Financial Services Bill

Debate between Baroness Noakes and Lord Sassoon

Monday 26th November 2012 Lords Chamber

[Baroness Noakes]

My Lords, unfortunately I was not able to be present when my noble friend’s amendment was debated in Committee, but I read Hansard and noted that my noble friend had undertaken to take the issue away and bring an amendment back. I was surprised when I looked at the amendment and saw what it was trying to deliver. It seems to me, as my noble friend has just pointed out, that there are already provisions in FiSMA, which covers the relationship between auditors and financial institutions. In addition, the Minister said that these are things that could and should have been done—but they are being done.

I have a copy of the code of practice for the relationship between the external auditor and the supervisor. This was refreshed after the financial crisis and is dated May 2011. It sets out a number of principles. Principle one states:

“Supervisors and auditors shall seek an open, cooperative and constructive relationship”.

Principle two is that they should “engage in regular dialogue”. Principle three states:

“Supervisors and auditors shall share all information relevant to carrying out their respective statutory duties and in a timely fashion”.

That code is already in existence and governing the dialogue between the FSA and auditors. Under the current legislative framework there is no reason for this not to continue when the PRA takes over its functions. I am struggling to see what it is that adds any substance to the current arrangements. The Government have brought forward an amendment, which is—and I hate to use this term—window dressing.

[Lord Sassoon]

My Lords, I assure you that it is not window dressing. I am not sure how much I can add for the benefit of my noble friend other than what I have said already. It is important to think about these amendments in the context of what the FRC and BIS are doing, and also to recognise that hardwiring the code of conduct into legislation in the way that I have described does considerably more than window dressing. Over time, we will be able to prove the scepticism of my noble friends to have been misplaced. I agree that this is a matter that will not go away, and we should and will, as Treasury and Government, keep these matters high on our list of things to be watched.

Financial Services Bill

Debate between Baroness Noakes and Lord Sassoon

Tuesday 20th November 2012 Lords Chamber

[Baroness Noakes]

My Lords, I ask my noble friend a simple question, for which I apologise for not having given him notice. It is a question I had intended to raise in respect of an earlier amendment but for various reasons I was not here when that amendment was dealt with. It relates to the definition of financial crime. The FCA has, as one of its integrity objectives, the financial system not being used for a purpose connected with financial crime, and financial crime is defined in new Section 1H. An amendment moved by my noble friend earlier was to include terrorism financing in the definition of financial crime. It seems to me that the definition as it stands does not automatically include the new offences that are created in this rather large group of amendments, which we can shorthand as the LIBOR offences, because it would not otherwise have been within the remit of the FCA. I would be grateful if my noble friend would answer that point.

[Lord Sassoon]

My Lords, I was rather getting into the swing of this. I have never had so many questions in such a short time and I was waiting for more to come. Noble Lords know that I usually try to group my answers together in some coherent way, but the questions have come so thick and fast that I fear that in answering as many as I can the answers may not be grouped together quite as efficiently as I would like.

Let me start with the definitional issues around what we are trying to cover here. First, to the noble Lord, Lord Barnett, benchmark may be defined by Chambers Dictionary, on Google and in many other places, but it has never before been defined in FSMA and I think it is necessary to have a FSMA definition. I am sorry the noble Lord went to all these other sources and did not look at the very particular definition in the Bill, but that is where these amendments start. The noble Lord, Lord Eatwell, asked if the definition was wide enough and the noble Lord, Lord Peston, takes the view we should only be talking about LIBOR so the definition may be too wide.

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[Baroness Noakes]

I am sorry to interrupt my noble friend. I know he wants to get on to the rest of the interesting questions that he has been asked but I want to come back to this definition of investment. “Investment” is defined in Amendment 112 for the purposes of the offences but it does not appear to be defined for the purposes of defining “Benchmark” at the beginning of this group. I have spent some of the past 30 minutes or so using my iPad to see whether FiSMA already had an equivalent definition in it and I cannot find it. That does not mean it is not there but I cannot find it.

[Lord Sassoon]

As I said in response to the noble Lord, Lord Eatwell, I will look again. I believe that, as I have set it out, everything that is intended to be covered is covered. I am grateful to my noble friend for pointing out that,

“‘Investment’ includes any asset, right or interest”,

for this purpose. That points to the wide scope of the definition. I will take away these points and make sure that it all knits together in the way intended. If it does not, I will write and seek to put matters right at Third Reading.

Let me move on to some other questions that have been asked. I can assure the noble Lord, Lord Peston, that this group of amendments does what Mr Wheatley intended and that he and, on his behalf, his FSA team have rightly crawled all over it. I just want to be clear that it does not go beyond Wheatley except in the sense that we are future-proofing it for other possible benchmarks, which is entirely consistent with what Mr Wheatley wanted. While I am dealing with one or two of these questions, I can also confirm to my noble friend Lady Noakes that the definition of financial crime catches the new offences. The definition in proposed new Section 1H(3) provides that,

“‘Financial crime’ includes any offence”,

and the list of offences is not exhaustive, so the answer to my noble friend is yes.

I see the noble Baroness, Lady Hogg, in her place. It is good to see her here. There were various questions about the process for appointing the administrator. I can assure noble Lords that the noble Baroness, to whom I am very grateful for taking on this responsibility, will be taking this forward in a measured way, as your Lordships would expect. That process will take place over the next few months. My understanding is that considerable interest has already been shown in the opportunity to be the administrator. It would have been inappropriate to have an independent body setting LIBOR. As we know, it has been set by the BBA. That