proposed so far? Do they improve the coherence of the reforms and the likelihood of their success? Do they improve the prospects of the NHS meeting the formidable financial, productivity and service reconfiguration challenges that it faces over the coming years? My good friend, Professor Paul Corrigan, has today produced a new pamphlet that identifies some of these problems, and I hope that all noble Lords will avail themselves of the chance to read it. Let me make it clear that I am not paid anything by Professor Corrigan for giving his work that small plug.

The proposed changes by the Future Forum seem to have pleased the leader of the Liberal Democrats, although, from my observations, many of his foot soldiers still seem to be pretty disgruntled. Although the coalition agreement advocated making Monitor an economic regulator, the reality seems to put the wind up a number of Liberal Democrats. I have not seen many NHS interest groups putting out a lot of celebratory flags as a result of the forum’s report. The disgruntlement of the BMA and other public sector unions seems little abated. Perhaps more significantly the NHS Confederation, for which I have very high regard, hardly seems to be bowled over.

If I was still a Minister, I would also be a bit more anxious about the continuing concerns of more objective and analytical observers such as the King’s Fund and the Nuffield Trust. They have drawn attention, rightly in my view, to the additional complexity and cumbersomeness that the forum’s proposals have introduced. The original enthusiasm for GPs running more of the commissioning show seems to be evaporating as the hospital specialists fight back to retrieve more ground through the modification of consortia membership and the rather ghost-like senates that will lurk there. We certainly seem to have a lot of fingers in the needs assessment and service commissioning pie—the National Commissioning Board, a rump of SHA and PCT clusters posing as outposts of the board, clinical commissioning groups and health and well-being boards.

The forum seems to have helped the Government further along a path of public confusion over who is really in charge of NHS commissioning and who is accountable when things go wrong. There is now plenty of scope for dodging accountability and laying off the blame for failure. This is particularly the case in the area of service reconfiguration which the NHS needs so badly. It is perhaps appropriate that we have just seen a Health Secretary finally take a decision on service changes in Chase Farm Hospital the best part of a decade after it should have been taken. Let me congratulate the Health Secretary on showing the courage to do this eventually.

In my view, the forum’s proposals make worse the already unsatisfactory accountability for service needs assessment and the commissioning of services, and will make the much needed reconfiguration of services even more difficult. We have to concentrate more hospital specialist services on fewer sites and provide much more care and treatment in the community on an ambulatory basis if the NHS is to live within its means. This requires us to reduce expensive, unsustainable, low-quality and unnecessary acute hospital services and to transfer service resources to new service configurations with different providers from the public and, yes, the private and, yes, the not-for-profit sectors. We have to face up to moving away from the outdated business model of the all-purpose district general hospital of the 1960s.

Modifying reform in ways that make these changes more difficult to achieve is bad news for those of us who believe in a tax-funded NHS that is free at the point of clinical need, especially given the £20 billion of efficiency improvements that the NHS has to make over the next four years. These are issues to which some of us will want to return in a lot more detail during the passage of the Bill. I very much commend the remarks of the noble Lord, Lord Ribeiro, about some of these issues.

I conclude by saying a few words about integration and competition, which seem to have produced rather more heat than light in the recent public discourse. We are all in favour of integration, but we need to understand what we are talking about. From my point of view, I think that patients benefit from integration if it is related to the delivery of services to individual patients, but they may not benefit from the horizontal integration of service providers if it simply produces mergers that create far more monopoly provision and little improvement for patients.

It is also nonsense to suggest, as some have done, that competition inevitably means the fragmentation of service delivery and is inimical to integrated delivery. It is perfectly possible to have competition for the provision of integrated services; it just depends on the commissioner’s service specification and the payment mechanisms. In the US, Kaiser Permanente and others have shown that the integration of patients’ service delivery can flourish in a competitive healthcare market. Again, these are issues that we will need to come back to in the Bill.

Let me end by wishing the Minister well as he faces the Herculean task of taking the Bill through the House, but I cannot guarantee that it will be a totally pain-free experience.

12:41

[Baroness Donaghy]

My Lords, I also thank my noble friend Lady Wheeler for the opportunity to have this debate today. We have heard reference to the start of the political party conference season. The Future Forum exercise and the Government’s response have been presented by some as a David and Goliath battle to secure major concessions on the reorganisation of the health service—plucky Nick facing up to the giant privatiser and winning while claiming that it is not about winning. But we have the wrong bedtime story here. It is not David and Goliath but more like Little Red Riding Hood. I appreciate that the noble Earl might appear to be an unlikely wolf, but let us not forget that even the wolf dressed up in a frilly nightcap and adopted a soft voice. There are more questions than answers here, and some of the original questions remain. Why is there to be a major upheaval of the health service when all the staff are working flat out to provide a good and comprehensive service? Why are more quangos to be created rather than fewer? What will be the real role of Monitor in its revised format? And why are we giving £80 billion to the NHS Commissioning Board, the daddy of all quangos?

Since the Future Forum listening exercise, and here I must commend the diligence of its members, a revised Bill has been presented which we will debate in this House in October. But the Bill gives rise to new questions. First, in revised Clause 1, the Secretary of State’s powers and duties are closer to the current duty as set out in the NHS Act 2006, but as has been said, the phrase “to provide” has been deleted on the grounds that,

“having the premises and the staff necessary to offer health services directly does not reflect the reality of the situation in which commissioning and provision rest with the NHS bodies, not the Secretary of State”.

I think we all accept that no matter how hard they might try to distance themselves, the political reality is that Governments will always be held responsible for the state of the health service. So why should we worry about semantics, and indeed, is it about semantics? The Government’s response to the Future Forum exercise stated that the Bill would,

“make explicit that the Secretary of State remains fully accountable for the NHS”.

That sounds fine, but where is the responsibility for social care, a question also asked by my noble friend Lady Pitkeathley? What will be the definition of the NHS further down the line if providers are private companies? I am not a lawyer and I have no idea what the legal implications of this change mean, but I am a graduate in English language and literature. I know what “to provide” means and I am concerned that the significance of this omission will grow and grow as the years go by.

My concern is heightened because the responsibility for defining what constitutes the health service is being transferred from the Secretary of State to clinical commissioning groups. While the Secretary of State is still responsible under the new system for the promotion of the health service and ensuring that it is free of charge, clinical commissioning groups will determine what services actually constitute the health service. Just when I tell myself that I am worrying unnecessarily, I am then reminded that in the summer, the Health Secretary instructed primary care trusts to identify three services to be put out to contract. I am supposed to be reassured that the new private providers will not be allowed to cherry-pick, but the Bill only requires transparency in how patients are chosen. It says nothing about the easiest and most profitable types of treatment to provide, which could still destabilise the National Health Service.

I turn to the role of Monitor. The language is definitely softer: its primary duty is no longer to “promote” competition, but to prevent “anti-competitive practices”, a point already raised by my noble friend Lord Rea in his contribution. The Minister in the other place has claimed that this is a fundamental change and that Monitor’s main duty would be to protect and promote the interests of people who use healthcare services not by promoting competition, but by promoting the economic, efficient and effective provision of healthcare services. Again, I would love to ask a seminar of English language undergraduates to write a critique of the difference between promoting competition and preventing anti-competitive practices; drinks on the Terrace for the best essay. The Bill gives Monitor powers to fine hospitals up to 10 per cent of their turnover for anti-competitive behaviour and a new duty to promote integration. What exactly will that mean in practice? Could we see a situation where a hospital which is struggling financially is forced into the arms of a foundation trust in the name of integration? Who will pick up the overdraft? Beware the big bad wolf.

Finally, we come to the issue of what happens if Monitor declares a commissioner’s arrangements for the provision of health services to be ineffective, perhaps where it has failed to comply with procurement regulations. Indeed, what will happen if a service runs out of money? The Government have not yet presented their revised plans for a failure regime. The Minister’s explanation was that they would not rush their proposals for such a regime as it is a complex issue and they want to “get it right”. That is the second time this week that I have come across the “get it right” reason for having no information on a vitally important topic. The first time concerned regulations on the way in which the self-employed would be treated under the Welfare Reform Bill. At some stage we really need an organigram, also called for by my noble friend Lady Wheeler, setting out what the new structure will look like, who is in charge and how social care fits into it all. Without it, I hope that Little Red Riding Hood will stay on her guard.

12:48

[Lord Sawyer]

My Lords, I also thank my noble friend Lady Wheeler for initiating this debate. It is very clear that the passage of the Health and Social Care Bill has been troubled and that deep-seated concerns have been expressed by stakeholders across the health sector over the past few months. The Government have made some changes to their NHS reform proposals following the legislative pause and listening exercise, overseen by the NHS Future Forum. What was put forward by the forum was seen by many as a workable set of recommendations, and in fact 16 were made in all. However, the Government’s efforts to take forward revisions to the Bill based on those recommendations have led to further serious questions from all sides. In some areas the recommended changes have not gone far enough or have been missed altogether, and even where there have been improvements, there are serious worries that they have been made at the cost of introducing new complexity and bureaucracy into the National Health Service. An already multifarious piece of legislation is sadly becoming even more complicated.

The Government have made some effort to listen to and address some of the concerns that have been expressed about the Bill to date. Despite some improvements over the summer and despite there being some positive aspects to the reforms, it is apparent that real, deep-seated problems remain.

An unbelievably wide range of voices in the health sector, such as the NHS Confederation, the King’s Fund, patient bodies as well as trade unions including the British Medical Association and Unison, have expressed concern about the unacceptably high risk posed to the health service in England as a result of the Bill. That is why those organisations are calling for the Bill to be withdrawn, or at least to be substantially amended, before matters proceed.

I agree with my noble friend Lord Rea that the Bill continues to place inappropriate and misguided reliance on market forces to shape services, which is lamentable. It is very clear that the general direction of policy travel, such as widening patient choice to any qualified provider across a much larger range of services, has the potential to destabilise local health economies. That is also implicit in the Bill, which embeds a more central role for choice without full consideration of the consequences and creates ambiguity about how the trade-offs between increasing patient choice and ensuring fair access, integrated care and improved efficiency should all be managed.

In addition, insufficient thought has been applied to the unintended knock-on effects and long-term consequences of proposals in the Bill, including for medical education and training, public health and the patient-doctor relationship. Excessive complexity and bureaucracy are associated with the changes made to the Bill to counter the lack of proper checks and balances in the original proposals. Furthermore, much detail is still lacking, being left to subsequent regulations and guidance.

The focus on the changes flowing from the reforms is already creating a noticeable distraction from efforts to ensure and improve the quality of patient care today. Anybody who works in the health service, as I do from time to time, must be distraught at the time-consuming issues that employees have to tolerate and the uncertainty that arises from the proposed legislation. This is at a time when the NHS is expected to find an unprecedented £20 billion in efficiency savings over four years. What is happening is quite remarkable.

There are still many areas that need to be addressed. The Bill seeks to ensure that the Secretary of State retains overall responsibility,

“to secure that services are provided”,

while giving operational independence for the delivery of healthcare to numerous bodies, most notably the NHS Commissioning Board and clinical commissioning groups. This has been the subject of much debate and will no doubt continue to be so, but most outside organisations believe that insufficient assurance has yet to be given that the Secretary of State will have ultimate responsibility for the provision of a comprehensive health service while allowing other bodies such as the commissioning board day-to-day operational independence. There are still big questions to be answered in that area.

The Bill establishes a new system of economic regulation of health and social care. However, there should not be a reliance on market-based policies that risk further fragmentation and destabilisation of the National Health Service. Increasing patient choice should not be a higher priority than tackling fair access and health inequalities, meeting need, promoting integrated care and optimising resources. Those are the things that should be properly reflected, underlined and given priority in any legislation.

The proposals relating to public health still require further changes. Public Health England should be established as a special health authority of the National Health Service and all specialist public health staff should be employed on national NHS terms and conditions of service. It is also important for directors of public health to be made accountable jointly to the chief executive of the local authority which they serve and to Public Health England.

It has already been said by other noble Lords that an effective education and training system is fundamental to preparing a suitably trained workforce for the future. To achieve this, oversight of education and training must occur simultaneously at both national and regional levels. The structural reforms proposed by the Bill must not undermine this. The Government say that they will bring forward amendments to safeguard education and training. I look forward to seeing the detail of those proposals.

There must be a robust and transparent process which has the full confidence of the NHS when it comes to how failing trusts are dealt with, in order to protect the interests of patients and the public. The Government have reversed proposals to use private sector insolvency processes to manage NHS provider “failure” and introduced amendments in the other place outlining new proposals. However, it is important to ensure that these proposals are sufficiently robust to do the job. Questions about this will need to be asked when the Bill reaches this House.

Despite the numerous changes made to the Bill and movements in policy following recommendations from the Future Forum, more work needs to be done to ensure that the Bill does not pose significant risks to the future of the National Health Service. If the forum makes further recommendations, they should be listened to and acted upon.

12:56

[Baroness Thornton]

My Lords, I am very pleased that my noble friend Lady Wheeler has put this Motion before the House today. The timing is perfect: we are within a few weeks of the long awaited Second Reading of the Health and Social Care Bill; and we are within a few days of the party conferences, at at least two of which, my own and that of the Liberal Democrats, the threats to and future of the NHS will be near the top of the agenda for our members. What happens at the Conservative Party conference is probably as much of a mystery to the Minister as to the rest of us. However, we do know from announcements made by the Prime Minister from one of his holidays this summer that he thinks that it is “job done” as a result of the work of the Future Forum, and that the Government's proposals now have widespread support from staff and patients. I could not help but wonder at what point the Prime Minister made this announcement and what particular beverage he might have been enjoying at the time.

However, as I said in your Lordships' House when the Future Forum was established, as well as when it reported, it is a political fix by the Prime Minister and his Liberal Democrat deputy. One of them had realised that his Secretary of State was not a safe pair of hands and had succeeded in uniting the whole medical profession—patients and patient groups—against his proposals; the other had just had a disastrous set of election results, lost a referendum and received a good kicking from his members at the Liberal Democrat spring conference in March. The noble Baroness, Lady Williams, described the reforms at that time as privatisation by stealth and said that they amounted to a plan to dismantle one of the most efficient public services of any in Europe.

Of course, I do not hold the Future Forum responsible for its genesis. I accept that all its members have acted in good faith and worked hard in the service of the public. I also accept that they did broadly a good job within their remit. However, it has to be said that the whole of this Bill is topsy-turvy. Instead of consultation, pre-legislative scrutiny and a draft Bill, and a legislative process followed by implementation, we have implementation speeding ahead and an initial consultation on a White Paper whose responses, it has to be said, were largely ignored by the Secretary of State when they did not accord with his plans. Indeed, that evidence included a large number of “buts” and raised many issues. Many organisations thought that the White Paper contained some very risky proposals.

Then a Bill arrived without the evidence base that the noble Earl has always said should be present before legislating. There has been no pre-legislative scrutiny. Frankly, if ever a Bill would have benefited from a Joint Committee of both Houses, this is it.

Then, halfway through its Commons stages, there was an unprecedented pause and a listening exercise, which should have taken place at the outset. We have the Future Forum. This body, which has made many recommendations about amendments to the Bill, has no authority other than being appointed by the Prime Minister. The people making recommendations and active in public life on a much smaller scale than this, with much less responsibility than the Future Forum, are subject, as are all of who have been governors of schools, to completing a register of interests. None of the Future Forum has done so. That is not a satisfactory or businesslike way to proceed with creating public policy and taking it forward into legislation.

Yesterday, I wrote to the noble Earl about Future Forum mark 2 and what influence its deliberations might have on the progress of the Health and Social Care Bill in your Lordships' House. I look forward to an answer to that. I have asked whether we will have a pause and whether we will be seeing amendments resulting from the Future Forum's deliberations.

I now turn to what the Future Forum has already said and I will use the Liberal Democrat’s aspirations for the Future Forum and what it should bring into the Bill as my guide. We know that the Prime Minister thinks that the Future Forum has done the trick, but what of his deputy, Mr Clegg? Mr Clegg had 13 red lines. On this side of the House, we believe that seven of those have failed and six have fallen short, as my noble friend Lady Wheeler has said. I think that his score card stands at C plus, but my noble friends behind me think that that is probably too generous.

I am grateful to my noble friend Lady Wheeler for reminding the House that our duty in this House is to the NHS and the nation. It is our duty not to suspend our critical faculties when we look at the Bill. We believed that this was a deeply flawed Bill from the outset, but at least it was coherent. We now think that it is immensely more complex and bureaucratic. Ultimately, it will be more expensive for the taxpayer. That was mentioned by my noble friends in different ways.

Much has been said already about the Secretary of State’s powers in the Bill. I suspect that that issue will test the House’s powers of understanding and literacy, as my noble friend said. I also suspect that some of our lawyers will probably engage with it as well, so I will not refer to that in my remarks today. I want to look at some of the other issues that the Future Forum has tackled.

On more democratically accountable commissioning, we have to say that that has failed. The relevant clauses of the Bill do not yet contain elected members or councillors on commissioning consortia, while health and well-being boards are able only to give their opinions to consortia. Consortia are under no obligation to abide by that opinion. The call for a much greater degree of coterminosity between local authorities and commissioning areas was mentioned by my noble friend Lady Pitkeathley. Practice lists do not bear any relation to local authority boundaries, by and large, so they are not a reliable solution to this problem.

A call for no decision about the spending of NHS funds to be made in private and without proper consultation, as can take place by the proposed consortia, has failed. As my noble friends have said, consortia will not be as transparent as PCTs currently are because they do not have to abide by the Nolan principles on public life and the public meetings legislation. It is left up to them to decide what business to conduct in private and not in public. That is unsatisfactory and we are talking about billions of pounds of public spending. We have failed there.

Then there was the call for the complete ruling out of any competition based on price to prevent loss-leading corporate providers undercutting NHS tariffs and to ensure that healthcare providers compete on the quality of care. There is no doubt that something has been achieved here. However, there will continue to be a number of NHS services not covered by the tariff with greater competition from private providers. That means that price competition for those services has not been ruled out. So that has failed.

We need to turn to cherry picking, which could destabilise and undermine existing NHS services relied on for emergencies and complex cases. We have failed completely on that point. The Government’s amendments addressing cherry picking require only that a provider be transparent in how it chooses its patients. It says nothing about preventing providers picking the easiest and most profitable patients. Furthermore, picking patents is only one part of cherry picking. Private providers will also be able to pick the easiest and most profitable types of treatment to provide—elective surgery, for example—while leaving the NHS to do the expensive loss-making treatments such as emergency inpatient care. Nothing in the government amendments prevents that and therefore risks destabilising those NHS services.

There was a call for government commissioning to be in full compliance with the Human Rights Act and freedom of information laws. The Liberal Democrats were particularly concerned that freedom of information should be extended throughout the Bill. That has not happened. It is an important priority for our discussions when we look at the Bill. Billions of pounds’ worth of public money and millions of people's treatment are at stake.

We also had a call for ensuring that health and well-being boards are a strong voice for accountable local people in setting the strategic direction for co-ordinating the provision of health and social care services. There is a failure there. Consortia are under absolutely no obligation to abide by the views of health and well-being boards. So we go on. I will leave the failure regime, which was introduced at such a late stage, for our attention in a few weeks’ time.

I am so pleased that there are Members in both Houses of all parties and across this House who are turning their attention to the actuality of the Bill and its applicability. I highly commend the noble Baroness, Lady Williams, and other Liberal Democrat Members—noble, honourable and plain activist—who have not swallowed the line that now all is well with the Health and Social Care Bill. I know how difficult it can be to find yourself at odds with your leadership, your party and your own Government. I have been there many times over the past 30 years. But in this case, our first duty is to the NHS, its patients and those who work in the NHS. We must proceed by not looking at theoretical structures and esoteric arguments. We must look outside the Chamber and hear the clinicians and patient groups and let them be the guide to what happens to the NHS in the future.

13:07

[The Parliamentary Under-Secretary of State, Department of Health (Earl Howe)]

My Lords, I agree with the noble Baroness, Lady Thornton, that this has been a timely debate. I thank the noble Baroness, Lady Wheeler, for calling it and all noble Lords who have spoken and contributed so eloquently. To pick up the baton handed to me by the noble Baroness, Lady Donaghy, who remarked what big plans my colleagues and I have in the Government's programme of modernisation of the NHS, the debate has indeed covered a great deal of ground. I will do my best to cover most of the key issues in my speech. To the extent that I do not, I will of course follow up those points in writing.

The noble Baroness, Lady Wheeler, asked why we needed to legislate at all. The Health and Social Care Bill seeks to create a stronger, more responsive and more innovative NHS—an NHS led by clinicians, with patients in control of their own care and with a resolute and unflinching focus on results. We must streamline the architecture of the health service to improve its efficiency.

My noble friend Lord Ribeiro directed us towards exactly the right starting point by referring to the core principles underpinning the Bill. Despite widespread support for these principles—and there has been such support—some thought that the detail of the Bill could be improved to better support those principles. So we took the unprecedented step of asking a group of independent health experts, the Future Forum, to recommend changes to the Bill. I would like once again to thank Professor Steve Field, the members of the NHS Future Forum, the hundreds of organisations and thousands of people who contributed to the listening exercise. We accepted all of the forum’s core recommendations and we have since made significant changes during the Bill’s Second Committee stage. I cannot accept the criticism of the noble Baroness, Lady Thornton, of the process. Stakeholders have in fact welcomed how the forum conducted itself—for example, Mike Farrar of the NHS Confederation and Hamish Meldrum of the BMA. I believe that the process has been hugely positive and has helped us to improve a number of our plans in different ways.

First, I would like to run briefly through some of the key changes that the Government are making. My noble friend Lord Ribeiro, as might have been expected of him, referred to clinical leadership. Some were concerned that too narrow a group of clinicians would be charged with designing services, so we have amended the Bill to place stronger duties on commissioners to ensure that all relevant health professionals are involved in the design and commissioning of services at every level—including clinical networks in relation to specific conditions and new clinical senates for broader areas. The governing bodies of clinical commissioning groups will need to appoint at least one registered nurse and one secondary care specialist.

The noble Lord, Lord Rea, questioned whether there would be public health input into the commissioning process. The Bill should require commissioning consortia or groups to obtain all relevant multiprofessional advice to inform their commissioning decisions, including public health but also other types of advice. The authorisation and annual assessment process should be used to assure this. We will make sure that a range of professionals plays an integral part in clinical commissioning of patient care and we have amended the Bill to place stronger duties on commissioners to obtain that advice.

We are committed to harnessing the benefits that competition and choice bring for patient care but let me make it clear, particularly to the noble Lords, Lord Rea and Lord Sawyer, that competition will never be about serving the interests of corporations. It will be about serving only the interests of patients and we have made changes to the Bill to reflect this. We have removed Monitor’s duty to promote competition as though it were an end in itself. Instead, it will be under a duty to support services integrated around the needs of patients and the continuous improvement of quality. The choice of “any qualified provider” will be limited to those areas where there is a national or local tariff, ensuring that competition is only ever based on quality, not price. That will also ensure that there can be no cherry picking. I will come back to that point in a moment. There will be and can be no privatisation of the NHS. In fact, it will be illegal for current or future Ministers, the NHS Commissioning Board or Monitor to favour the private sector over the public sector, or indeed vice versa. While some will undoubtedly disagree, what matters is the outcome of care provided and the end results for patients, not the nature of the provider—public, private or otherwise.

The noble Baroness, Lady Wheeler, suggested that we had not implemented the Future Forum’s recommendations on board meetings being held in public. It is not correct to say that we have not amended the Bill in regard to that, as we have made it a requirement for every clinical commissioning group to have a governing body with decision-making powers. To enhance transparency and accountability, governing bodies will be required to meet in public and publish their minutes, while clinical commissioning groups will have to publish details of contracts with health services. Openness and transparency will be the bedrock of a new, more patient-centred, outcome-focused and accountable NHS. We have amended the Bill in the way that I have described but, in addition, we have said that the governing bodies of commissioning groups must have at least two lay members: one to champion patient and public involvement, the other focused on overseeing key elements of governance such as audit, remuneration and managing conflicts of interest. Foundation trust governing boards will also need to meet in public.

The theme of integration loomed quite large in a number of noble Lords’ contributions. Excellent care often means integrated care. We have strengthened the NHS Commissioning Board’s duty to integrate services and introduced an equivalent duty for clinical commissioning groups. Health and well-being boards will be required to involve the public when identifying local needs and developing the joint health and well-being strategy. In future, I think there will be far more effective arrangements than exist currently for ensuring joined-up working across the NHS, public health and social care—a theme picked up by the noble Baroness, Lady Pitkeathley. We will have an NHS Commissioning Board setting common frameworks in which clinical commissioning groups commission services, a regulator to ensure that standards in care are met and greater transparency of outcomes, which will drive up efficiency and quality. I add that we have asked the NHS Future Forum to look at integration as part of its continued conversations with patients, service users and professionals. The forum will report back to Ministers later this year on what it has heard.

The pace of change has also caused concern for some people, so in a number of areas we have made the timetable for change more flexible. No one will be forced to take on new responsibilities before they are ready to do so. However, those who wish to progress more quickly will not be prevented from doing so.

Let me now turn to some of the specific concerns which have been raised during the debate. The noble Baroness, Lady Wheeler, and my noble friend Lady Jolly referred to the Secretary of State’s duties—concerns that were echoed by the noble Baroness, Lady Donaghy, and the noble Lord, Lord Sawyer. At present, the Secretary of State has a duty to provide or secure services himself but delegates that responsibility to strategic health authorities or primary care trusts by directions. Generally, he delegates nearly all his commissioning responsibilities to SHAs or PCTs, but he has the powers to alter that and vary the extent of delegations. Under the new system, the function of arranging the provision of services—that is to say, commissioning—will be conferred directly on the board and clinical commissioning groups by Parliament, providing stability for the system and removing the Secretary of State’s ability to intervene arbitrarily in the day-to-day management of the commissioning process. That will free up those with the relevant expertise to focus on commissioning the best possible services for patients, free from political micromanagement.

Ministers are accountable for the NHS and will remain so. The Bill does not change the Secretary of State's overarching duty to promote a comprehensive health service, which has underpinned the NHS since it was founded. The Bill simply makes it clear that it should not be the responsibility of Ministers to provide or commission services directly. That should be the job of front-line organisations, free from interference. We are putting patients and professionals in the driving seat in order to create better quality care and better value for taxpayers.

The noble Lord, Lord Sawyer, said that there was not enough in the Bill to provide clarity. I understand why he makes that point. Every Bill that we scrutinise in this House needs to get the balance right between what is on its face and what is in regulations. We have republished our delegated powers memorandum, which sets out our justification for taking the delegated powers that the Bill proposes, and I hope that memorandum is well read and scrutinised.

The noble Baroness, Lady Wheeler, and others including the noble Lords, Lord Warner and Lord Sawyer, suggested that we were adding layers of bureaucracy. I think the noble Baroness said that the number of bodies would be increasing from 163 to 521, if I did not mishear her. I simply cannot accept that; it is not true that we are creating additional bureaucracy. The changes we made to the Bill as a result of the listening exercise do not create any extra statutory organisations at all and I do not recognise the figure that she cited. We remain absolutely committed to our promise to cut bureaucracy. We are removing layers of management by abolishing 151 PCTs, 10 strategic health authorities and half of the national health quangos. Administration costs across the health system will be cut by a third in real terms by 2014-15.

The noble Baroness, Lady Wheeler, spoke generally about the Future Forum recommendations, particularly about some that in her eyes the Government did not accept. We accept all the core recommendations of the Future Forum report but there are some areas that need further work before the final decision is taken. Those include further work on the feasibility of a citizens’ right to challenge poor quality services and lack of choice, and work to improve how continuing professional development is provided.

Some but not all of the forum’s core recommendations to the Bill require amendments to the Bill. For example, clinical networks and clinical senates will be hosted by the commissioning board, and will not need to be provided for by amendments to the Bill.

The noble Lord, Lord Warner, asked about phase 2 of the Future Forum’s activities. We announced in August that the forum will provide further independent advice on four themes: information, education and training, integrated care and public health. While the first phase of the forum’s work focused largely on the Bill, the second is focusing on non-legislative aspects of the reforms. It will report back to the Government later this year and publish its advice, as I indicated earlier, and we will draw on that advice as we work to implement the reforms across the piece.

My noble friend Lady Jolly took up the subject of education and training, which was also the theme of a number of other noble Lords’ contributions. It is vital that any changes to the funding of education and training have to be introduced in a careful phased way that does not create instability. We are therefore going to take our time to develop the proposals, working with our health and social care partners, and through further consultation. We will be publishing more details about that in the autumn and will bring forward an amendment in due course.

We think that individual employers with appropriate professional input and leadership are best placed to plan and develop their own workforce and assess what workforce and skills are needed on the front line to provide affordable, safe and high-quality care. Health Education England is being established to support healthcare providers and provide national oversight of workforce planning, education and training. It will be a lean and expert organisation and will provide leadership for effective workforce planning and the provision of high-quality education and training that supports innovation, value for money and better skills. We have also been working closely with strategic health authorities, which are managing the transition to the new system.

I turn to specific questions about the subject of competition, an issue raised by the noble Baronesses, Lady Wheeler and Lady Donaghy, and the noble Lord, Lord Rea, among others. “Promoting competition”, which was the original wording in the Bill, could have been interpreted in a number of ways. It could have been interpreted as proactively encouraging new providers of NHS-funded services to come forward or existing suppliers to compete for more services, irrespective of what was in the best interests of patients. Addressing anti-competitive behaviour is about preventing potential abuses by providers and commissioners to ensure that the system works in the best interests of patients. “Promoting competition” might also have been interpreted as requiring action where Monitor felt that there was insufficient competition in place, such as where there was a single dominant supplier of a particular service. The Bill now provides that Monitor should consider acting in such cases only if the provision of services is not economic, efficient or effective, or if a provider is abusing its market position to the detriment of patients.

A number of noble Lords were worried about cherry picking, especially the noble Lord, Lord Rea, and the noble Baroness, Lady Thornton. Those two noble Lords in particular were mistaken in their analysis of the position. We have consistently said that we would prevent private companies from cherry picking easy, profitable NHS services. We fully agree with the Future Forum’s call for additional safeguards against private providers being able to cherry pick profitable NHS business. We have made changes to the Bill to ensure that competition is about quality, not price; for example, there will now be a specific duty on Monitor to ensure that providers are paid in line with the complexity of the cases that they treat. Providers will have to set and apply transparent eligibility and selection criteria.

In her wide-ranging speech, the noble Baroness, Lady Wheeler, also covered the subject of the private patient income cap. Professor Field told the Commons committee in June that the Future Forum heard a wide range of views on that subject. He expressed the personal view that, because of the mixed views on this area, the forum could not make a strong recommendation as a body. In the eyes of many, the current cap is arbitrary and unfair. Foundation trusts tell us that the private income cap is unnecessary and restricts their ability to innovate and maximise income to deliver improved NHS services. We are confident that, as and when the cap is lifted, private income will benefit NHS patients. We are determined that that should be seen to happen. However, we will explore whether and how to amend the Bill to ensure that foundation trusts explain how their non-NHS income is benefiting NHS patients.

My noble friends Lady Jolly and Lord Ribeiro and the noble Lord, Lord Warner, spoke about reconfiguration. Although I have extensive notes on that important subject, I suspect that there is not time to cover it now. However, we will no doubt return to it, as we will to the many questions asked of me by the noble Baroness, Lady Pitkeathley.

I shall cover a couple of smaller issues. My noble friend Lady Jolly asked whether directors of public health would report directly to the chief executive of a local authority. We expect directors of public health to be of chief officer status and to report directly to the chief executives of local authorities. We are engaging with local government and public health stakeholders about how best to ensure that they have appropriate status.

Now that the Bill has passed to this House, I look forward to the debates that we will have in the weeks and months ahead. In preparation for those, my office will be in touch with interested Peers to arrange briefings with the Bill team and Library officials about any of the issues that we have been debating today and indeed any others that are troubling noble Lords. Those are likely to take place between Second Reading and Committee.

On the question of organigrams, I refer the noble Baroness to the original White Paper that we published, which contains a rather good one. We will also shortly be publishing a statement of accountabilities in the NHS, which will set out the roles and responsibilities of each organisation in the system.

Thanks to the excellent work of members of the Future Forum, the Bill has the potential to free clinicians to lead, to enable patients to take control and to focus the NHS on improving the quality of outcomes—principles that I hope we can all agree upon as we move forward to the next very interesting stage of the parliamentary process.

13:28

[Baroness Wheeler]

My Lords, this has been an excellent debate. I thank all noble Lords for their contributions, particularly the update from the noble Baroness, Lady Jolly, on the Liberal Democrat conference programme. As noble Lords have said, this is a timely debate; it is a precursor, an overture or a limbering-up for the debates that we are about to have. I am sure that we are all looking forward to that in the coming weeks. With that, I beg leave to withdraw the Motion.

Motion withdrawn.

Royal Assent

Thursday 15th September 2011 Lords Chamber

13:28

The following Acts were given Royal Assent:

Police Reform and Social Responsibility Act,

Fixed-term Parliaments Act.

Independent Commission on Banking

Thursday 15th September 2011 Lords Chamber

Debate

13:29

Moved By

[Lord Myners]

To call attention to the report of the Independent Commission on Banking; and to move for Papers.

[Lord Myners]

My Lords, in the words of Hunter S Thompson, banking is a,

“shallow money trench … where thieves and pimps run free and good men die like dogs”.

As he is claimed to have said, it also has a negative side.

I propose to avoid politics in my contribution today. I am mindful of Bill Shankly’s observations about the importance of life, death and football, and the matter of banking security, probity and safety is too important to fall back into cheap political point-scoring. However, I shall ask several questions and I am delighted to see the Box filling so that the Minister has no excuses for not answering questions, either in the House or in writing afterwards.

The purpose of the Motion is to discuss the Vickers report of the Independent Commission on Banking. To me it has been rather like a Chinese dinner: I felt quite full after I had first read it but within a short period I became hungry again. It simply fails to address some of the most critical issues currently confronting us in establishing a safer and more economically effective banking system. The Chancellor of the Exchequer sent the ball into the long grass a year ago when he established the Independent Commission on Banking. This dog has come back with the wrong ball.

Let us start with a little context, particularly in the circumstances of the horrendous loss announced by UBS this morning, here in London—a loss of $2 billion, apparently as a consequence of trading by a single person in exchange-traded funds. The current situation in continental Europe feels very similar to the one that we experienced in the UK in the summer of 2008, in the months before I joined the Government. In particular, French banks appear to have lost the confidence of professional depositors, particularly dollar depositors. Major banks are now selling at less than half their price to book value. Senior credit default swaps are trading at a premium of 350 basis points. Funding is taking place at 130 to 150 basis points over LIBOR. These are exactly the conditions that we saw afflicting Royal Bank of Scotland in the early autumn of 2008. France is not alone in these problems. It simply is not a sustainable situation. An early and massive recapitalisation of the European banking system along the lines of the action that we took in 2008 is now absolutely imperative.

Turning to Vickers, there is a massive lacuna in the report. Vickers spends no time at all examining the causes of the collapse of the banking system. He learns no lessons as a result of it. He appears to have completely overlooked a number of the issues in his terms of reference. He says nothing about moral issues, which he was asked to address. Nor does he say much that might inform the UK Government’s negotiations with other countries and multilateral agencies—an explicit requirement in his terms of reference. He does not examine radical solutions; size-capping is not on the list. He does not look at the case for proposing a new enterprise bank along the lines of KfW. He is strong in assertion but weak in evidence in many cases, and frankly lazy in one particularly important piece of evidence. That said, it is better than doing nothing. On that basis, most critically, we should get on with it, rather than delay implementation as has been suggested.

Vickers does not ask core questions about the role of banks. As I said, he fails to opine on the causes of failure; rather, he falls back on the assumption that there will be future failures, so we should find the best way of mitigating and managing them. Ring-fencing and increased capital will help in some way but they will not address the core failures of management and governance, which were at the heart of the banking failure. Put simply, bad management can burn through capital very rapidly. This is not addressed at all by the Independent Commission on Banking, which says nothing about the governance of banks, the competence of their boards of directors or, indeed, the role of the owners—the shareholders—who have been strangely silent. The most critical thing that shareholders can do is to appoint people to boards of directors, yet they stand somewhat distant from that. Over the next year or so I shall strongly urge, through the Kay review, that we change our approach to the appointment process for directors of public companies to put this very much in the hands of institutional investors as members of nomination committees.

The ICB does not reflect on the role and responsibilities of banks in our society and economy. Let us look at it in context. For more than 180 years until the mid-1980s, bank assets in the UK very rarely stretched either side of 50 per cent of GDP. Over the past 25 years, that figure has risen to 600 per cent. I see no evidence that there has been a concomitant increase in economic or social benefit. It has been achieved, on the whole, by leveraging up the impact of a declining return on assets to manufacture a continued, sustainable—or, as it emerged, unsustainable—level of return on equity by putting more and more risk into the banking system. The regulators failed to spot it; they failed to take any action. In many respects, the Independent Commission on Banking has simply swallowed hook, line and sinker the lines produced by the bank lobby on the importance of credit and the banks in supporting the economy.

Let us look at some facts. British banks have assets and liabilities of more than £6,000 billion. Is that significant to UK industry? Loans to UK industry and business—big, medium and small—are approximately £200 billion. Less than 3 per cent of the total assets of our banks are accounted for by loans to business. A further £1,000 billion represents loans in support of home purchases. The remaining £4,500 billion or so is used simply for speculation. If jobs are at risk as a consequence of changes in the banking system, they are not, on the whole, the jobs of ordinary folk. The jobs that would potentially be at risk from Vickers if he had come up with radical solutions are those of international bankers and speculators.

Vickers had to meet some simple tests: to foster a more stable and competitive banking system; to promote resilience; to facilitate resolution; to remove risks to public finances; and, finally, to promote responsible competition. My judgment is that Sir John and his commission have proposed several measures that will reduce risk and be good for the economy in promoting stability. However, in many places the logic of his thinking is poor and there is an absence of strong supporting data. On the issue of competition, Vickers has completely failed to come up with appropriate solutions. Most importantly, the proposed timetable is unnecessarily generous to banks and bankers, creating continued uncertainty and posing numerous risks of moral hazard in the interim—hazard that past experience suggests may be abused by banks.

I turn now to the detail. First, regarding ring-fencing, the key words are “strong” and “flexible”. The proposal is sensible but will the ring-fence hold? The intention is clear. Flexibility in what is inside and outside the ring-fence is preferable to prescription. However, it is difficult not to conclude, on reading the ICB report, that it believes that separation is inevitable. The arguments for rejecting separation but proposing segregation are among the weakest in the ICB’s report. The ICB clearly intends the split to be real. It talks about strict limits on cross-funding, the need for separate boards of directors and independent chairmen, and disclosure by both banks of a standard appropriate for the Stock Exchange. In saying that this is better than full separation, the ICB advances some frankly naive arguments. It says that,

“benefits from the diversification of earnings would be retained”.

This is nonsense. Investors diversify their portfolios and risks through portfolio construction.

The document says that the supply of capital might be available if required. Again, one would be wrong to assume that a cheap supply of capital should come from a related party. If a bank needs more capital, it should turn to its external shareholders. It goes on to say that agency relationships for one-stop shopping might be attractive. I cannot believe that the Vickers commission really believes that nonsense. It talks about shared expertise and states:

“Some operational infrastructure and branding could continue to be shared”.

It is very clear in my mind that Vickers believes that the banks will be forced by their shareholders to split, so I do not know why he did not recommend that. I simply do not understand why the ICB stopped at a halfway point, save under the pressure of lobbying from the banking industry. Who in the mean time will monitor this ring-fence—the Bank of England, which failed on the whole to see the emergence of the crisis? I think not.

On capital, UK retail banks should have 10 per cent core equity capital plus loss-absorbing capital—bail-in bonds or cocos—of a further 7 to 10 per cent. Banks were clearly inadequately capitalised before the crisis and were overleveraged. However, as I said, no amount of capital can make up for bad management or poor stewardship. Vickers’s proposals are actually not significantly higher than those in Basel III. He does not reflect at all on the availability of supply of non-equity loss absorbing capital. He makes an assumption that this capital is available, which I find very questionable. Radical solutions, such as addressing the offsetability of interest against debt in bank capital structures, are simply not considered by Vickers. He has adopted a very conservative, central line approach. Nor has he given any serious consideration to the emergence of “shadow” banks or the passporting of activities by EU-based banks into the United Kingdom to come under the ring-fence.

On the issue of capital, the UK’s four largest lenders have risk-weighted assets of about £2 trillion, implying a need to raise at least £140 billion of as yet untested, and therefore expensive, securities. Vickers expresses no view and seeks no evidence to test whether that type of capital is available. What are we going to see? We are going to see liability management in which some forms of debt will be forced into loss-absorbing debt. We are going to see bankers charging higher margins for their loans, lower margins on deposits and almost certainly paying no dividends. The only dividends that we can expect from UK banks in the foreseeable future will be distributions of debt instruments.

I wish to ask the Minister about some practical issues in this respect. Will the continuing uncertainty about the treatment of senior debt lead to a buyers’ strike? Both Lloyds Banking Group and RBS plan to issue £10 billion to £15 billion of such debt instruments next year. There will be serious consequences for the funding of those banks if this uncertainty is not addressed. What will the Government do to mitigate this? Has HMT received assurances that the ICB’s proposals will be compatible with the European Commission’s CRD4? Mr Banier has said that he broadly supports this but I wonder whether he had actually seen the Vickers report when he was in Marseille last Friday. Perhaps the Minister can tell us that. Perhaps the Minister can also tell us, if the banking system is going to be made secure and safe, whether the bank levy will be dropped because surely we do not need the bank levy if the banking system is secure as a result of the Vickers proposals.

On competition, Vickers gives no serious consideration at all to the size of banks. No serious proposals are examined to encourage new entrants. No proposals are made to establish a national investment bank along the lines of Germany’s KfW. There is no obvious reason why a challenger bank will emerge, yet he almost forces Lloyds into the arms of National Australia Bank—a bank which has been active in the UK since 1987 and has done nothing which seems to me to represent innovation, customer service and challenge. Frankly, he has dropped the ball on competition completely and yet ducks the issue of putting banking to the Competition Commission for a period of time rather than at least starting a slow burn review. Where I say that Vickers has been lazy is over the economic impact. There is an assessment that the cost of the ICB’s proposals will be £4 billion to £7 billion per annum for UK banks. Where did Sir John get this figure from? Amazingly, he got it from investment bank analysts. He simply averaged the number produced by investment bank analysts, which were guesses not forecasts—teenage scribblers, as the noble Lord, Lord Lawson, once described them—based on trying to anticipate what Vickers was going to propose. It is quite extraordinary that a senior economist could put forward such a number as viable.

On the timetable, quite frankly—I am aware that I am at my time limit—Mr Bob Diamond will not be here until 2019. The other leaders of our banks will not be in office until 2019. It is just an extraordinary risk to allow this situation to continue. There is no reason given—we recapitalised the banking system over a weekend in 2008—why something much more radical could not be done in the interim. In the mean time we live in a world in which the sort of extraordinary events announced by UBS this morning can take place. Does the Minister accept that if that $2 billion loss had been incurred by Royal Bank of Scotland or Barclays, the Treasury would potentially stand behind those banks? Does the Minister accept that we underwrite that gambling casino spirit until 2019? If Royal Bank of Scotland comes to the Treasury and says, “In the light of Vickers we want to split our bank into two, and by the way, Minister, we now think you could sell the retail bank but the taxpayer will be left with the casino bank”, will that be acceptable to Her Majesty’s Government?

I would like to ask many other questions but I realise that I am time-limited. I look forward to the response from the Minister, an ex-banker. I am only sadly disappointed that the noble Lord, Lord Sassoon, the Treasury Minister, is not responding to this debate on behalf of the Government. I beg to move for Papers.

13:46

[Lord Lawson of Blaby]

My Lords, the whole House is greatly indebted to the noble Lord, Lord Myners, for enabling us to debate the important subject of the report of the Independent Commission on Banking in the week in which it came out. He said that he did not want to engage in party politics. None of us here does; that goes without saying. In the spirit of agreement, I point out one particular area where I agree with him. As far as I am aware, this is not something which has been raised before he raised it today, but I hope the Government will agree to it—that once the proposals recommended in the Vickers report are implemented, the bank levy should be abandoned. That makes excellent sense and I hope that the Government will respond positively to it.

However, it is remarkably quixotic of the noble Lord to have raised this subject—although I and the whole House are delighted that he did—because, of course, the Government of whom he was a member produced the most disastrous and dysfunctional system of bank regulation imaginable—I absolve him completely from it; it was in place before he took Gordon Brown’s shilling—and are therefore highly culpable. They are not uniquely culpable. I agree with the noble Lord’s comments about causes. The root cause is the greed and folly of all too many bankers. Most of us are subject to greed and folly. The problem with bankers is that the temptations are greater and the consequences are graver. However, that is all the more reason to put in place a really effective system of bank supervision and bank regulation. I deeply regret that the previous Government tore up the greatly improved system of bank supervision and bank regulation which I put in place in the Banking Act 1987, and, as I say, put in place something which was completely dysfunctional.

Incidentally, I hope that we can have an assurance that the legislation will be separate and discrete and not something tacked on to some other piece of financial legislation.

What is important, however, is that the Vickers report, although not perfect, is actually rather better than the noble Lord, Lord Myners, indicated. There are some omissions. I have not read every word of the report but I regret, for example, that there is, as far as I can see, no discussion of the Board of Banking Supervision which I created under the 1987 Act and played an important role in by, in short, enabling some poachers to become gamekeepers—some recently retired investment bankers and commercial bankers who would give extremely good advice to the Bank of England, which had responsibility for this area. They had a duty to give that advice. That arrangement was destroyed by Mr Brown and it should be resuscitated. I do not see anything about that in Vickers.

Nor do I see anything about the role of bank auditors, which is very important. Again, one of the things that I introduced in the 1987 Act was a regular and important dialogue between the bank auditors and the bank supervisors, whereby each could inform each other, to create a more effective system and be more aware of when things were going wrong. Again I say to the Government, a recommendation on this front came unanimously from the most recent report of the Economic Affairs Committee of this House. I hope that we will have an opportunity to debate it in, I stress, this Chamber at a reasonably early date.

What Vickers did was be extremely tough on capital requirements and loss-absorbency requirements. It is right to be as tough as that. However, the timing is important and, bearing in mind the state of the economy, it should be phased in gradually, although the Government must commit clearly to doing it and not let the banks erode it at the edges or anywhere else.

However, the most important issue to which I should like to address most of my remarks is the structural separation proposal in the Vickers report—the separation between what it calls retail banking and investment banking. Retail banking is a bit more than retail banking, but nevertheless that is the jargon. I have to admit that I did not do that in the 1987 Act, but the reason I did not is that, at that time, there was a de facto separation which had been there for ever. All of us can remember that we had the so-called joint stock banks and investment banks which in those days were known as merchant banks. They were completely separate organisations with separate cultures. Very often the merchant banks operated on a partnership basis, which is an important difference. There were two different sorts of institutions and cultures, and that worked extremely well. We now have to introduce that by law.

I return to the noble Lord, and what happened when he was a Minister. It is now two and a half years since I first wrote a piece in the Financial Times calling for this separation. The noble Lord was the Minister responsible. Did he respond to that? Not at all. He is now keen on separation, as far as I can make out, but he was totally uninterested when I proposed it in March 2009.

Although I do not have time to go into them, the important points are laid out in Vickers, which states quite clearly why this is necessary. The question is whether the ring-fence will be adequate or whether complete structural separation is needed. I fear that the ring-fence will not prove adequate. You will not get the two different cultures, which is absolutely vital. There is the idea that different boards will make all the difference. For a time in the early 1990s, I was on the board of Barclays Bank. It is not the boards that can ensure that this happens; it is the management that are important, not least because it is they who get the bonuses. If you have one top management, you will effectively have one culture. There is also only one group of shareholders if there is not complete separation. Therefore you will not get the benefits we seek.

Complete separation may well be seen to be necessary. I therefore hope that the Government, while implementing ring-fencing and doing it without delay, will monitor it very carefully. If there is any sign that the measures are inadequate they should seize the opportunity to go further, and make it clear in advance that they will do so. The arguments against it are weak in the extreme, as the noble Lord said. Why is the idea of the one-stop shop so important? One thing that it does is reduce competition; but the Vickers report was meant to promote competition. It is completely absurd. The report says something very darkly about there being legal impediments to complete separation. I assume that it must be referring to EU law, but that is an avenue and whole new dimension that I do not have time to address.

In conclusion, I should like to make to the Government one practical suggestion that relates to the Royal Bank of Scotland Group, mentioned by the noble Lord, Lord Myners. This was the biggest disaster area of all the disaster areas in British banking, as a result of which the Government on behalf of the taxpayer have the largest stake. As the proprietor of the Royal Bank of Scotland, the Government now have a great opportunity, which does not need legislation, to separate out the retail banking from the investment banking within the group and to have two separate companies. I am not talking about privatisation; that will come later. At this stage there should be two separate entities with a separate board and management on the retail and small business side—the old joint stock banking side—that will provide the money that small and medium-sized enterprises need at present. You will then have an entity that has no other raison d’être but that.

13:57

[Lord Newby]

My Lords, I congratulate the noble Lord, Lord Myners, on initiating such a timely debate. Indeed, it is so timely that some of us have been struggling to read every last word of the Vickers report before we drafted our speeches. Indeed, some may have failed to do so.

It is also a great pleasure to follow the noble Lord, Lord Lawson, who, at Second Reading of the Banking Bill last year made the most powerful case I have yet heard for splitting retail banking from wholesale and investment banking. When he did so—and I supported him—the mood was very different from that of today. Those who argued for a complete split or for a firewall were in a small minority. There were some noble exceptions, including the noble Lord, Lord Blackwell, and the noble Baroness, Lady Ford. Indeed, the mood of the time was admirably captured by the noble Lord, Lord Myners, who said:

“I should say to the noble Lord, Lord Newby, that the separation was not something that I and the Government reject because we believe that it cannot be done. We believe that it can be done but do not believe that it is necessary that it should be done”.—[Official Report, 10/3/10; col. 282.]

In the same debate the noble Baroness, Lady Noakes, said:

“My own party does not have a definitive view on the right way forward in terms of structure”, [Official Report, 10/3/10; col. 279.]

of the banks. I am very pleased that the Conservative Party now has a definitive view.

Why then has this mood changed whereby we now have a near consensus for at least what Vickers is proposing? It is partly because over the past 18 months there has been a growing realisation of the advantages of making such a change. For example, I have been struck by the comments of Sajid Javid, a Conservative MP in another place, who was an investment banker on Wall Street when Glass–Steagall was in place and remained an investor as it came off. He described in words of one syllable how the banking in which he worked started to behave much more riskily with the funds available. It is a very compelling argument.

It has also become even clearer that if anyone had hopes that the banks would mend their ways, those hopes were forlorn. There have been a number of examples of that, including the continuing unwillingness to lend to many small firms on reasonable terms, and the continuing payment of huge salaries and even bigger bonuses. Like the heart attack patient who continues to have a daily full English breakfast, the banks have gone back to business as usual.

If there is now almost total agreement on the desirability of separation, what are the concerns and pitfalls? Clearly, cost is not an issue. Although it is easy to mock the cost estimates that have been produced, nobody is mocking their order of magnitude. If the order of magnitude of cost is £4 billion to £7 billion, the fact that broadly speaking that equates to the bonuses that bankers pay themselves each year gives some sense of how difficult that is likely to be, particularly against the estimated annual cost of another banking crisis of £40 billion. I suspect that we will hear no more, even from the BBA, about the cost of the proposals.

The next question is: how can we be sure that it works? The noble Lords, Lord Myners and Lord Lawson, expressed concerns about the efficacy of the proposals. How do we know that we will get what we want? Some people were particularly concerned to read in the papers yesterday that Bob Diamond says that Barclays can live with the proposals. I must say that that was not a reassuring comment.

However, a number of aspects of the proposals, if implemented, should give us at least some confidence that they may be effective. No doubt other noble Lords, like me, will have had a wry smile when it was suggested that the basis on which many of the risk principles should be applied should be that currently used under building society legislation, given that it is the demutualisation of the building societies that has led to some of the problems with which we now find ourselves. However, that legislation, that framework, is tough and it would be very sensible to use it.

I take the point that independent boards have their limits, but they are better than nothing. The principle that the ring-fenced bank and the other entities in the same group should operate no more favourably than third-party relationships is sensible. It is also sensible that the ring-fenced bank should meet its regulatory requirements on a stand-alone basis.

The other factor that will be crucial in implementing the proposals effectively is the way in which the new PRA operates. Surely, if that new organisation is to be worried about anything in its reputation, it will be that it manages to regulate the newly divided banks effectively.

What about the timetable for implementation? Vickers said that:

“Early resolution of policy uncertainty would be best”.

Despite the Government’s support of the principles of Vickers, the only way we get the ending of uncertainty is by early legislation. Here I disagree with the noble Lord, Lord Lawson. We will shortly have before Parliament the financial services Bill. It is fit for purpose in implementing Vickers. That should be possible because, I suspect, much of the detail of implementing Vickers will be not for primary legislation but for secondary legislation, and even more for the rulebook which the PRA will draw up. My very strong preference is to use that Bill as an enabling Bill for the legislation that is required to implement the principal proposals in Vickers. I very much hope that that will be the Government’s working assumption in the advice and guidance that they give to parliamentary counsel. I see no reason in principle or practice why a separate Bill would be more desirable.

How quickly should this be implemented? Vickers says by 2019 at the latest—not, incidentally, before 2019. Like other noble Lords, I think that that is too long. I cannot believe that it is necessary, given the work that is needed in the banks to do it. I think they would probably prefer to get on with it now that the die is cast.

Secondly, we must remember why we are doing this. We are doing this to protect the country against another banking crisis. Although I am an optimist by nature, I am not 100 per cent certain that we will not have another banking crisis before 2019.

Vickers talks about other aspects of banking which I do not have time to deal with today. In my view, the Vickers proposals are a necessary part of making the banks the servants of their customers and the country rather than their masters.

14:05

[Lord May of Oxford]

My Lords, I join others in my thanks to the noble Lord, Lord Myners, for giving us this debate. I also express my gratitude for the privilege of hearing the incisive analysis of the report of the noble Lord, Lord Lawson. Perhaps I should also explain why a theoretical physicist who had a mid-career transmogrification into an ecologist and epidemiologist is having the cheek to speak in a debate about banking.

In 2006, in a very prescient way, the US National Academy of Sciences and the Federal Reserve Bank of New York put together a study on the premise that in the increasingly elaborate things happening within financial systems with the aim of maximising profit for minimum risk for individual institutions—allegedly— nobody was thinking about the system as a whole. The NAS and the Fed put together a study that was going to focus on systemic risk. In doing so, they drew in people from cognate disciplines where there might be some read-across—ecology, epidemiology and the electricity grid. It turns out that the electricity grid is not so interesting because we really understand how it works and how switches can control it.

As a result, when the crisis manifested itself a couple of years later, I spoke with friends at the Bank of England. I have been working with Andrew Haldane, the executive director of systemic risk at the Bank of England and some of his very able younger people, following through those ideas about what might be called systemic risk in banking ecosystems. The first conclusion, which I cannot emphasise too strongly, is that there is a huge gulf of difference between natural ecosystems and complex banking systems—not least in that ecosystems, for all their complexity, are simpler. If you think of them as networks, nodes in the network—to be technical for a minute—are species and the connections are that they eat something or something eats them, and the like. In a banking network, the nodes are banks, which have all sorts of things coming in from outside and inside the system, and all sorts of things getting out from inside and outside the system—networks of networks.

I wrote a turgid paragraph in the paper which Andrew and I published emphasising that difference. Andy captured it rather better by saying:

“In financial ecosystems, evolutionary forces have often been survival of the fattest rather than the fittest”.

That caveat having been issued and emphasised, the simple fact is that the recommendations which emerged from the work of the National Academy of Sciences/Federal Reserve Bank are strongly in support of the major recommendations in John Vickers’s independent banking commission report. Specifically, if very telegraphically, first, perhaps I may read from an op-ed that Andy Haldane and I wrote in the FT:

“Are big banks less prone to failure? The traditional economics of diversification suggest so. By scaling up balance sheets across different classes of asset, risks to portfolios will tend, on average, to cancel each other out”.

In general, that seems like a good idea. It is a good idea for individual banks, one by one, reinforced by Basel I and II.

If you look at complex systems in the round in nature, you find that they tell a different tale. Very often, scaling up risks in that way causes them to cascade rather than to cancel out. The conclusion from that is that the present situation in banking is, in many respects, perverse. All banks becoming diversified—spreading risks—means that they become more homogenous, whereas if they were all different and one failed that would be it. The homogeneity and the linkage refer to the system as a whole, and there is genuine tension between the interest of the individual and the interest of the whole, between diversification of individual banks and diversity of the system.

Some of the morals of that translate into the simple fact that, over the past decade or more, if you look at systems of that kind, if you think of the spread of infectious disease within networks, we have learnt to focus our attention on the superspreaders—HIV among people with many partners. The analogue here is the big banks. By virtue of their size, the big banks have argued that they may hold relatively smaller capital reserves and that has been the habit. All the messages of a general kind suggest that in a system like that, the superspreaders, the big banks, should hold relatively larger capital reserves and liquidity, and that is one of the firm recommendations of the Vickers report.

More interestingly, going back to ecosystems, there used to be a naïve notion that there was a balance in nature and that complex systems would be stable by virtue of their complexity, which turns out to be rubbish in ecology. Redefine the research agenda to ask what are the specific structures that real ecosystems have: as observed, that reconcile the complexity that we see with persistence and stability? One of the most important of those is modular organisation. So there are chunks that loosely connect them and there is a clear echo of that in the Glass-Steagall Act and in the desire to produce greater, if not complete, separation between retail and investment banking.

I will not inflict any more of this seminar on the House but I want to conclude by touching on two other topics which have already been broached with more authority and more force, I suspect, by previous speakers. All of what I have been talking about, much of what the analysis has been about, and much of what the banking commission report is about, is systemic risk. If I were a supreme dictator and could do one thing, I would try to forbid the trading in instruments that are so complicated that they cannot be reliably priced. It does not require much sophistication to recognise that if you have a bunch of triple B house mortgages, even though you conceal the assumption in a lot of jargon, and you are going to assume all fluctuations in individual houses are totally uncorrelated, you will have a sort of quadruple B—they will certainly not be triple A. There are more sophisticated examples of that and I would like to see us taking more steps against the inherent problem in credit rating agencies going out of business if they are too diligent.

Finally, I turn to a point raised by the other Friedman, Benjamin Friedman, distinguished professor at Harvard, who, in the spring issue of the American Academy of Arts and Sciences, asked: what is the essential purpose of the financial markets? He said that it is to allocate capital efficiently in that best of systems, free markets, but that the time had come for a serious evaluation of the costs and benefits. He offers the following remarkable statistics: 30 years ago, the cost of running the financial system in the United States was 10 per cent of all profits earned in the United States; 15 years ago, the figure had grown to 20 to 25 per cent; and just before the crash the estimate was one third.

The time is more than right to go beyond the Independent Banking Commission, sound though I believe its recommendations are, to a more fundamental examination of the effective running of the financial system.

14:14

[Lord Griffiths of Fforestfach]

My Lords, in taking part in this debate I declare my interest as a vice-chairman of an investment bank based in London, not a universal bank—we do not take regular deposits so it is less relevant in that sense to this debate—and a subsidiary of a bank based in New York. I, too, appreciate the noble Lord, Lord Myners, initiating this debate, not simply because of the publication of the Vickers report but because that report has to be seen in the context of what will happen in the coming days, weeks and months in continental Europe and in the eurozone, which is very relevant to what Vickers is talking about.

Contrary to some, I think the report is a first-class piece of work. It shows a very good mind, it is tightly argued, well written and very thorough. I would have thought that there could be complete agreement on its objectives; namely, to protect taxpayers from the consequences of mismanagement by banks and at the same time to create a competitive banking system. I strongly support the objectives of Vickers. Our regulatory system was clearly not fit for purpose when the financial crisis came and it needed to be changed.

However, I think that the noble Lord, Lord Myners, was a little hard on what it said about competition. I first wrote on the subject and specialised in it when teaching at the LSE in December 1970 and, calling for an end to the banking cartel. As I look at the diagnosis of what is wrong in terms of insufficient and misdirected competition, concentration of barriers to entry, lack of transparency and, problems of switching, I think that it has gone about as far as it could. The commission tried to make recommendations to deal with that and, short of saying that you should break up the banks into smaller entities, I am not sure that it could do much more. Ever since we had a more competitive banking system, starting in the early 1970s, I do not think that, as a country, we have had a great record of competitive banking. The authorities could take more action and I think what they propose, especially in terms of the potential recommendations of the Office of Fair Trading inquiry into personal current accounts, is on the right lines.

A more difficult problem relates to creating greater financial stability through ring fencing retail banking, increasing equity in the system and strengthening the ability of banks to absorb losses. As I read the report, which I found quite tough going as it is very densely argued, I found myself asking more questions than were being answered. I suddenly realised that that was because I was making two assumptions. The first is that the reforms being proposed are a major reconstruction of the UK banking system of a kind not seen in living memory. I cannot think of any changes as major as this since Lloyd George required the banks to finance the First World War and said that in exchange they could have a banking cartel. You almost have to go back that far to see something as significant as this because it is creating new institutions, new rules, new governance and so on and doing so at the same time as we are creating two new regulatory agencies. We are really facing enormous uncertainty. In addition, the commission very honestly says that the cost is considerable, being up to £7 billion a year. The second assumption that I realised I was making was about unintended consequences. In the past 50 years, we know that international banking has been highly competitive and highly innovative, and when you have regulatory changes you have unintended consequences. In the 1950s, when the Federal Reserve introduced regulation Q in the US, we had the growth of the euro dollar market offshore in Europe. When the UK Government placed restrictions in the late 1960s and early 1970s on bank lending, we had the growth of the secondary banking system. In the years immediately preceding the financial crisis, when there was a glut of global saving and very low interest rates—very low margins in banking—we had the growth of the shadow banking market. So change creates uncertainty

Reading the report, It was quite easy—if we want more equity and we want separation, the authorities could simply say, “we need more equity and we will totally separate the activities of banks”. That is one possibility, Vickers produces another and a third would be to remain as we are. I found that the following problems were posed by Vickers. First, are we really sure that if we have a ring-fence and we have another financial panic that, if a number of banks really look as if they are going under, they will be allowed to fail if they are outside the ring-fence? Secondly, this becomes very detailed and complex, but what activities do we put in the ring-fence and what do you keep outside? That seems to me to be an issue which will create enormous controversy. Thirdly, there is the very important point raised by the noble Lord, Lord Myners, to do with the loss absorbers; namely, long-term unsecured debt and so on, contingent capital and bail-in bonds. We do not have markets of any depth in these at present and yet these are critical to the recommendations of Vickers.

There is also uncertainty as to whether UK banks will redomicile, either entirely or in part, and there is also the point raised by the noble Lord, Lord Lawson, that European banks could get under the wire at present and we could have a very curious structure there. Finally, there is the question of how the proposals of Vickers relate to what is happening at present in Europe, which I think is very important, because the stress tests of the EBA found that British banks are much more interconnected with continental European banks than we imagine. Altogether, I feel that there are great uncertainties in these proposals and that to rush things and go straight into legislation would be a great mistake. We need to probe and stress-test Vickers much more. It would be a great mistake to legislate too soon, because we would have the problem that they have in America with the Dodd-Frank legislation; namely, that they have general legislation with all the detail having to be worked out and nobody really knowing what the terms of doing banking are.

I welcome the fact that we have eight years before this huge potential change to the UK banking system takes place. It would be far better to take time to get it right than to rush it, threaten one of the key sectors of our economy and attempt to pick up the pieces later.

14:23

[Lord Liddle]

My Lords, I, too, thank the noble Lord, Lord Myners, for this debate, which is unusually timely for your Lordships’ House. This is a vital subject and the debate has already taken on a rather academic air. The noble Lord, Lord Myners, appears to give the Vickers report a beta plus query plus, the noble Lord, Lord Griffiths, definitely has it in the alpha category—alpha alpha minus. I am somewhere in-between; I am a beta-alpha man on Vickers in that I think that it is an excellently argued case, but I do not think that it is a full answer to the problems that the British Government have been grappling with since 2007-08 of what on earth to do about the banks.

I had a little personal knowledge of this when I was helping as an adviser to the noble Lord, Lord Mandelson, when he came back into the Government in the middle of the crisis in 2008. In that crisis, the Government had very clear objectives: to save the banking system from collapse and to save the world from falling over the precipice into another worldwide great depression. Over the succeeding six months the Labour Government—the Prime Minister, Gordon Brown, and the Chancellor, Alistair Darling, ably advised by the noble Lord, Lord Davies of Abersoch, and the noble Lord, Lord Myners, with their great banking experience—handled this task very well, with the policies of recapitalisation and economic and international co-ordination. For all the froth of memoirs that one reads—on the whole, I am in favour of people telling the truth in their memoirs—I think that this will go down as a proud historical legacy for that Government. Indeed, if I can engage in one note of party politics, I only wish the present Government would show the same urgency and commitment to international leadership in the present parlous situation—they are clearly not doing that at the moment.

The Labour Government faced the conflict immediately after the crisis of, on the one hand, wanting to sustain lending to business when the banks wanted to strengthen their balance sheets, and, on the other, wanting to restore the banks’ profitability so that the taxpayer could get a return on the vast billions that had had to be injected into them to shore up their finances. An attempt was made to resolve that unresolved tension through the lending agreements, and under the present Government we have had Project Merlin. I am not satisfied that that has worked and I do not know that there is any answer to those problems in the Vickers report. However, the clear problem that happened after 2008 which was not resolved under the Labour Government was that, having rescued the banks, we had created a moral hazard for the future, which, I suppose, is why Mervyn King was so reluctant to get involved in the first place.

“Too big to fail”, once we accept the argument, results in an implicit taxpayer guarantee and taxpayer subsidy. This is a very real issue: I got very frightened by the substance of this issue when I read an excellent paper—Banking on the State—a couple of years ago by Andrew Haldane, who collaborates with the noble Lord, Lord May. It really frightened me and I think, as a social democrat, that the British welfare state would find it very difficult to withstand another major banking crisis on the kind of scale we have seen. We have to find some effective solution to this problem and I think Vickers, with his proposals for separation, goes in the right direction. My doubts about it are over the effectiveness of the ring-fence and the obvious fact that structural reform is not, in itself, a complete answer to the problem. After all, the Labour Government ended up having to nationalise Northern Rock, which was not a universal bank, and Lehman Brothers, which was not a universal bank either, collapsed yet everyone now thinks that it was a great mistake not to rescue it. The problems are complex and Vickers goes some way towards resolving them.

What it does not resolve, to my mind, is the key problem of access to finance for industry. I think we are going to need much more public intervention in banking in future and that this is bound to happen as a result of the higher capital adequacy ratios that we are inevitably going to impose on the banks as an insurance policy. This is a crucial issue for access to finance for innovative SMEs, which are our future if we are to rebalance our economy. It is also a crucial issue for mortgage lending and will lead to great social inequality and stress if the current rules on mortgage lending stay in place. We are going to have to have public/private interventions to try to deal with these problems—possibly a national investment bank, along the lines of what Roosevelt did in the housing market in the 1930s with Fannie Mae and Freddie Mac in the United States. We should not address these problems simply by structural change.

The other point that I will make in conclusion is that these are long-term reforms. I am in favour of getting on with them: I am not in favour of a long and protracted process. They are long-term reforms, but we face a very immediate crisis. There is a real possibility of a second banking crisis as a result of what is happening in the eurozone. The British Government ought to be showing more leadership on this issue. It seems that all our Chancellor of the Exchequer is doing, while throwing out interesting ideas about the need for fiscal union, is using the eurozone as a distraction from Britain's problems, and at the same time dangling before Eurosceptics on the Conservative Benches the possibility of fundamental change in our relationship with the European Union. This is far too serious for that kind of playing about. As my noble friend Lord Myners said, we need, urgently, a plan for the recapitalisation of European banks. As the noble Lord, Lord Griffiths, said, we are affected by this because of cross-border impacts. We cannot say that because we are not in the eurozone it does not affect us. We are deeply affected and I would like the Government to urge that on our partners. So yes, let us move ahead with Vickers—but let us also address other fundamental issues that are important to our future.

14:31

[Lord Oakeshott of Seagrove Bay]

My Lords, I declare my interest as a pension fund investment manager for the past 35 years. Noble Lords may be surprised to hear that for half of that time I have worked in banks. I am also a friend and former colleague of Martin Wolf and Martin Taylor. The noble Lord, Lord Liddle, handed out marks to John Vickers. As one who sat at his feet at an Oxford college and did not learn nearly as much hard economics as I should have done, I am happy to give him a pure alpha, although he never gave me one.

The noble Lord, Lord Myners, certainly knows how to damn with faint praise. He is too grudging. This is an excellent piece of work by Sir John and his colleagues. I believe that it is also an example of the old adage that politics is the art of the possible. Certainly, I and many others would have preferred a complete separation, but we are in a coalition rather than a Liberal Democrat Government, so we must be realistic about what we can get through. Sir John has judged it very well. I say in particular, to those who have waded through to the last 100 pages of the annexe, that he has shown brilliant tactical sense by smoking out all the banks' objections in his interim report and then shooting them down in flames in his final report. That is why, like the noble Lord, Lord Newby, and others, I believe that it is essential that we get on with reform now. The banks have had ample time for special pleading and talking to No. 10 and No. 11. Parliament is now the right forum to progress reform, and in particular the expert Joint Committee that is starting pre-legislative scrutiny on the financial services Bill.

I see the noble Baroness, Lady Valentine, looking expectantly at me. She sent me a text just before I started, saying that she was looking forward to lots of fire and brimstone. I am sorry that I have to disappoint her. We have had plenty of that already the past few weeks, not least from me, so I will focus on two key points. I have touched already on one: timing. On radical bank reform, we have won the argument about “whether”: we are now on to “when”. We should look at what the Vickers report said. There was a lot of shorthand this week about 2019, and the noble Lord, Lord Griffiths, repeated it. The report stated:

“The Commission naturally hopes that Government and Parliament will respond positively to its recommendations by enacting reform measures soon. Early resolution of policy uncertainty would be best”.

I will say from very long experience of turbulent markets like these that markets can live with almost anything except uncertainty. Given that the Government have clearly taken the decision, there is every case for getting on with it.

The commission also said that the Government should,

“provide clarity about its view of the Commission’s recommendations as soon as possible”,

and,

“move rapidly to put in place the necessary legislation and rules”.

It also made it very clear that 2019 was a longstop date for final completion of all the details. That is perfectly logical for getting up to the final capital requirements, but it is no argument for delay on crucial structural points.

Finally, the commission points out that,

“the economic conjuncture certainly does not reduce the need for financial reform”.

You can say that again. It states:

“On the contrary, it reinforces the need to make the UK's banking system more robust”.

Today's horrific news that a so-called rogue trader has struck again, this time at UBS, reminds us how much toxic banking risk remains in the system, and how urgent radical reform is. The problem is that big investment banks are full of rogue traders: it is what they do.

Secondly, I will say a word about culture and governance. Again, the Vickers report is right when it points out that it is difficult for regulations to work effectively when they operate against the grain of corporate culture.

[Lord Marlesford]

Perhaps I may say that I just do not think we can let the noble Lord say that this is what rogue traders do. Traders work on behalf of their bank. Rogue traders exploit their position to do things that are not on behalf of their bank. There is a total distinction between traders and rogue traders. For the noble Lord to put them together is absurd.

[Lord Oakeshott of Seagrove Bay]

If I may say so, the noble Lord has put his finger on it; the trouble is that all these traders are working on behalf of their banks and it is about time they started working on behalf of their clients. There is a real problem of control when there is such a bonus culture and so much risk in the system.

I will move on to how we implement the separate culture of the ring-fenced retail banks, as the Vickers report recommends. The report makes another excellent and important point when it states that there is already a model in the utilities sector, where,

“independent boards are a standard requirement”,

and that,

“board independence was crucial to the survival of Wessex Water despite the collapse of its parent, Enron”.

The report recommends that on the board of the ring-fenced bank there should be a majority of directors who are independent non-executives, with a minimal crossover between these directors and members of the group. That is vital.

I see in her place the distinguished former business editor and national newspaper editor, my noble friend Lady Wheatcroft, who incidentally is on the Joint Committee. I hope this does not put the mockers on her chances, but I think that she would be an ideal chairman for a ring-fenced retail bank, particularly with her recent experience on the board of Barclays. Sorry, Patience.

The Vickers report concludes:

“While corporate culture cannot be directly regulated, these measures should assist in building a separate, consumer-focused culture in UK retail banking”.

Like the noble Lord, Lord Lawson, I remember the banking set-up in London in the 1970s and 1980s, when I was at Warburg. We can recreate that within the safe part of banks. I share the worry of my noble friend Lord Newby about Bob Diamond saying that he can live with it. I very much hope that that is because he does not think that it will be implemented. Let us prove him wrong. People like him are light years away from the objectives and culture of, for example, Barclays' Quaker founders. They did not gamble or avoid tax. They saw themselves as stewards of people's savings, which they lent prudently for productive purposes so that their fellow citizens could work and prosper. That is the spirit we must recreate in our ring-fenced retail banks to make them safe. Let us get on with it now.

14:39

[Lord McFall of Alcluith]

My Lords, I am delighted to participate in this debate and would like to thank my noble friend Lord Myners for securing it. I draw attention to my registered interest. I am a director of NBNK Investments, which is one of the companies looking to acquire banks.

One of the South Sea bubble stocks was entitled “A company for carrying out an undertaking of great advantage, but nobody to know what it is”. The evidence that I heard as chairman of the Treasury Select Committee over the years convinced me that, 400 years on from 1620, quite a lot of banking philosophy and practice was characterised by that. Essentially, privatisation of profits and socialisation of losses must give way to a more democratically functioning market system, which is more aware of its wider social responsibilities.

I am aware that we will never be able to eliminate risk in future financial crises, but taxpayers should not be required to come to the rescue again. Vickers is very clear:

“The risks … associated with banking have to sit somewhere, and it should not be with taxpayers”.

That is why structural change is essential to make UK banking more resilient. In that vein, I welcome Vickers, but I am very much aware that there are issues that the report will not tackle. For example, it will not tackle the issue of too big to fail or the issue of cross-border resolution, particularly in Europe at the moment, but it has taken a stab at it.

The characteristics of the financial crisis were, quite simply, complexity, extreme risk-taking and lack of corporate governance. Those characterised quite large parts of the industry. Vickers provides a blueprint not only for a national debate but for an international debate. I have described it as a game changer. But what is the game? There is still a lot to fill in. Is it, as Philip Stephens said in the Financial Times this week, a victory to the “bankers’ shop steward” Bob Diamond, whom he compared with Bob Crow in his appreciation of fine wine and food, or is it a real game changer? The core issue is the ring-fence. Is the ring-fence an impervious wall, or is it one with multiple gateways that are easily passable? That is the issue for us as politicians and policy-makers.

As my noble friend Lord Myners said, 2019 is an awfully long time away, and if we park this even for a year or two in Parliament, it will lose its potency. We currently have a Draft Financial Services Bill before us, and I would suggest that, after talking informally to regulators such as the Bank of England, the issues are so complex that we need to get on with it and put some of the elements into that draft Bill. If we are to have a Bill on its own, there has to be a commitment from the Front Bench that, in the next Queen’s Speech, there will be a financial Bill taking this on. We need clarity on that point for politicians and for the industry.

On the issue of the objectives of the new bodies, which we are discussing upstairs in respect of that Bill at the moment, such as whether competition should be the primary objective of the financial conduct authority, I think that those issues can all be reduced. I think the primary objective of all these bodies should be to have a fair and transparent market for financial services, which will lead to confidence. Do not say that you have to establish confidence without the ingredients for confidence. The transparency of the market is very important. To change that, we need to tackle the culture of the market. I think that if Vickers missed anything, it was looking at the issue of culture and governance.

I happen to be a member of the Future of Banking Commission, which I established along with David Davis, a former shadow Home Secretary, Vince Cable, who is now Business Secretary, Clare Spottiswoode, Roger Bootle and others. Surprisingly, one of our advisers was Father Christopher Jamison, the former abbot of Worth, because we wanted a wider concept of society in terms of the culture and philosophy of banking, and that proved to be very important. One of our witnesses was the noble Lord, Lord Green, when he was chairman of HSBC. He said:

“It is as if, too often, people had given up asking whether something was the right thing to do, and focused only on whether it was legal and complied with the rules”.

In that report, which we did pro bono, we suggested a code of conduct for the banking industry and a new professional industrial body along the lines of the General Medical Council or the Legal Services Board. If individuals in banking engage in misconduct, they would be struck off. I think that if banking wants to be seen as professional, it has to step up to the plate on that issue.

During our inquiry, we looked at the issue of culture and ethics, culture being behaviour and ethics being how to negotiate conflicts of interest. We got a very interesting contribution from Goldman Sachs, whose ethics code states:

“Integrity and honesty are at the heart of our business. We expect our people to maintain high ethical standards in everything they do, both in their work for the firm and in their personal lives”.

Hear, hear to that; but ominously, there was a rider, which said that from time to time, the firm may waive certain procedures of the code. However, we do not want an opt-out. It is for us as legislators to look at such fine words to see what they mean and to put them under a microscope and ask “What will that mean in practice?”. It is only culture and behaviour that will change the financial services industry in the long term. My plea is that companies that are presently looking at their business models as a result of Vickers should incorporate that issue of culture and ethics.

But behind Vickers, we need to ask the question of what it will do for jobs and growth. That is the shadow that is overhanging us at the moment. The prosperity of society is behind all this. I remind noble Lords that economic prosperity and social stability go hand in hand, and if we forget this, we may get one but we will damage the other and damage society at the same time. We cannot afford to do that.

14:47

[Baroness Valentine]

My Lords, I am chief executive of London First, a not-for-profit business membership organisation that includes businesses from a range of important London sectors, including banks, professional services firms and their customers.

I start by joining others in thanking the noble Lord, Lord Myners, for introducing this debate, but I thank him more for his swift action back in 2008. The Independent Commission on Banking has two aims: to increase stability and to increase competition. Clearly, both objectives are important and, like other noble Lords, I pay tribute to the approach that the commissioners have taken and to the experience and judgment they have brought to this difficult and contentious task.

Recent events in the eurozone have reminded us that the battle for financial stability has not yet been won, and factors beyond our control may yet have serious economic consequences. Within these constraints, the ICB has made credible recommendations about limiting the impact on UK retail banking, and therefore on the taxpayer, of any future shocks. The commission has also proposed welcome measures to encourage more banking providers to enter the marketplace to deliver more choice to businesses and consumers, pressure for lower prices and improved service, and a spur to innovation. That will support the one thing that we all want—growth.

However, a third and vital consideration has not been given equal billing: the need for the UK to maintain its global competitive position. My concern is that both in perception and in reality, Government must create a tax and regulatory framework that ensures that the UK remains an attractive place to do business. The Basel committee notes that the increased stability from higher capital adequacy ratios comes at the price of reduced economic growth. Concern has been voiced that the unilateral creation of a ring-fence and the imposition of higher capital adequacy ratios on retail banks will disadvantage the UK economy. However, it is unacceptable for taxpayers to bear the cost of poor lending decisions by banks, and better regulation can also be a source of competitive advantage, giving a more stable and reliable environment in which to do business. Confidence and trust are intangible but essential components of a successful business environment, particularly in the current climate.

The Government now have the important and complex task of finding the right place on the yield curve between risk and reward and stability and growth, and much of this devil will be in the detail. In this context, the debate about the timing of implementation is pertinent. The challenge is to do this as quickly as practicable but also to get the implementation as right as possible, and to do so based on a thorough understanding of the law of unintended consequences and the impact on growth. Not only do policy-makers need to understand the impact on bank customers and on UK and EU-regulated banks, but the changes sit alongside wider changes in tax and regulation, nationally and internationally, and an unsettled economic backdrop.

In the UK, we have strong reason to exercise particular care. Our success as a financial services centre is a vital component of our economic recovery and an Achilles heel in our reliance on the sector and our exposure to future shocks. Finance accounted for 10 per cent of GDP in 2009, which is significantly higher than in the US, almost double that of the Japanese and French, and well over twice that of Germany.

I commend the Chancellor's Statement in the Commons explicitly welcoming London's status as the pre-eminent global centre for banking and finance as well as supporting UK-headquartered universal banks. They form a key plank of our economic infrastructure, particularly given the experience of the repatriation of liquidity at the time of the last crisis, and government policy must not be indifferent to their fate. Similarly, real commitment to maintaining the City as the premier international global financial services centre is key. Although focused in London, financial services have a nationwide presence and national importance. They account for a million jobs directly, with another million in professional services, two-thirds of which are outside London. As the world's leading supplier of financial services, UK financial services contribute a net £36 billion to reducing our trade deficit. As the biggest taxpayer, accounting for 11 per cent of revenue paid in 2010, they also fund the services we hold dear.

Other countries eye our success covetously. The Chinese Government are attempting to establish Shanghai as a leading international financial centre by 2020. During the Prime Minister's trip earlier this week, the Russians sought UK expertise in setting up an international financial centre in Moscow. Others, closer to home, have long dreamt of usurping London.

With these thoughts in mind, I commend the Independent Commission on Banking for having navigated a difficult course. It is critical that we prevent any future recourse to the taxpayer. However, we must regulate so that it is safe for the UK to host a globally dominant financial services industry and attractive for that industry to call the UK home. I urge the Government to continue their dialogue with UK and foreign banks as well as with the businesses that are their customers. We must be mindful of the overall effect of the full range of post-crisis reforms, whether at national or international level, and our objective must, of course, be better, not just more, regulation, and therefore the reinforcement of the UK's competitive position.

14:53

[Lord Plant of Highfield]

My Lords, I thank my noble friend Lord Myners for initiating this timely debate. I shall concentrate my short remarks on issues to do with accountability and responsibility in the investment banking sector. These remarks are not the result of any specific expertise in the area. I am neither a banker nor an economist; I am an academic philosopher by trade. Nevertheless, these reflections, however naive, have led me in the direction of thinking that, at the very least, ring-fencing or complete separation of investment banking is the best that we should be looking to achieve, if it is politically feasible.

The character of the present banking system in the UK embodies the development of the liberalisation of financial markets pursued by both Conservative and then Labour Governments since the early 1980s. It is also the result of the growing globalisation of the economy, particularly of financial markets. As the noble Lord, Lord May, said, world financial markets are rather like an ecosystem in which a disturbance in one place can have major and unintended consequences elsewhere.

My argument is that the processes on which economic liberalism normally depends to constrain reckless behaviour have become less operative in the banking system. One of the major instruments for constraining reckless behaviour was the prospect of bankruptcy. People would make their investment decisions and their allocation of capital decisions in the light of the possible consequences in terms of bankruptcy. However, as we have seen in the past few years, this threat has become less and less plausible. This is partly because of the too-big-to-fail problem in which the bankruptcy of a major bank could have untold consequences for domestic economies and, indeed, for economies in other countries. The case of Lehman Brothers shows how unlikely it is for a large bank now to be allowed to fail. The situation has been exacerbated by globalisation. As banks are interlinked in this kind of financial ecosystem, the failure of one bank could have massive and wide-ranging consequences on the world financial system.

In addition, it seems to me that the internal controls exercised by banks on risk-taking behaviour have been eroded. By internal controls, I mean two things: the first is the role of the board of directors and its committees, and the second is the role of shareholders, which was mentioned by my noble friend Lord Myners. Why do I say that they have been eroded? The reason is that the products of the commercial or, if you like, disparagingly, the casino arms of banks have become extremely complex and, indeed, in the case of securitised assets, such as bundled-together mortgages, extremely difficult to understand. Often their worth is computed on the basis of mathematical models and the judgments of rating agencies, both of which are rather dubious in my view.

The economic liberalism that has allowed such assets to be created has drifted away from its original insight; namely, that economic and financial value is a product of individual preferences in a free-market context. Individuals making mortgage decisions are in that context when they initially take up a mortgage and buy a house, but as that mortgage becomes securitised, sliced up and bundled up with other people’s mortgages, those other people are also choosing mortgages for individual properties and so forth, and you are getting further away from the idea of a market value. The only way of imputing value to these securitised assets is through a rating agency using extremely complex mathematical models. If products become more complex and understanding of them is confined to a limited number of people, it is not clear how boards can properly supervise risk-taking behaviour or, indeed, have a clear sense of the value of their securitised assets. The same point applies to shareholders. There is asymmetry of understanding and information between those who are managing the assets and those whose job it is to have oversight and to determine whether undue risks are being taken.

In addition, there is asymmetry of motivation between the traders and the board. The incentive or motive of a trader on a bonus is to preserve his or her positions and not to render them wholly accountable to supervisory inspection. That is much stronger than the motivation of the supervisor who does not have that sort of financial stake. This is a consequence of the bonus culture. There have been spectacular cases, not the least of which happened today at UBS, that show the truth of this point. The ability of a trader to evade proper scrutiny and accountability is partly the result of the bonus culture and partly the result of the complexity of the assets that are being created and traded. There is an asymmetry of information and motivation between traders and those who are supposed to be supervising them. This also applies to shareholders. I am not at all clear how this can be overcome, except by ring-fencing at the very least, or, as I would prefer, a separation of investment banking.

David Hume argued in the 18th century that when we think about public institutions like banks, we should assume that people are knaves and we should try to erect institutions that protect us from that kind of behaviour. It seems that the most appropriate way of trying to protect ourselves from the utility-maximising behaviour that we all engage in, but which can have particularly dire effects in banks, is through either ring-fencing or separation.

We should be very wary of blaming the banking crisis on a failure of regulation. The bankers caused that mess and it is the bankers’ responsibility, by and large. To say otherwise is like blaming the police for criminal behaviour. Obviously regulation has to be improved and the Financial Services Authority did not cover itself in glory, but then neither did the Bank of England. We would be extremely naive to think that a new regulatory system is going to cure all the problems. It has to be a new regulatory system, plus separation of the investment banking sector.

15:02

[The Earl of Caithness]

My Lords, I am very grateful to the noble Lord, Lord Myners, for introducing this debate. It is very appropriate that we are having the debate on the third anniversary of the collapse of Lehman Brothers. I tried to get a debate on the interim report but it was not welcome, so I am even more grateful that he has got his debate today.

The noble Lord said it was the management and governance of banks that caused our present economic crisis. I disagree with him fundamentally. It is the banking system itself that is corrupt and dishonest, as I have been saying since 1997. One actually cannot blame greedy bankers for exploiting the existing system; it is the system that is wrong. My right honourable friend the Chancellor of the Exchequer, in welcoming the Vickers report, said the commission had,

“come up with an answer to the question of how Britain can be the home of successful international banks that lend to families and businesses without exposing British taxpayers to the massive costs of those banks failing. Frankly, it is a question that should have been asked and answered a decade ago”.—[Official Report, Commons, 12/9/11; col.757.]

I posed that question. In fact, I introduced a Bill in 2008 called the Safety Deposit Current Accounts Bill, but it was summarily dismissed in the House, as the noble Lord, Lord Davies of Oldham, will know because he spoke for the Government at the time. Therefore, I have been quite used to being in a minority of one in this House. However, today I see that I have more friends on my side than I have had for some time.

The report recommends that large retail ring-fenced banks should have equity capital of 10 per cent of risk-weighted assets and that retail and other activities of large UK banking groups should have loss-absorbing capacity of 17 per cent to 20 per cent of risk-weighted assets. Unfortunately in the report there is no definition of risk-weighted assets. Perhaps my noble friend on the Front Bench will tell us what he thinks Vickers meant by risk-weighted assets. I have googled it and there are various options. That ratio means that 90 per cent of large retail ring-fenced banks’ risk-weighted assets will still be exposed, as will 80 per cent to 83 per cent of large UK banking groups’ risk-weighted assets. Herein lies the rub. If one digs a little deeper into the report one discovers that risk-weighted assets represent only 50 per cent of total bank assets. Therefore, between 90 per cent and 95 per cent of deposits will remain exposed. That is why I call the recommendation of the ICB a partly secured current account.

In his Statement, my right honourable friend the Chancellor also reminded us that we are in,

“a decade-long, debt-fuelled boom that ended in a dramatic financial crisis, a deep recession and a debt overhang that is still holding back our economy”.—[Official Report, Commons, 12/9/11; col.757.]

In the light of this observation, I find it difficult to understand both his recommendations and those of the ICB. There is no doubt that the economy needs investment stimulus and that it needs it now. We can all agree on that. From where will the money for investment come? The banks legally own all the money deposited in them. That, of course, is all the money not in circulation. Therefore, most people and businesses that need money turn to the banks to raise it. However, banks provide money through the creation of new debt. Banks lend money. Yet we propose a solution that, by definition, produces new debt. Bank lending increases the level of debt. That is totally illogical.

Now that we all seem to agree that there is an overhang of debt that is holding back our economy, surely the last thing we need is yet more debt. The economy needs investment but it needs to be equity investment, not further debt. Equity investment stays in a business and remains its life-blood. Businesses need capital. Capital is an asset, debt is a burden. Contrary to popular belief, banks do not provide capital; they provide only debt. Unfortunately, the consequences of the judicial decisions of 1811 and 1848 mean that banks own all the money deposited in them; it no longer belongs to the depositors. Indeed on the day the Statement was read, on I think Monday, the noble Lord, Lord Elystan-Morgan, questioned whether that contravened the Theft Act. I wonder whether my noble friend would like to comment on that.

Therefore, access to most of the money in the economy is only through bank lending. That is what the ICB and the Chancellor should have addressed. I believe they both missed the mark by not dealing with this blockage to the flow of capital into the economy. Banks’ total ownership and control of all the money they hold allows that blockage. Ownership of the money in a bank rightfully, if not legally, belongs to those who earned that money and deposited it in the bank in the belief that it would be stored safely for them and paid out according to their instructions. Current accounts hold people’s family budgets and business budgets. It is their life-blood and should not be put at any risk. Banks often say they invest savings. That is misleading. They also use current account deposits for making loans and all loans have some risk.

The remit of the ICB was to ensure that there could not be another bailout of banks by the taxpayer, yet it recommends only a partially secured deposit system. Between 85 per cent and 90 per cent of deposits will remain at risk under the partially secured system that they propose. It is too little and it is too late. Such a system is doomed to failure. Parliament needs another option. I will retable my Bill, which I have amended slightly, and that will be an alternative for your Lordships to consider. If your Lordships think you have witnessed a banking crisis, I believe you have seen nothing yet. Under the present banking system it is bound to happen and it is not very far away.

15:08

[Lord Sawyer]

My Lords, I, too, thank the noble Lord, Lord Myners, for initiating the debate. It is always a pleasure to witness him in full flight on this issue, as it is to reflect on the contributions of other noble Lords who have expertise in this field. My life experience has been elsewhere and I have a limited knowledge of the university of banks and their various ways, but my interest in banks and financial services in general stems from the fact that these organisations are extremely powerful. They work in very complex and difficult ways, often unseen and unknown by their customers, and have a dramatic effect on the lives of ordinary people. That is why I intended to intervene in this debate. I want to explore what benefits, advantages and opportunities the commission on banking might hold for customers. That is what I am particularly interested in.

What does the lay person, the customer of a bank, make of the recommendations? Certainly, the ability to switch accounts more easily should be welcomed, although we have heard little of that today. We, the customers, do not want to travel in the direction of the energy industry with the ridiculously high level of cold calling that goes on to persuade people to change their providers. We hope that the Government will look carefully at the recommendations on switching.

If the retail ring fence can make retail customers’ deposits more secure and avoid the anxiety in people’s minds, it can also be viewed in a positive light. There are lots of arguments both ways around costs, viability and stability of the ring fence, but the general impression, the general consensus, and certainly what we have heard from the Government and the Opposition is that the principles are right and that we should see a programme for implementation.

There is still widespread disillusion with banks and the banking system. If these proposals do more than put in place technical mechanisms for the management of deposits, the customers need to be taken on board in a big way. I hope that if the Government decide to take this report forward, they will engage with ordinary people and customers to say what the advantages will be. At present, it is two cheers as far as customers are concerned.

The timetable seems rather long to me but I assume that in time, inside the ring fence, customers’ deposits will be safer and free from the financial speculation and exotica that scurry around the commercial banking system. I also assume that within the ring fence there will be a dedicated board of directors and perhaps different forms of governance than we have seen before that would give confidence that the banks do not wildly speculate with their deposits. This is what I should like the Government to consider.

In this period of careful implementation, which we have heard about, I should like the Government to press upon the banking leaders the importance of re-establishing trust with their customers. That can be done basically in two ways. First, they should talk to the banks about the possibility of including customer representation on the boards of the retail banks, along with the usual FSA-approved people whom I accept absolutely are necessary. Can we really have a serious conversation about having different sorts of people on the banking boards, including those with experience outside banking and who might bring a common sense to deliberations that has been absent in the past?

Secondly, there is a huge gap between the boards of banks and their customers. No matter who is on the board, the gap between the board and the customers is enormous. Banks try to bridge this gap with customer service, focus groups and other devices that are more about marketing and not at all about customer engagement. I should like the Government to open a conversation with the banks and to ask them seriously, as a result of this report and the possibility of the ring fence, and all that might happen there, what they can seriously do to engage customers more effectively in their work. I also believe—this is a really important point—that proper customer engagement can affect the behaviour of the banks. The problem in the past has been that top bankers have never had to talk to ordinary customers. If they have to engage with such customers, they just might see the world in a different way. It is important that the Government, who are our representative in these negotiations, take those points on board.

The world’s most ethical bank is the British Co-operative Bank. The behaviour of this bank is determined and shaped by the members on the board, 50 per cent of whom are not bankers, which is not a bad achievement for a bank. There are other institutions inside the Co-operative Bank which you do not find in other high street banks. It has a customer council that engages random customers in a dialogue with a top leader of the bank in order to determine how the bank should behave. I am not saying that every bank has to be a co-op bank, and I fully understand and accept that banks have a responsibility to their shareholders, but they also have a responsibility to their stakeholders, their customers and their employees. I am saying strongly that with 10 years’ experience of chairing a customer council within a bank and building society, the Vickers report implementation provides us with a new opportunity to open up a conversation with banks. Within the ring fence, I ask my friends in the banks what they can do to gain the trust of their customers once again. Can that be a bad thing? I do not think so. What can the banks do to engage customers and employees more effectively?

I know some of the answers but the answers have to be with the banks and not with me. All of us in this House will accept that customer engagement that brings the customers and the banks more closely together is a good thing. We would all support it. Let us work out a plan of how it might be done and let us see that the Government are on the side of the voters. I wait to hear.

15:15

[Baroness Kramer]

My Lords, in congratulating the noble Lord, Lord Myners, on achieving this debate, perhaps I may say that as I listened to him, I indeed thought of the Chinese meal that he described. He clearly got to the end, opened the fortune cookie and found a fortune that said, “Vickers has given you all that you asked for”. Then, given his position on the Benches opposite, he felt that he had to attack it for not dealing with every financial and banking problem nationally and globally. Vickers is just part, albeit a crucial and important part, of resolving our economic banking and financial crisis. We should be welcoming this with enthusiasm.

For my sins, for 15 years I was in the banking trade, primarily in the United States and in central and eastern Europe. One of the consequences is that I am a cynic. In my time I saw banks decline on the back of at least two devastating collapses in real estate markets, following the collapse of heavy industry in the north-eastern United States. I joined the Continental Illinois bank on 5 July 1982. On that morning it was the most prestigious bank and the largest lender worldwide to businesses. By that evening it was clear that fraud and incompetence in oil and gas lending had utterly destroyed the institution. But all that could be dealt with in that period because, essentially, the failure was contained. There were rescue plans, acquisitions, mergers and restructurings, but the banking system as a whole did not tumble as a consequence.

That is the change that we face today. The crises will not end, but we now live in a world of interconnectedness. That started out as a mechanism by which banks could manage risk, but essentially, through structured finance and derivatives, and the layering of transaction upon transaction on the back of an individual initial loan, a situation has been created where, rather than just the bank that directly made a stupid or fraudulent loan finding itself at risk, the whole system can be pulled down after it. What I so appreciate about Vickers is that it takes a sword and strikes right through that interconnectedness. Surely that has to be essential in what we do. The deep structural change being proposed is also, I would suggest, very hard to erode. I said that I am a cynic, and as a consequence of that, I do not believe that regulation, supervision or even living wills can, by themselves, eliminate or enable us to deal with systemic risk in our system.

Noble Lords might think that the regulators had no way of knowing in 2008 that we were entering a financial and banking crisis. Indeed, the noble Lord, Lord May, described the absence of various forms of systemic analysis that he is now hoping to introduce. But, frankly, if you ignored the top bankers and talked to the people I know—I have certainly never been a top banker or a board member—one person after another could have told you that the loan books were going wrong, there was bad stuff in them, there was a lack of transparency and a crisis was coming. The noble Lord, Lord McFall, is no longer in his place, but he was chair of the Treasury Select Committee on which I served briefly. We were in the United States in January 2006 and we talked extensively with investment bankers. Again and again they would say to us quite casually, “You understand that there are storm clouds gathering and a major crisis is coming in 18 months to two years off the back of some of the ridiculous home mortgage lending that has been happening in the United States”, and they mentioned various other problems. Trying to tell the Treasury about it was absolutely impossible. Trying even to tell the Americans via the British embassies in the United States was impossible. There was a sort of dewy-eyed belief in the investment banking system, and the regulators caught the same disease. It strikes me as something that is inherent at the top levels of the banking system. I noted when reading Alistair Darling’s memoir that the arrogance tends to come through. However, it is not the case for everybody.

Banking is an industry in which structural barriers have to be put in place. You cannot rely on regulation and supervision, not just because of the frequent absence of common sense but also because I think that we can guarantee that the leaders of our various banking institutions will, within 36 months, be back in through the door of the regulators and the Treasury trying to persuade everyone to go back to a much lighter touch. It is far harder to change structural division than it is to constantly amend regulation at the fringes. That is why it is absolutely crucial.

Many noble Lords have talked about the increased costs involved in separating the banks, and I fully accept that. However, there are some counterweights, and I again recall my own time in banking. When there was separation of companies which by culture and by customer focus essentially did not belong together, both received a new lease of life. Retail banks are suddenly free to be genuine retail banks, with different training and corporate structures, and can look at their customers in a different way. They should become far more competitive and responsive, and much more competitive in terms of price than one might think given the difference in their capital ratios and the additional costs that fall on them. Indeed, we might even see some new excitement and innovation in the investment banks when they no longer find that everything they do is masked by the pool of retail deposits. When they have to face that reality, I suspect that they will be equally innovative. That is one of the reasons why I am happy to say to the noble Baroness, Lady Valentine, that I am not afraid for London’s pre-eminent position. The artificial intermingling of two very different kinds of institution has been demonstrated in other industries to do no one any good, so I do not think that we are going to see the kind of damage which many have been afraid of.

I have two final comments. The first is that it would be interesting to have an opportunity to focus much more on the whole range of measures that are being used to deal with our financial and banking crisis. I was struck by the concerns expressed by Donald Kohn, an external member of the Financial Policy Committee, about the lack of transparency and,

“the re-emergence of complex instruments with chains of counterparty exposures that are not transparent or well understood”.

We have talked in this House about “dark pools”. There are a lot of issues that have to be dealt with alongside because we have highly fragmented financial markets. We are also seeing relatively little in terms of international co-ordination at the moment. If one thinks in terms not just of Vickers but of Basel III, the EU capital requirements directive IV, the Dodd-Frank Act in the United States, the EU insurance industry Solvency II rules, one sees myriad things happening. I should love to hear from the Government that we are seeing some co-ordination among all this, because fragmentation makes decision-making difficult.

The noble Lord, Lord Sawyer, was one of the few noble Lords who spent a lot of time talking about the change in the competitive environment for retail banks. I am going to take this chance to make one last plea: that one of the considerations for the bank that comes in and joins our high street is that it will service micro and very small businesses and economically disadvantaged individuals who are of no interest to our mainstream banks. If we could kill those two birds with one stone, I would find Vickers to be something close to a perfect report.

15:25

[Lord Davies of Abersoch]

I declare a range of conflicts, as I work with a number of companies in the financial services industry. Until I became a Minister in the Government, I had been a career banker—I should perhaps lower my voice at this stage. I love the industry, which may be an unfashionable thing to say, and found it to be an industry with huge integrity. In fact, I was going to thank my noble friend for introducing this debate until he described the bankers as either thieves or pimps operating in a shallow money trench—I shall pass over that quickly.

I was lucky enough in my career to become a chief executive of a bank and a chairman. I served more than 12 years on the board of Standard Chartered in Asia and London. So many factors affect running a bank; it is, after all, the risk business. This is a business where you need trained professionals who operate within a strong culture. Culture and values are just as important as balance sheets. If you have the wrong culture in an institution, you will go bust. It is also important to have checks and balances. We have touched on auditors. Auditors were missing in the run-up to the financial crisis. They were not mentioned in the report; they should have been.

This morning’s announcement of UBS’s losses of $200 billion highlighted yet again that this is an industry which has the capacity to shock. You cannot have an autocratic style in a bank. You need pragmatism and caution; you also need a balance between risk and reward. So much of running a bank is about the board of directors and the relationship that the executives have with the board. It is also about having individuals and the blend of experience and skills to govern a bank. In a number of the British institutions, we did not have the right mix and we paid the penalty.

Banks and financial companies are complex and operate with sophisticated products. We should never forget—I know because I was a chief executive—that the shareholders of the companies were pushing CEOs to grow faster and expand more aggressively.

Every crisis, whether it is dotcom, Russia, the Asian crisis or even the tulip crisis many moons ago, has taught us that bubbles occur, that markets collapse and that management has to scenario-plan and think through the downsides. Culture, values and skills are all key ingredients, supplemented with proper supervision. There was insufficient supervision.

It is important to highlight that is an unusual industry because you are playing with other people’s money. You are selling products that you want back, perhaps after 40 years in the case of a mortgage, in arguably better condition than when you sold them. If you get it wrong, the consequences for society generally are catastrophic. Contrary to the “casino” image that goes around, most banks facilitate trade and support their consumer and corporate customers—with foreign exchange, trade, term loans and mortgages. During the past few decades we have seen the world become a smaller place. Companies today source from Bangladesh and Shenzhen. They sell online; they sell in the high streets of all the UK. We are living in a true global economy. Banks such as Barclays, HSBC and Standard Chartered typically operate in more than 50 countries. They may be British, but they are multinationals, like Coca-Cola, Unilever and Vodafone. They cannot operate with 50 different regulatory approaches. The Vickers report may have some great recommendations, but we are part of a global economy.

I turn to another issue. London, through focus, through its timeline and through a clear strategy, has become a top-three world centre of excellence, particularly in insurance, foreign exchange and wholesale trading, et cetera. Now is the moment to learn from our mistakes. We have to yet operate within the global economy; we have to keep London’s top-tier position; yet we have to protect the consumer and the taxpayer, and we have to be balanced—something that so many banks got wrong. That is the nature of the dilemma that we are facing today.

The regulators, as I said earlier, missed it. Boards missed it. The shareholders and owners missed it; they were nowhere. A very large bubble burst and nations have paid a huge cost. Now, as we talk about the Vickers report, we have another European crisis to add to our worries. The one thing that the report does not mention is that all these crises have one characteristic, which is the shortage of liquidity. When you run a bank, so much of your conversation is making sure that you have the right liquidity—the right funding. Northern Rock did not have it and neither did some of the other banks, and they collapsed.

This is a global, international industry and political leaders at this moment have to be just that: leaders. We need a global standard, not a set of British, Indian, Singaporean or even American initiatives. The regulatory arbitrage that will result from the implementation of the Vickers report if the US, Hong Kong and other places go with a different model will result in a much bigger unintended consequence—lower lending and a major global slowdown.

[Lord Lawson of Blaby]

The noble Lord speaks with immense authority and therefore it is important to tease out one particular point that seems to be emerging. Is he actually suggesting that we do nothing in this country along the lines of the Vickers report or whatever until we have a global agreement, which might take goodness knows how many years and might never be attainable?

[Lord Davies of Abersoch]

No, not at all. This is the moment in history where we use the Vickers report and the European crisis and in the next six months we come and agree a global accord for liquidity and capital. We must not end up with a system whereby we impose the separation of retail and investment banking on an HSBC or a Barclays when Jamie Dimon—the chief executive of one of the largest banks in America, JP Morgan Chase and Co—made it very public when he said in the FT:

“I am not sure that we should achieve even Basel III regulations in America. They are too strict”.

If one of the key competitors of an HSBC, Barclays or Standard Chartered is saying in America that it is not even going to comply with Basel III, we will have a major regulatory arbitrage in the world. Long term, that is a big mistake.

If you are a chief executive or are on the board of the bank, you have to ask which centre you should have your head office in. The amounts of capital required are extraordinary. The Vickers report has huge implications. I have great sympathy with separating retail and investment banking. They are fundamentally different businesses. But let us truly understand the amounts of capital that will be required to fund the investment banks with the capital ratios that are being suggested before we rush to a law.

We need to be very aware of the political anti-banker bashing. We have had that and we need to move on. We need to move into an era where the G7, G8 and other applicable countries come together, learn the lessons and in the next six months agree a regulatory framework.

Autocratic leadership, reckless lending abroad with the wrong make-up, a disastrous acquisition coupled with shareholders who seemed to egg the bank on—that is the story of RBS. It was not actually about capital: it was so much about the culture of the board. I am concerned about a move to saying that the answer to all the banking problems is just capital. It is not.

The important thing about banking is that retail banking is all about small loans and a huge volume of customers. The other thing that the Vickers report misses is that it is increasingly difficult to fund a retail bank without wholesale deposits. That is the fundamental issue for the future of banking.

15:35

[Viscount Trenchard]

My Lords, I, too, congratulate the noble Lord, Lord Myners, on introducing this debate. It is certainly to be welcomed that your Lordships’ House has an opportunity to discuss the Vickers report during the week of its publication but the other side of that is that not all noble Lords have had time to read every word of the report yet. I am afraid I count myself among that number. Like other noble Lords, I congratulate Sir John Vickers and his colleagues on their hard work in addressing the very complicated task set for them by the Government.

I must declare an interest in that I am employed by Mizuho International plc, the investment banking and securities subsidiary of the Mizuho Financial Group of Japan. I have been a banker for 38 years. I joined Kleinwort Benson in 1973, at which time it was what my noble friend Lord Lawson called a merchant bank. However, it actually combined both a significant commercial banking business and an emerging securities business, which was developed further after we bought the stockbroker Grieveson Grant and bond and equity underwriting and fund management businesses, so that part of what we did was—in Vickers parlance—ring-fenced and part was not. At that time, there were not in place the ring-fencing restrictions of the kind now being proposed. Even though I am a banker, I would not wish to argue that nothing needed to be done in response to the financial crisis and the collapse of several leading banks. However, in proposing the unilateral adoption of a strict ring-fencing of retail businesses and significantly higher capital requirements than internationally agreed levels, Vickers surely underestimates the damage to London's position as the world’s principal financial centre.

I entirely agree with what the noble Lord, Lord Myners, said about governance and the need to concentrate more on it. The report is somewhat thin on that and I think it is also true that Vickers does not adequately address the reasons for the banks’ failures. They were somewhat different in each case, while the banks that failed were not like each other in any particular regard. It is absolutely not necessary or desirable to introduce these additional reforms, certainly at present given the economic background with the euro situation and other things. The effects of the already increased capital requirements, the bank levy, restrictions on remuneration and stricter regulations have already completely changed the environment in which banks operate.

It is absolutely right to set up a framework which minimises the risk that the taxpayer will again be required to bail out our banks. However, I fear that the gold-plated additional capital requirements, over those internationally agreed in the Basel III framework, together with a very cumbersome proposed regulatory system and the ring-fencing proposals mean that the greater risks which the taxpayer faces today are very different from those from which Vickers seeks to protect him. International banks’ perception of London's attractiveness has already changed for the worse. The problem with our regulation is not that we did not have enough but that the FSA did not do what it was supposed to do—and did not work effectively with the Bank of England.

Several major banks are already booking more business in other centres, and new businesses that would have been set up here are now not going to be. There are already fewer banking jobs and reduced income tax revenues from bankers, in spite of the 50 per cent tax rate. I welcome the Chancellor's decision to launch an inquiry into whether it is a net contributor. If our banks are so encumbered, with too much detailed prescriptive regulation and unnecessarily large capital buffers, they will cease to be competitive compared with their international peers. They will lend less to smaller companies and their margins will have to be higher. This will restrict growth in the economy. That will prevent the Government from restoring our former competitive tax rates, which played a part in establishing London’s leading position.

If the banks are broken up as proposed, that will have a serious adverse effect on the price and the timing of the Government’s intended sale of shares in RBS and Lloyds. Furthermore, the ring-fenced retail banks will not find it easy to issue the additional equity and debt securities that they will be required to under the proposals.

I welcome the report’s recommendations to make account-switching easier, but I rather wonder what will be the point of doing so if every Vickers-style retail bank is identical, offering the same products probably on identical terms. I would rather that the customer had real choice of what type of bank he switched to. For example, he might see a significant difference between RBS with its significant investment banking business and Lloyds with very little.

I refer noble Lords to the article by Sir Martin Jacomb in yesterday’s Financial Times. As noble Lords will know, he is a distinguished banker. He was a vice-chairman of Kleinwort Benson when I joined and went on to be chairman at BZW and, later, the Prudential. As he argues, when Governments decide that retail depositors must not lose money and that some banks are too big to be allowed to fail, regulation becomes essential and the importance of sound management is diminished.

My noble friend Lord Lawson argues for a return to the separation of banks and investment banks. I think that I have heard him on a previous occasion advocating the introduction of a Glass-Steagall Act in the United Kingdom. As Sir Martin points out in his article, though, Glass-Steagall was abolished because customers want the services that universal banks can provide. In any event, the purpose of Glass-Steagall was completely different from that now sought by the ring-fencing proposal.

I do not believe that ring-fencing is the answer or that the lack of it was the cause of the bank failures. Neither do I think it likely that any other country with a significant financial market will introduce it. Even in a Vickers-style ring-fenced retail bank, there will still be some risk. We should beware the paradox that a system to limit risk invariably increases it.

15:40

[Lord Wood of Anfield]

My Lords, I thank my noble friend Lord Myners for making this debate possible. I am grateful to him, the noble Lord, Lord Lawson, my noble friend Lord Davies of Abersoch and others for their expertise and insight. It has been a real treat and has given me serious food for thought. Unlike many noble Lords, I have no particular expertise. The only interest that I should declare is that I have a current account and a joint savings account with First Direct.

Like many noble Lords, I would have liked Vickers to have gone further. I support, though I will not repeat, many of the concerns of my noble friend Lord Myners, the noble Lord, Lord Lawson, and others. However, I am also aware that the best should not be the enemy of the reasonably good and that, contrary to some of the views that we have heard from people in the banking industry over the past few days, time is pressing.

I want to make some points about the importance of ensuring both that the recommendations of the commission on banking are implemented swiftly and that we do not make the mistake of thinking that the set of issues addressed by the commission, crucial in protecting taxpayers as they are, somehow completes the task of addressing the full range of problems related to our banking sector that were thrown up by the financial crisis, the ensuing recession and the continuing economic slowdown.

It is good to hear strong support for the proposals of the commission across the political spectrum. There is widespread recognition that the two key proposals in the final report—the requirement for the ring-fence to protect individuals and small business and the stipulation of minimum capital requirements—are tough as well as right. They offer the prospect of much more effective protection for ordinary depositors, small businesses and taxpayers alike. They are serious proposals, which are commensurate with the seriousness of the structural problems in our banking industry revealed by the crisis. The primary challenge now is for the Government to show decisiveness in response to the commission, not simply by welcoming it—although I am glad that they have done that—but by legislating sooner rather than later. Acting swiftly should not be tendentiously misinterpreted as acting rashly.

The magnitude of these changes requires that they are made in collaboration with the banks. The structural changes to banking operations need to be planned and tailored to each bank, as Vickers notes. Minimal capital requirements cannot be introduced overnight. All this is understood. However, an early and swift move to legislate is crucial, first, because the banking industry itself and its shareholders and customers need certainty to plan ahead. Secondly, we need to send an unambiguous signal that the period of lobbying to contest both the basic approach and the provisions of reform is now over. We have all noted the noises off, as well as some noises on, from the banking industry over the past few days, as well as some of the thin praise uttered though gritted teeth by others. However, I hope that our leading banks recognise that the Vickers recommendations will be implemented and co-operate in making that happen promptly and smoothly.

The Government have a role to play here, too. If they allow a mood music of reticence, foot-dragging and uncertainty to emerge after the publication of the report, they may give false hope to the small—we hope—minority in the banking community who want to turn a period of reflection on how to implement Vickers into a period of rethinking whether the recommendations should be implemented at all. That is why I join the noble Lord, Lord Newby, and others in urging the Government to get on and legislate in the near future, and to agree that the upcoming financial services Bill is the best vehicle to do as much of the work as possible in laying the legislative groundwork for these reforms.

Secondly, I hope the Government remain robust, both privately and publicly, in rebutting the criticisms that have been lodged against these recommendations. Some have said that the reforms will damage the competitiveness of British banks, penalise shareholders and lead to an increased cost of credit. However, underlying these criticisms is a slightly false choice between the competitiveness of our banking sector and the stability of the banking system as a whole. We cannot afford to base the banking industry on inadequate regulatory standards that cost the British economy more in the long term and—in times of economic crisis, as we have realised in the past few years—sometimes in the very short term, too. The aim of these reforms is to protect the long-term stability of the banking system and the taxpayers who have in the past few years been called upon to guarantee its health, in a way that is consistent with maintaining the banks’ competitiveness and improving their services to depositors and businesses. The important issue is not whether there are some trade-offs in the short term between some of these objectives—there probably will be—but whether the recommendations as a whole are right for a sector that has been through such turmoil and caused such turmoil for millions of ordinary people.

The recommendations of the commission are important, and it is important that the Government act swiftly to get the ball rolling on making them a reality and hold the line against those who want to derail this process. It is equally important to recognise that there is a set of related issues around the activities of our banks and their relationship to the wider economy that cannot and should not be parked, but requires action in parallel with implementing the commission’s recommendations. I agree with the noble Baroness, Lady Kramer, that Vickers cannot answer all the issues surrounding our banks and the problems that we have experienced. My concern is that these other issues are addressed—and addressed in parallel.

First, as many noble Lords have said, the commission has some good recommendations on competition in the banking sector, particularly on greater divestiture of Lloyds branches, account switching and the case for a new challenger bank, although detail on how to achieve some of these is a bit slight. However, I am puzzled as to why the commission has backtracked on its interim report recommendation that the Financial Conduct Authority should have a primary duty to promote competition, to saying simply that the duties of the FCA should go in a more pro-competition direction. I hope that this is not a prelude to a weak rather than a strong competition role for the FCA. In addition, the recommendation that the Government should wait a full four more years before even considering a Competition Commission reference two years after these reforms should have come into effect, seems a bit lax and not to reflect the importance of ensuring greater competition as soon as possible.

Secondly, the Chancellor said on Monday that one reason for his caution in progressing quickly with the Vickers recommendations was that he did not want to,

“damage credit supply in the short term”.—[Official Report, Commons, 12/9/2011; col. 770.]

I welcome the Chancellor’s early and clear support for the report as a whole. However, I think that many people will be surprised that concerns about the weak supply of credit lurk behind some of his scepticism about the banking commission’s reforms, when at the same time the Government have done so little to get credit flowing from our banks to our small and medium-sized businesses over the past year and a half. This is, of course, in part a consequence of a policy choice of a contraction in economic policy during a period of prolonged stagnation. But more specifically, I hope that the Government now take up the Governor of the Bank of England’s idea of instructing UKFI to require state owned banks to increase lending now.

Thirdly, the Vickers proposals on structural reform of our banks are intended to protect taxpayers’ interests in the event of future bailouts. We all understand that but we must remember that the financial crisis threw up other activities and practices that undermined the stability of the banking system as a whole, and on which Vickers’ report says not as much. In particular, we know from the past decade the risks of activities such as proprietary trading where banks essentially develop internal hedge funds and trade using their own rather than their clients’ money—activities which were associated with the crises at Drexel, Barings, Salomon Brothers and others. We know that proprietary trading can lead to concerns about conflicts of interest that undermine confidence and increase the fragility not only of individual banks but of the banking sector as a whole. In the United States there is a strong debate going on in Congress and elsewhere about how to respond to this problem. Opinions differ on that, but there is a recognition that there is an issue that needs to be addressed. I hope that in the coming months the Government set out what their thoughts are on this important area of financial regulation. Perhaps the Minister might say something about his thoughts on that.

The ICB’s report has already succeeded in commanding authority and respect in the academic and policy communities, and in creating a cross-party consensus. It should be applauded for that.

[Baroness Garden of Frognal]

My Lords—

[Lord Wood of Anfield]

I am sorry. I have just one or two more sentences. The key message here is that the ball is now in the Government’s court. I hope the House will agree that if we want British banks to be not only world-leading, secure and efficient but also the servants of ordinary depositors and of businesses whom we rely on for jobs and prosperity, we need to maintain the level of ambition and urgency that this report demonstrates.

15:52

[Lord Davies of Oldham]

My Lords, the House is indebted to my noble friend Lord Myners not only for securing this extremely timely debate on such an important and pressing subject but for identifying the issues raised in the Vickers report and seeking to put them into context, including issues that perhaps Vickers addressed more marginally, if at all. I am grateful that this theme was taken up, most significantly by the noble Lord, Lord May, who illuminated the debate with his analysis of the problems of systems and how we need to address ourselves to the totality. He was followed by my noble friend Lord Plant who was keen to emphasise that bankers should act with a sense of morality to enable our country to be better served than it has been in the recent past.

First, I wish to concentrate on some basics, as did a number of noble Lords. I am not going to follow the noble Lord, Lord Griffiths, my noble friend Lord Liddle, or, I think, the noble Lord, Lord Newby, who got involved in an evaluation of the report that gave rise to an academic nomination of its success rate. I am not going to give it an academic grade. I am going to say that as far as the Opposition is concerned the report is extremely useful in clarifying some significant issues. We are sufficiently in support of its cardinal points, particularly about ring-fencing, which is a tough and radical proposal and causes anxieties, which have been reflected by my noble friend Lord Davies of Abersoch and the noble Viscount, Lord Trenchard, about the care we need to take. I am very grateful for the noble Viscount’s contribution. We recognise the care with which we need to follow these measures.

We also need to put that into the context of what the country demands. It of course demands some security as rapidly as possible against the horrors that have been visited upon our fellow citizens as a result of the banking crisis of recent years, and the economic and financial crisis that is the consequence of it. That is why we support the report, but we are somewhat concerned about the timescale of implementation that the Government appear to be sympathetic to. I agree entirely with noble Lords who have emphasised this in this debate. It was begun by my noble friend Lord Myners, but others have supported the need for us to take legislative action as rapidly as we can. We all recognise that some fresh legislation will be necessary and that that will take some time, but the fact that we have a financial services Bill under some consideration by Parliament surely provides an option for early action to lay some of the groundwork on implementing some of the key features of the report.

I appreciate the aspects of the debate that have emphasised the degree of additional competition sought in the report. We share the anxieties that the FSA is not in fact being charged with quite the same proactive role to encourage competition as the earlier report presaged. Nevertheless, there is no doubt that it is important that we see the emergence of competitive banks in such a way as to, first, make us less dependent on the growth of the mega few and, secondly, provide greater choice for the consumer. It is clearly a reflection of a long-standing position in the community that the numbers of people who change their bank accounts—their current accounts—each year in Britain is a mere 6 per cent, which is less than in almost any other advanced country. That is a reflection of the fact that the consumer sees no overt advantages in competition between the retail banks, which we want to encourage. This report indicates a route down which that could be pursued. We want greater competition between retail banks.

However, we are also concerned about investment banks. For instance, it seems that the effective charges put on equity underwriting fees have increased enormously over the past 25 years—again a reflection of the rather closed circle in which these decisions and opportunities are expressed, rather than in a more open system. Of course we appreciate that the tougher capital standards that will be required will make demands upon the banking system, but the earlier we approach these issues the less the danger that ordinary members of the public will bear these costs, whether they are individual account holders or small or medium-sized businesses seeking to borrow at reasonably competitive rates.

This is of cardinal importance for business. Thus far, the Government have replied overwhelmingly, in all responses on the question of increased investment and opportunities for credit by banks to businesses, on the Merlin project. Clearly, the Merlin project is a failure. The amount of lending under that framework is falling year by year, at a time when it is so clear that we need to rebuild our small and medium-sized businesses in this country.

Finally, my noble friend Lord Myners broadened the context of the report by emphasising the international dimension. That theme has been picked up on several sides. I recognise the points made about the importance of ensuring that London is internationally competitive. I was very grateful for those contributions, which emphasised the significance of the finance sector to our economy.

It is clear that if we are to make progress on the effective structure of British banks, we need to appreciate the international context within which they work. That is why so much work needs to be done in the international sphere. If there is a criticism that I would want to express in a debate that has been largely free of party politics, while at the same time seeking to deal with the inherent nature of the problem that confronts us all, it is that the Chancellor ought to be more active in the international councils that set out to deal with international crises in circumstances in which we all recognise that we cannot solve the problem just on a British basis. However, the report, if implemented by the Government as rapidly as possible, can go a considerable way to creating security for our banking system and remedy the abuses of the past.

16:02

Lord De Mauley: My Lords, I congratulate the noble Lord, Lord Myners, on the timeliness of this debate. Even if I do not agree with everything he said, I thank him for his questions, because they set the parameters for the debate today, which was helpful.

When they came to office, the Government faced the task of establishing a new culture for regulation where irresponsible risks were unacceptable, while creating the space for innovation and commercial success. This included addressing the issues of financial institutions deemed too big to fail.

Alongside a wider programme of reform in financial services, the Government established the Independent Commission on Banking to formulate policy recommendations with a view to reducing systemic risk in the banking sector, mitigating moral hazard in the banking system, reducing the likelihood and impact of firm failure, and promoting competition in both retail and investment banking.

I join others in thanking and paying tribute to Sir John Vickers and the other members of the commission, Clare Spottiswoode, Martin Taylor, Bill Winters and Martin Wolf, for their work during the past 14 months. Theirs has been little short of a herculean task, producing an issues paper, an interim report and now their final findings—in all, more than 600 pages of documentation. They have sifted through more than 300 submissions and thousands of pages of evidence from market participants, consumer groups, individuals and wider society. I say with great respect to the noble Lord, Lord Myners, that I think his criticisms are more than a little unfair.

However, I agree with him that decisive action is needed to reform financial services and to ensure that the sector is responsibly managed and well regulated. I shall set out the commission’s key recommendations and how the Government intend to respond.

The report proposes a high ring-fence around retail banking to protect the provision of vital retail banking services, such as taking deposits from individuals and small businesses and the provision of overdraft facilities. Furthermore, it adds that retail subsidiaries should be able to operate and meet regulatory requirements independently and that relationships with the rest of their group should be conducted in the same way as with third parties. I can confirm to the noble Lord, Lord Sawyer, that the ICB proposes that they would have separate boards of directors and I welcome some of his other helpful suggestions. In answer to the noble Lord, Lord Wood, the report is clear that proprietary trading, about which he was concerned, is very firmly outside the ring-fence.

As my right honourable friend the Chancellor has said, we welcome this recommendation in principle, as we do the commission's other proposals. Successful implementation of them will allow us to resolve universal banks more easily in the event of a crisis, without affecting vital payment systems or banking services. They will also help to address issues such as the perceived implicit guarantee from taxpayers of so-called too-big-to-fail institutions.

Today there were powerful arguments from my noble friend Lord Lawson and the noble Lord, Lord Plant, among others, for total separation. Decisions on implementation will be taken once the Government have considered the report. The Government accept in principle the ICB’s recommendation that retail banking should be ring-fenced. For any ring-fence to be practical, it will need to be set up so that high-street banking can still provide vital banking services efficiently. The Government’s response will be announced by the end of the year; however, the ICB believes that ring-fencing can achieve equal benefits at a lower cost because total separation could have a higher economic cost than ring-fencing in terms of efficient intermediation between saving and investment, diversification of risk and customer synergies. It is not clear whether total separation would make for greater financial stability, as it would preclude support for troubled retail banks from elsewhere in banking groups and because total separation is harder to enforce under European law inasmuch as universal banks in other member states would still be entitled to own UK retail banking operations.

The point of firewalling is not to eliminate all risk, but to minimise the cost to taxpayers should a bank fail. These measures should not be seen in isolation. The noble Lord, Lord Myners, referred to governance. Here the Government are taking strong action on financial regulation. The UK's resilience to future crises will be strengthened by the creation of a new prudential regulation authority as a subsidiary of the Bank of England. To complement it, the Financial Conduct Authority will provide strong conduct regulation across the industry.

The noble Lord, Lord Myners, and my noble friend Lord Lawson asked an important question about who will monitor the integrity of the ring-fence. The FSA and the future prudential regulatory authority will be responsible for supervising UK deposit-takers. Recovery and resolution plans will provide the regulators with a basis on which to assess whether a bank is resolvable. As set out in the PRA White Paper, bank resolvability will be at the heart of supervisory risk assessment of United Kingdom banks.

The noble Lord, Lord McFall, asked whether a ring-fence is permeable and whether it contains any doorways between the retail and investment bank and how firm will be the separation. The retail ring-fence will limit the funding and capital exposure to the investment bank. The ring-fenced bank will be able to access funding only from the investment bank on a third-party basis as though it were borrowing from another bank. Those restrictions are part of limiting contagion in the event of failure, ensuring that the ring-fenced bank can continue operating, should the investment bank fail. The Government will examine those proposals in detail and respond before the end of the year.

My noble friend Lord Griffiths asked about ring-fencing for retail banks and suggested that it did not address the Lehman risk or the financial stability consequences of allowing the investment bank part of a universal bank to collapse.

Ring-fencing the retail bank will mean that it can continue functioning even if the investment bank were to collapse. However, it is essential to consider the stability benefits of ring-fencing as part of a wider package of reforms, of which I spoke earlier. Vickers has presented his report as a package aimed at improving bank resolvability and reducing taxpayer exposure.

Turning to loss absorbency, the commission recommended a 3 per cent equity surcharge for large, ring-fenced banks, over and above the minimum 7 per cent required under international requirements, giving an overall equity capital requirement of 10 per cent, supported by a tighter leverage cap than proposed in Basel III. The commission also recommended that banks be required to hold so-called bail-in bonds and for this to be supplemented by a backstop statutory bail-in power to improve their loss-absorbing capacity in resolution and ensure that bondholders share the costs of bank failure. I thank the noble Lord, Lord May of Oxford, for his fascinating contribution which, I think, focused on this area and I would like, if I may, to think further about what he said.

My noble friend Lord Caithness raised the issue of the adequacy of any particular level of capital. The ICB has done a great deal of work examining what happened in the recent crisis and has not lightly recommended a loss-absorbing capacity of between 17 per cent and 20 per cent of risk-weighted assets for the UK’s largest banks. The Government will, as I have said, review these recommendations and particularly how these impact upon our banks in different ways. My noble friend also asked for a definition of risk-weighted assets. I approach this question with some trepidation, but in outline, risk-weighted assets are a regulatory measure of the riskiness of certain assets and are used to calculate the level of capital a bank should hold, based on the riskiness of its asset base. For example, cash has a zero risk-weighted asset factor applied to it and therefore requires no capital to be held against it.

The third area of the ICB’s recommendations is the depositor preference for deposits covered by the financial services compensation scheme to give depositors super-senior status over other unsecured creditors.

Finally, there are a number of recommendations to improve competition in the banking sector, including an account redirection service, to which the noble Lord, Lord Sawyer, referred. I assure him that we will be examining it carefully. It will make it easier for personal and small business customers to switch their bank account from one bank to another. Other recommendations include welcoming the Financial Conduct Authority’s proposed statutory competition duty while proposing changes to the treatment of competition and efficiency in its statutory objectives, reiterating that the Lloyds Banking Group divestment should deliver an effective new challenger and recommending that the Office of Fair Trading should review progress against these measures in 2015.

The noble Lords, Lord Myners and Lord Davies of Oldham, asked what is proposed to increase competition. It is clear that the UK banking market needs increased competition. The ICB puts forward sensible proposals that the Government will consider. The proposals on account switching—making the switching process easier, faster and risk-free for consumers and small businesses—will empower bank customers to hold their banks to account better. The ICB also recommends giving the Financial Conduct Authority a primary duty to promote competition. We agree in principle with all the recommendations and will need to work through them in detail. Allied to this, the noble Lord, Lord Myners, asked what the Government are doing to encourage new entrants. The Government are committed to reducing barriers to entry in retail banking, subject to the risks which we must, of course, take into account. The Financial Services Authority has taken steps to reform the new bank authorisation process—the application process for prospective new banks. The process is now more streamlined, with “minded to approve” letters now provided to applicants to provide feedback. Numerous new banks and lenders are currently going through this process. The Government will consider the ICB’s competition recommendations carefully to see what more can be done to foster an environment in which banks better serve their customers.

The noble Lords, Lord May and Lord Wood, asked about a review of the market by the OFT. The ICB’s competition proposals include measures on transparency, switching, the objectives of the Financial Conduct Authority and the Lloyds divestment. These measures cannot be implemented overnight and it is important to get them right. The FCA still needs to be set up by the next financial services Bill and the finer details of the transparency measures still need to be worked out if they are to be implemented. The Government believe that a competitive market is, by and large, the best way to achieve positive outcomes for consumers and the economy and we will carefully look at the timing by which any competition measures can be achieved.

The Government are very grateful for the proposals that were put forward by the ICB. We recognise the need to give industry certainty. To that end we will begin considering and consulting on the costs and benefits of what has been proposed, and examine the design and implementation options that might be available, so that we can provide the Government's initial response to the commission's proposals before the end of the year.

As the Chancellor made clear in his Mansion House speech, the Government will judge the commission's final proposals against the condition that, as the noble Lord, Lord McFall, said, a bank should be allowed to fail without affecting vital banking services, without imposing costs on the taxpayer, and in a manner applicable across our diverse sector and consistent with EU and international law. We will then seek to implement any resulting measures according to Sir John's recommended timetable, with any necessary primary legislation by 2015 and implementation by 2019.

The noble Lords, Lord Myners and Lord Davies of Oldham, and my noble friends Lord Lawson, Lord Griffiths and Lord Oakeshott, spoke about the speed of implementation. Not all of them came at it from the same direction. The Government have welcomed the suggestions in principle. However, as Sir John noted, these are extremely complicated, far-reaching and detailed proposals. The report acknowledges that the additional capital measures in particular will need an implementation period of the order recommended. Crucially, as my noble friend Lady Kramer and the noble Lord, Lord Davies of Abersoch, said, we need to consider the changes with international partners to ensure consistency with international agreements, in particular Basel III and EU law.

Powerful arguments were made today for the Government to get on with it. I acknowledge that need. There is every intent in government to act in a timely manner, and I will welcome further debates and questions, which I have no doubt that noble Lords will bring to your Lordships' House to keep up the pressure.

Noble Lords raised a number of other issues in the debate that will need to be considered by the Government ahead of their response. The noble Lords, Lord Myners and Lord Wood, and my noble friends Lord Lawson and Lord Newby, were among those who asked how the proposals would be legislated for. The Government will consider ICB implementation options between now and the publication of their formal response. To the extent that the Government decide that legislation is necessary, they will set out their plans before the end of the year, with the intention of legislating by 2015.

The noble Lord, Lord Myners, asked whether there would be a buyers’ strike for senior debt. It is fundamental to market discipline that private investors, not taxpayers, bear the losses where a bank fails. The Vickers report contains analysis of the kinds of losses that investors might absorb to leave the taxpayer protected in the event of bank failure. The Government will now consider the potential market reaction, as well as any interaction between this proposal and others in the report, and will respond in full later in the year.

The noble Lord, Lord Myners, and my noble friend Lord Lawson asked whether the bank levy would be dropped. I noted the comments attributed to Mr Winters in today's newspapers. The bank levy has been an important part of the Government’s reform of the banking sector. I note that the idea of dropping it was not in the report. However, the Government will consider the overlap between existing policy and the Vickers report in drawing up their response.

The noble Lord, Lord McFall, referred to the vital issue of economic growth. This is an important issue that the Government will keep continually under consideration and bear closely in mind as they consider the report. The recent financial crisis demonstrated the significant detrimental impact that failure in the financial sector can have on the real economy and public finances. The Government are clear that decisive action is needed to reform the financial services and ensure that the sector is responsibly managed and well regulated.

The noble Lord, Lord Liddle, asked what impact these proposals might have on lending. This is of course related to growth, and something that we will consider carefully. As the report says, ensuring that banks are more robustly capitalised, and creating a ring-fence, would provide a secure and stable framework for the supply of credit to businesses and households in the UK economy. Ring-fencing should strengthen, not weaken, the framework for the supply of bank credit to households and businesses in the economy.

My noble friend Lord Trenchard took the most extreme position against the ICB's proposals. I will not respond to him today, but will be happy to do so afterwards. However, I am a long way from agreeing with his central thrust.

The noble Lord, Lord Liddle, referred to Project Merlin and the noble Lord, Lord Wood, also asked about actions on lending. In February, the Chancellor announced a new commitment by the United Kingdom’s biggest high-street banks to lend £190 billion of new credit to business in 2011, up from £179 billion in 2010. The Bank of England is monitoring lending on a quarterly basis, and, at the half-year point, banks are lending over £100 billion against the implied target of £95 billion, including £37 billion to SMEs.

The noble Baroness, Lady Valentine, made a point about the importance of the competitiveness of the UK’s financial sector. This is an important issue that the Government will clearly be taking into account. Increased financial stability will be a positive for the UK’s role as a financial centre as well as for the wider economy. It is of course important to decrease the probability of another crisis happening.

The noble Lord, Lord Sawyer, made a welcome suggestion about customer service quality. Ring-fenced retail banks, no longer allowed to siphon customer deposits from their investment arms, will be forced to focus on their core business of lending to SMEs and individuals. This renewed retail focus will mean that banks will need to know their communities better and their customers, and the quality of those relationships and their understanding of those customers should improve.

I admit to having spent some of the happiest days of my life, at least before joining the Government, working for the noble Lord, Lord Davies of Abersoch, at Standard Chartered Bank, and I agree with him on what he says about the importance of culture. The health of his former bank speaks volumes for that culture. I have to say that being in opposition has certainly made his personal health look considerably better than being in government. His point about liquidity is well taken and, as I have said, we will consider all these issues before we respond to Vickers.

My noble friend Lady Kramer and the noble Lord, Lord Davies, asked whether the proposals take sufficient account of the need for international co-ordination, which is of course a vital point that I have referred to before. The Government are focused on preserving a level international playing field to ensure that UK firms are not unnecessarily disadvantaged. The UK continues to engage actively in international fora—in particular the Basel committee, the Financial Stability Board, the EU and the G20—to achieve a level playing field. That said, the size of the UK’s financial sector is very large relative to the size of our economy, and it is important that we take account of this as we examine the proposed reforms of the UK banking system.

I am sure that I have not answered every question raised by noble Lords today, of which there was a veritable blizzard, and if I have not, I will write to noble Lords afterwards. Strong, well capitalised banks will be an important part of a strong economy, providing credit and vital services to people and SMEs. As economic growth recovers, the financial services sector will need to respond to meet increasing demands from business customers. Poorly regulated banks have, however, cost our economy billions of pounds. The recent financial crisis demonstrated the significant detrimental impact that failure in the financial sector can have on the economy and public finances.

I agree with the noble Lord, Lord Davies of Oldham, that the ICB’s final report is an important contribution to our programme of reform and we will produce a formal response by the end of the year.

16:23

[Lord Myners]

My Lords, I thank the Minister for a very constructive response and I thank those of your Lordships’ House who have contributed. The debate has once again shown the breadth of experience not only from those who might be described as insiders on this issue but from outsiders, who made fascinating and challenging contributions, such as those of my noble friends Lord Sawyer and Lord Plant and the noble Lord, Lord May of Oxford.

I expressed some reservations about the Vickers report, but perhaps I carried expectations higher than they should have been. Both the noble Baroness, Lady Kramer, and my noble friend Lord Wood of Anfield reminded me that this is but part of the complex series of actions being taken to address issues in the banking industry. On that basis, it is only right that I should note that Sir John and his esteemed colleagues Mr Winters, Mr Wolf, Mr Taylor and Miss Spottiswoode laboured diligently with little or no reward to produce a report which is, at the very minimum, extremely useful to our understanding of the issues and for which we should therefore express our great gratitude.

However, the Government are on notice. Sir John Vickers and his team have told us that the current system is unstable and places the taxpayer at an unacceptable level of risk. The taxpayer is on the hook, and the Government leave them on the hook until they take action. It is interesting that in his closing speech the Minister mentioned proprietary trading. The Government have done nothing to stop state-owned banks engaging in propriety trading. They are still speculating on the back of the taxpayers’ guarantee. However, I think we have had a very good debate, and on that basis, I beg leave to withdraw the Motion.

Motion withdrawn.

Kosovo

Thursday 15th September 2011 Lords Chamber

Question

16:26

Asked by

[Lord Hylton]

To ask Her Majesty’s Government what is their assessment of the current situation in Kosovo.

[Lord Hylton]

My Lords, it is a long time since this House last discussed Kosovo, so for that reason I am very pleased to be able to introduce this debate. Kosovo is a highly symbolic place for two rival nationalisms. It was the centre of the great medieval Serb monarchy and contained its royal monasteries. In Ottoman times, it became more and more inhabited by Albanians, who declared independence in the 19th century at Prizren in Kosovo. The subsequent clash of cultures has led to great suffering in recent years. During Tito's time, Kosovo enjoyed a high level of autonomy and was modestly prosperous.

Milosevic, however, imposed direct rule, and the Albanians developed parallel institutions for education, welfare et cetera. When the tyrant began to drive out the Albanian population, NATO responded with a bombing campaign and the Kosovo Liberation Army fought back. It was thus that in 1999 Kosovo came to be occupied by KFOR and administered by UNMIK. In February 2008, Kosovo declared its independence, and this was confirmed by the International Court of Justice 18 months later. Its population is estimated at 1.8 million, of whom some 92 per cent are Albanian. This compares with 1.6 million people in Northern Ireland and somewhat over 600,000 in neighbouring independent Montenegro. Kosovo has a Parliament of 120 members, and by now has been recognised by 81 states. It is a member of the World Bank and the IMF.

This incomplete recognition is due, in part, to the fact that Kosovo does not have full control of all its territory. North of the Ibar River, the mainly Serb population has partly broken away and linked itself to Serbia. Mitrovica is a divided city, and last year I stood on the bridge marking the divide between Albanians and Serbs. Currently the Kosovo Government are trying to assert their control over the crossing points and customs posts between northern Kosovo and Serbia. At the same time, three northern Serb mayors have declared no confidence in Serbia's negotiator in the bilateral talks that are being held in Brussels and being mediated by a British official. I therefore ask Her Majesty's Government what there view is of the current Kosovan actions. Should not the border issues be settled by negotiation?

I am inclined to be somewhat critical of the international groups in Kosovo, which I have already mentioned and to which I would add EULEX, which has responsibility for the administration of justice and some oversight of law and order. No doubt they have suffered language and culture difficulties, while frequent rotations of staff have hindered full understanding. Nevertheless, they have been overconcerned with stability and have tended to avoid confronting difficult issues, such as the conditions of the Roma minority or relations between the historic Serbian Orthodox monasteries and their neighbours.

Will the Government seek to ensure that the right lessons are learnt from past experience, and that the activities in Kosovo of the European Union, the OSCE and the Council of Europe are better co-ordinated? Can the Minister first say to what extent Kosovo now has its own system of justice? Are the civil and criminal courts fully functioning? Secondly, given the still high unemployment, have Kosovo’s large mineral resources been fully, or even begun to be, brought into production?

To come back to the monasteries, almost all are on beautiful sites. The smaller ones cause little difficulty and often have good relations with their Albanian neighbours. Of the two major ones, Peç is a community of nuns and the seat of the Serbian Orthodox Patriarch. Deçani is a community of monks. Both are UNESCO cultural and historic sites, and I have visited both of them. They should not, however, be considered just as monuments of the past. They support living, functioning communities and are of huge symbolic importance. It should not be necessary, 12 years after the war, for detachments of KFOR to stand guard at their gates, checking the credentials of all visitors. This has the perverse effect of cutting off the residents from their neighbours.

Through two world wars, earlier Balkan struggles and the whole of the Ottoman period, the local Albanians successfully protected the monasteries against external violence. This traditional local situation should be restored, bringing free access for bona fide visitors and pilgrims, and freedom of movement for the monks and nuns. I believe this to be quite possible; indeed, my friend and colleague who founded the NGO called the Soul of Europe for peace-building work, first in Bosnia and now in Kosovo, has been invited by both sides to facilitate good, normal relations. The nearby Kosovar municipalities are keen, and the veterans of the KLA are also willing to sit at the table. Will the Government give more than just verbal support to this initiative? It has great potential as a confidence-building measure that would help further the wider bilateral negotiations already mentioned. Can the Government give some indication of how far those negotiations have already progressed and about their future prospects?

I am sure your Lordships would wish to see Serbia, Kosovo and their neighbours all playing their full parts in the European institutions. This would bring historic antagonisms to an end and greatly benefit their people. However, this cannot just be engineered from on high. It must be built upwards from the hearts and minds of people in villages and small towns. That is why I conclude by asking why community development is not built into the briefs of the international agencies, in particular those working in Kosovo. We have people, particularly in Northern Ireland and in multiethnic English cities, who have great experience in peace-building and community development. This could be a truly effective form of technical assistance. I saw something similar in Moldova during a 10-year period after their civil war. I commend this idea, and look forward to the Government’s response.

16:35

[Baroness Nicholson of Winterbourne]

I thank the noble Lord, Lord Hylton, for giving us this unusual opportunity to discuss the state of Kosovo. It is a great pleasure to follow his wise words. I will concentrate my remarks on two perspectives that have been of large concern to the European Union and the Council of Europe during the last years. I first visited Kosovo in the late summer of 1999, where I met Mr Bernard Kouchner, who was the high representative in the wake of the reconstruction and development plans for Kosovo.

Since then, the EU, both in its member states and institutions, and most particularly the European Commission, has played a very prominent role in the reconstruction and development of Kosovo. It is worth reminding ourselves that the European Union is the largest single donor, I believe, to the reconstruction of Kosovo. I think we have forwarded more than €2 billion to Kosovo since my first visit in 1999. I welcome that assistance and I particularly welcome, and wish to draw attention to, the valuable work of EULEX, which is working on the European justice system in Kosovo.

I also draw noble Lords’ particular attention to the valuable work that EULEX is doing on child trafficking and on bringing criminals to justice. I also commend the work of the high representative and vice-president of the European Commission, the noble Baroness, Lady Ashton, in this area. Of course, EULEX is a technical mission that mentors, monitors and advises, and the legal basis is the Council joint action of February 2008.

Noble Lords will be aware of several quite significant problems that Kosovo has faced in human rights. I will first mention the extraordinary problem of a number of families in grave difficulty since 1999. They live on the tailings of lead mines. Perhaps the most infamous one is Osterode. In 1999, I visited those families with Mr Kouchner, a medical expert. A number of Roma and other families had been placed on the tailings of the lead mine.

All of us in this House are well aware of the dangers to human health of lead. They are dramatic and drastic. Mr Kouchner, on behalf of the international community and the European Union, pledged to the families, who then numbered thousands and certainly now number many hundreds, that they would be moved within 40 days. Generally speaking, 40 days on the edge of a lead mine is far too long for lead ingestion, particularly for children and babies. I should like to draw the Minister’s attention to the gravely unhappy fact that those families are still there.

I have examined the World Health Organisation’s statement and I spoke with Mr Kouchner again recently. I wrote to him in 2008, when I also spoke to him. It is extremely sad that in the summer of 2000, although Mr Kouchner ordered his UN medical team to assess the extent of the lead contamination, these families have not been moved. The WHO report from the medical team declared that the families should be moved immediately and the camps destroyed. Blood tests carried out on some of the children showed that they had the highest levels of lead poisoning recorded in medical history, so the situation is extremely grave. When I met some of those families, I could see the impact of lead poisoning that has now gone on for over a generation. Because no records have been kept in the area and therefore no deaths have been recorded, it is difficult to say how exactly many stillbirths, deaths on arrival, maternal deaths and deaths of people in their early thirties can be attributed to lead poisoning. Many people have slow learning capabilities that may be due to this poisoning. However, the blood levels recorded in the children indicate the most devastating outcomes. As Mr Kouchner himself wrote to me:

“Ces progrès sont toutefois insuffisants”—

it simply is not good enough.

I was pleased to learn that the British Government had addressed this issue. David Miliband, the previous Secretary of State, wrote a good letter on 17 February 2009. He also pledged that the Foreign Office, various different members of the European Commission and the European Union, and of course the Government of Kosovo themselves, would do everything possible to support these families more effectively by placing them somewhere where they could survive. But I have to say that since UNMIK handed over the management of these places—I would not call them camps—to the Government of Kosovo, very little progress has been made. They were handed over in the first half of 2008 and are now the Government’s full responsibility. However, although the Commission has continued to provide financial assistance in the form, for example, of the €1.2 million CARDS project and much in the way of food provisions, legal assistance, basic household appliances and so on, the situation remains the same for one of the saddest and most tragic groups of people I have met for a long time. I wish to draw the Minister’s attention to this tragedy.

My second point derives from my present position in the Parliamentary Assembly of the Council of Europe. In January this year the Council of Europe accepted a report by Dick Marty, the special rapporteur on trafficking in human organs from Kosovo over the past decade. It is a gravely worrying report. I am pleased to say that on 15 June the European Union appointed a special prosecutor to investigate trafficking in human organs in Kosovo. I believe that the prosecutor will be supported by investigators, and the Kosovo Government have declared that they will collaborate with this prosecution. However, I wish to put on the record that Dick Marty is requesting an international investigation because, as noble Lords will be aware, there are purchasers for these organs.

There is a marketplace, and some evidential trails indicate that perhaps some eminent or better known persons in the wider Europe may have been involved in, or at least had knowledge of, this issue for over a decade. Sadly, organ trafficking does not appear to have stopped. A particular tragedy is that medical advances have meant that an organ, a liver or kidney, can alas be taken from a six year-old child and usefully placed in a middle-aged man. That used not to be the case. The result is that children in Kosovo are gravely at risk of organ trafficking, as well as through associated trafficking throughout Europe and the wider world.

I hesitate to put such sombre facts on the record, but I have the greatest confidence in the British Government and the Foreign Office, and I wish to request support for the resolution of these problems.

16:44

[The Earl of Sandwich]

My Lords, it is a great pleasure and privilege to join my noble friend in this debate. I apologise for being here after his opening speech because of unforeseen delays due to the closure of the Jubilee line and so forth. I also apologise to the government Whip and the opposition Whip and thank them for allowing me to come in at this late stage. In fact I have not missed anything: I have already read what my noble friend kindly gave me and I was here to hear the noble Baroness. It is a pleasure to be here.

As a tennis player, may I salute Novak Djokovic for winning the US Open? I had the opportunity to watch him win one of the earlier rounds in New York two weeks ago. While he is Serbian, his family comes from Zvecan in Kosovo. I can only hope that while he will be a young and loyal ambassador for Serbia, he will also be able to represent the special problems of Kosovo itself as he travels around the world.

My excuse for being here is that I have long stood beside my noble friend and others, including the noble Baroness, in arguing the case for greater autonomy for minorities in Africa and the Middle East and most recently South Sudan, which I visited in February. In fact there is a stronger parallel there than I had realised since religious, language and cultural differences are as relevant as territorial integrity and human rights abuses on a dramatic scale such as we have just heard from the noble Baroness. The comparison stops there because in Kosovo’s case, in spite of the ICJ ruling on UDI last year, true independence is still a good way off. I will be interested to hear the Minister's forecast.

The international guarantees are much more complicated in Kosovo as they involve several different institutions including the EU itself. Starting with the EU, I hope that the Minister will first clarify any differences there may still be between the UK and EEAS. Britain's role has been critical since 1999 and while there is virtually no public interest or awareness of it in this country, our support for KFOR, UNMIK, EULEX and the other institutions has been well maintained by this Government, which is to be welcomed.

Earlier this year, arguments were surfacing in the Commons EU Scrutiny Committee between the Minister’s colleague David Lidington and the noble Baroness, Lady Ashton, about the respective roles of the EU special representative and a representative in the International Civilian Office. A similar problem was occurring in Bosnia and Herzegovina. Will the Minister say whether there is still double hatting and whether these posts in Kosovo, having been nominally de-linked, still overlap and are therefore slowing down the critical process of negotiation? It is vital that the Pristina-Belgrade dialogue continues and is facilitated at the highest level.

At our own EU Committee during the summer, I asked Mr Lidington about the EULEX programme and whether the rule of law extended into the north or stopped at the internal frontier. His answer then was that there was no agreement at all about the mandate of institutions, principally the judiciary and the police north of the river at Mitrovica, and I expect the Minister will confirm that that is still the position. But it is the major sticking point, because lawyers and judges have made hardly any progress against organised crime such as we have just heard about—trafficking and offences against young people in vast no-go areas of the north. The EULEX programme there is still at a standstill.

There was fierce resistance along the internal border late in July when Kosovo quite reasonably attempted to strengthen its policing authority and since then the UN has sought to calm things down, although the underlying tensions of course remain. NATO has flexed its muscles and KFOR has had a change of command. Serbs in the north continue to protest against KFOR’s presence just metres over the border by blocking roads between the two communities.

The reported view of the noble Baroness, Lady Ashton, is that,

“the future of Kosovo is European”.

This seems to accord with the opinion of the noble Lord, Lord Ashdown, namely that through Europe we shall be able to guarantee the rights of the citizens of the former Yugoslavia, wherever they may be and divided as many of them remain within the current national boundaries. This means that Serbia will, at some future stage when it has accepted all the safeguards for Kosovo, be welcomed into the European Union. Does the Minister foresee this scenario and, if so, does he agree that since July it has receded even further over the horizon? Indeed, Chancellor Merkel had to warn Serbia only three weeks ago that it would have to dismantle its parallel institutions in the north if it was to have any real prospect of European membership. That is going to take a lot more time to negotiate.

Finally, what are the Government doing to explain what we are doing in Kosovo to our own general public in the UK, who seem quite unaware of the gravity of the situation or the potential risks there? Kosovo is no longer a faraway place in which we have no interest. It is a territory for which we have risked lives in our recent history. In case of any further outbreak of violence, what have the Government done to prepare us for any future commitments which may be forced on us? Also, why have we decided to withdraw our aid programme from Kosovo next year? I am sorry that I have not given the Minister notice of this question but, coming from my background, I have understood the relevance of so many programmes in Kosovo and I am concerned that they are due to be removed next year. Does Kosovo not qualify as one of Europe's poorest communities, urgently needing support for democratic institutions, good governance and the other virtues proclaimed by our Department for International Development?

In conclusion, I pay tribute to all the moderate citizens of Kosovo who recognise the value of international assistance and the strengthening of their institutions over the past decade and who, despite the frustrations, continually seek to win over their nationalist neighbours to ensure that they can live in peace and prosperity in the future.

16:52

[Lord Sheikh]

My Lords, I am interested in the Balkans and some years ago I used to handle the insurance account of Yugotours, a state-owned travel company which specialised in arranging holidays to Yugoslavia. During the existence of Yugoslavia I visited Slovenia, Serbia and Croatia. Since the independence of Kosovo, I have known the Kosovan ambassador and met him on several occasions. In fact, I saw him last night at a meeting I hosted in the House of Lords. I know the Imam of the Kosovan community mosque in Maida Vale and I have visited the mosque on several occasions and performed its inauguration. I have arranged for Friday prayers to be said in the House and the Imam has led these prayers several times. I have also met various members of the Kosovan diaspora. A high-powered delegation from the country recently came to see me in the House. I chair the Conservative Muslim Forum and one of my executive committee members is in fact a gentleman from Kosovo.

The Prime Minister of Kosovo, His Excellency Mr Hashim Thaci, has stated that he has worked towards three aims: freedom, independence and European integration. These aims are shared by all Kosovans, regardless of ethnicity or political background. In 1999, our Government played a crucial role in bringing about NATO intervention which saved Kosovo, and Britain was among the first countries to recognise Kosovo on 18 February 2008, a day after it declared its nationhood.

I feel that our Government should lobby with other countries, within Europe and globally, for Kosovo's inclusion within the international system. Furthermore, we should support Kosovo’s and Serbia’s EU integration prospects, as their entry will help to maintain peace and stability in south-eastern Europe.

I also believe that membership of the EU for both countries should be considered simultaneously. We should support the Kosovo Government’s action in extending the rule of law throughout the territory of Kosovo. I understand that a range of agreements have been reached between Kosovo and Serbia that will pave the way for the normalisation of trade between the two countries. In fact our ambassador, along with other European ambassadors, has met the Prime Minister of Kosovo today to discuss the implementation of the new customs regime.

We should look at the possibility of doing more business in Kosovo. The IPU is arranging a parliamentary delegation to visit Kosovo in October. There are opportunities for investment in Kosovo and the country has a lot to offer potential investors. Although small in size, it has abundant natural resources. Kosovo has large reserves of lignite, lead, zinc, nickel, chrome and bauxite. The ongoing privatisation process presents an excellent investment opportunity in the mining sector. Another sector that presents opportunity for investment is agriculture. Kosovo has large areas of fertile land, and investment in this field will be worth while and bear fruit.

Another great asset of Kosovo is its people. It must be emphasised that Kosovo has a young and educated population with a high literacy rate in foreign languages, and there is an excellent workforce to be employed. Notwithstanding the financial difficulties that a number of countries have suffered, Kosovo has experienced between 4 per cent and 6 per cent GDP growth in recent years, which I hope will continue in future.

In my dealings with the people of Kosovo I have found them to be hospitable and kind, and they have a will to succeed. I hope that the links we have built with Kosovo are strengthened and our friendship with the country and its people will continue to develop.

16:57

[Lord Liddle]

My Lords, I think that we would all like to thank the noble Lord, Lord Hylton, for raising this subject for debate. I thank the noble Baroness, Lady Nicholson, the noble Earl, Lord Sandwich, and the noble Lord, Lord Sheikh, who have spoken; they are all familiar with aspects of Kosovo in a way that I am not. My own personal knowledge of Kosovo was confined to the bunkers of Downing Street and the Ministry of Defence when, as an adviser there in the Blair period, I was greatly involved in the politics of the Kosovo campaign in 1998. It is an unpopular thing to say these days but I was proud of the courage that our Prime Minister, Tony Blair, showed on that issue, and it was a successful episode in what is now called liberal interventionism. We helped to prevent a genocide and secured the right of people to self-determination. From this side of the House we welcome the progress that has been made towards international recognition of Kosovo, including through the recent ruling of the International Criminal Court.

There are serious concerns, however. I did a little bit of homework for this debate, as we spokespersons have to do. I went first of all to an article in Survival by Ivan Krastev on the Balkans:

“Bosnia and Kosovo are trapped in the labyrinthine politics of semi-independence; Albania, Macedonia and Montenegro are small and claustrophobic republics with populist and divisive governments”.

He goes on:

“The Balkans currently reflects a mixture of Greek-style economic problems, Berlusconi-style politics and Turkish-level hopes”.

That is a rather pessimistic view of the Balkans.

The recent strategic survey—another bible for opposition foreign affairs spokespersons—raises serious concerns about the situation in Kosovo. There are widespread concerns about corruption at the highest levels of the Kosovo Administration. There was what has been described as industrial-scale fraud in the general election of 13 December. The noble Baroness, Lady Nicholson, has referred to the awful business of the allegations of a trade in organs. There is also widespread criminality, which means that Kosovo is the only Balkan entity to have been denied visa-free access to the Schengen area. I think that is the case.

Kosovo needs to address these problems. They are problems not only for the Kosovars but for the Serbian Kosovars. They will not achieve full recognition of their statehood unless they accept the responsibilities that come with it. At the moment they are in this rather awkward in-between position. Fundamental to these matters are the independence and integrity of the police, the prosecuting authorities, the judiciary and the rule of law. That is still seriously in question.

We all want Kosovo to become a member of the European Union one day—at least, I assume we all do. I certainly do, as do the Opposition. However, increasingly there are questions about whether the EU can be the magic wand that spirits away the problems of the Balkans and the former Yugoslavia. There is enlargement fatigue within the European Union. There is a loss of interest in the Balkans, particularly from the Americans, who face many other problems in the world. The EU is incredibly internally focused because of the crises that it currently faces. How can Britain play a role within the EU to keep up the momentum of progress that has been made in the Balkans and take the countries there towards EU membership?

I should like the Minister’s view on whether there is something of an opportunity in what has happened in Serbia. I know that Serbia has lots of pluses and minuses but the arrest of Mladic was a great step forward. It showed that President Tadic, who I have met, takes his nation’s EU ambitions seriously. That is why this happened. Can we and the EU use the wish of the Serbs to progress their EU membership as leverage to resolve the outstanding Kosovo issues? Kosovo will not get anywhere unless those questions are resolved.

The noble Lord, Lord Hylton, talked about the Serbian monasteries and whether progress can be made towards autonomy within Kosovo or whether that is unrealistic. Of course, the Kosovars also have incentives to settle these issues if they are to make the final progress that they need towards recognition and getting on the path of EU membership. On behalf of the Opposition, I hope that we will continue to pursue an active policy in these areas. However, we will succeed only if the general framework of our European policy is right. I am sorry if I sound like a record stuck in its groove on this issue but we will have absolutely no influence over our partners if people think that we are heading towards a semi-detached relationship. We will have no influence on shaping the justice and home affairs issues which are so important in the Balkans, particularly in Kosovo—everything to do with criminality, law and the rule of law—if we decide to opt out of it all in 2014. That will not send the right signal about British engagement. Of course, if the rest of Europe allows the Balkans simply to stew in its own juice, we cannot rule out the possibility of future bloodshed. Do not let us imagine that in future the Americans will come to our rescue in sorting out the Balkans in the way that they have done in the past. Unless we are committed to European defence, we will be shown to be very inadequate.

In conclusion, like the noble Earl, Lord Sandwich, I want to see Britain play a very active role in trying to maintain progress towards Kosovo’s independence and membership of the European Union; and, indeed, towards the enlargement of the EU in the whole of the Balkans. However, we will achieve this only if the Government’s policy framework towards the European Union is right.

17:07

[Lord Wallace of Saltaire]

My Lords, I agree strongly with those who have said that it is high time to have a debate on Kosovo. We should not neglect the western Balkans. Indeed, one of the occasions on which I have represented Her Majesty’s Government since the election was at a very useful conference on the western Balkans. This is not something which Her Majesty’s Government neglect.

As the noble Earl, Lord Sandwich, recognised, there are severe problems in maintaining public awareness. Somalia, Sudan, Afghanistan, the Arab spring and Libya have driven Kosovo off our television screens and on to, at best, the side columns of page 20 of the quality newspapers. Therefore, I am very grateful to the noble Lord, Lord Hylton, for opening this debate and maintaining his active interest in the Government’s policy towards Kosovo.

Her Majesty’s Government are a firm supporter of Kosovo’s independence, sovereignty and territorial integrity. Our objective is to see a stable and prosperous Kosovo making progress towards the EU in line with that of the wider western Balkans region. I say to the noble Lord, Lord Liddle, that I, my party and many others actively supported the Blair Government’s intervention in Kosovo. It was absolutely right. I am a little puzzled that he thinks that the United Kingdom is being stand-offish on European defence just after the conclusion of the Franco-British-led operation in Libya. Her Majesty’s Government are not standoffish on European defence. The exchanges that people like myself occasionally have with members of other Governments about whether we are in favour of a “common European army”, which those representatives often think would actually not do anything, are a very long way from the practical co-operation with the French and other Governments which we have been pursuing and will continue to pursue. Whether one should accept that what Europe needs next in European defence is a common operational headquarters that will take a number of staff officers away from different countries and not then actually do anything, or whether the way forward is precisely the sort of practical co-operation that we are pursuing, is a matter to which we will no doubt return on other occasions.

Kosovo has been through a period of bitter relations between its majority and minority communities. Mistreatment of the majority under Milosevic’s regime was followed by conflict in which both sides committed a number of what one has to call atrocities. It takes a long time for those wounds to heal. They have not entirely healed and none of us from the international community has succeeded in helping Kosovo to establish a stable and well functioning state.

However, the past 15 years have seen the establishment of greater stability across the western Balkans. The region nevertheless requires continued active engagement, as the noble Lord, Lord Hylton, reminded us, because the area is still criss-crossed by ethnic, religious, cultural and historical divisions. Many people are still very poor, organised crime and corruption are still big problems, investment is growing slowly and government remains weak. In all those respects Kosovo is no exception.

That is why the Government unequivocally support Kosovo’s ambition to join the EU and NATO. We will support, encourage and, at times, challenge the Kosovo Government on their way to achieving that goal. As one of Kosovo’s near neighbours, Croatia, has so successfully shown, progress towards the EU means stability, security, a long process of improvement in institutional, judicial and civil rights, and economic and commercial opportunity. It also means the full implementation of European values—democracy, equality, the rule of law and respect for human rights, including the rights of minorities. Regional co-operation has a crucial role to play in bringing political stability, security and economic development to the region. Not only is that a cornerstone of the European integration process but it can act as a catalyst for reconciliation in the region.

Recent events have shown how vulnerable the progress we have seen in the western Balkans can be to the politics of ethnic division. In July, a Kosovo police officer was killed in northern Kosovo, and Kosovans of both Serb and Albanian ethnicity were injured. These events have shown us more than ever why the EU-facilitated dialogue between Kosovo and Serbia is of crucial importance for the future of both countries and for our collective efforts to realise peace and stability in the western Balkans. Many in this House will know Robert Cooper, the senior official who is leading that dialogue. The noble Baroness, Lady Ashton, can continue to rely on Britain’s unwavering support for her stewardship of this process. With political will on both sides, it will improve the quality of life for the citizens of Kosovo and Serbia. It will support in a more stable manner the progress of both countries towards EU accession.

The dialogue is slowly making progress. On 2 September, Serbia and Kosovo agreed after the dispute that led to the incidents in July to use Kosovo’s customs stamps—thus paving the way for a free flow of trade between Kosovo and Serbia. The EU’s Rule of Law Mission in Kosovo, EULEX, has engaged closely with the Governments of Kosovo and Serbia on how to implement that programme. Tomorrow, 16 September, EULEX will reopen the customs controls that had been disrupted by July’s violence. Kosovo’s customs officers will be at the gates alongside EULEX staff. This is welcome. But even now we are witnessing efforts by some to undermine this progress, to raise the rhetorical ante, and to provoke further tensions between the communities. The UN Security Council will this evening discuss this question in closed session.

Her Majesty's Government urge the Governments of Kosovo and Serbia to act in a mature and responsible manner during this period of unavoidable tension, to avoid engaging in provocative rhetoric and to do everything in their power to moderate responses to the opening of those two conflict-ridden gates.

Kosovo is now, we hope, moving towards a more stable relationship with Serbia. On northern Kosovo, the EU and the international community have repeatedly said that there can be no change to Kosovo's borders. Any attempts to encourage the partition of Kosovo or to reopen status talks would threaten stability in the entire Balkans region and will be strongly resisted. Kosovo's status has been resolved and there can be no turning back. I think that we are all conscious that the current situation in northern Kosovo is unsustainable. The potential for northern Kosovo to become, if you like, another Transnistria—a lawless area which is a base for organised crime—is there. That would be a danger to the entire region.

The noble Lord, Lord Hylton, was unkind to EULEX. EULEX has an indispensable role to play in Kosovo. It has nearly 3,000 staff. Unavoidably there is turnover, but not at too fast a rate. It is playing a role in the judicial development of Kosovo in customs and police. That is a vital contribution to enabling Kosovo to meet EU standards for the rule of law. Tackling organised crime and corruption is essential for the long term and for the long-term stability of the western Balkans as a whole. Furthermore, it has a direct impact on organised crime networks operating across Europe, including within the UK. It is also essential for Kosovo to make progress on its European perspective.

Britain currently provides more than 30 secondees to EULEX. EULEX has an executive mandate to enforce the rule of law in the north, as shown by its recent operations to arrest those individuals suspected of involvement in the burning of Customs Point 1 and the murder of a Kosovo police officer in July. Full co-operation from both Belgrade and Pristina is essential for successful EULEX operations in the north. EULEX is a good example of how all member states, whether or not they have recognised Kosovo's independence, can work together in support of Kosovo's European perspective. Indeed, some states which have not yet recognised Kosovo are providing support for EULEX.

On access to monasteries, the United Kingdom consistently urges the Kosovan Government to fulfil the terms of the comprehensive settlement proposal, including on freedom of religion. We understand that relations between the Serbian monasteries, particularly those in the centre and the south, and their local communities, have improved a great deal, and we will give all support to further means to bring those monasteries closer to their communities. We are sorry that we cannot yet provide the more than verbal support asked for—I note that hint—because the United Kingdom budget, like everything else, has its limits, but we have been giving as much support as we can to all those initiatives. We agree with the noble Lord, Lord Hylton, about the importance of intercommunity dialogue.

The noble Lord, Lord Sheikh, talked about industry and investment. We hope that the mines will soon reopen. We were delighted recently when the British company Coresteel completed the purchase of the Llamkos steel plant.

On the Roma question, we have been working to assist the rehousing project for Roma, Ashkali and Egyptian residents away from the lead-contaminated camp. That is now under way. We are very sorry that it has not yet been completed.

On organ trafficking, as noble Lords will know, US Ambassador Clint Williamson has been appointed as chief prosecutor in charge of the investigation. We welcome his appointment and it is our firm view that EULEX has the mandate, jurisdiction and resources needed to undertake an objective investigation into these allegations.

On EU aid, DfID, as noble Lords will know, is reducing the number of countries to which it provides development aid. Aid will continue to flow to Kosovo through the interdepartmental conflict prevention pool from which half of the UK aid to Kosovo was provided last year.

I am conscious that I have not answered everyone’s points, but I am now out of time. However, I am told that Andy Murray will be Novak Djokovic’s best man at his marriage which will take place in northern Kosovo. I trust that that is regarded as an informal British contribution to intercommunity dialogue and good relations in the western Balkans.

I shall write to noble Lords on a number of other points. I conclude by thanking the noble Lord, Lord Hylton, and I look forward to him maintaining the Government’s necessary responses to our policy on Kosovo.

House adjourned at 5.21 pm.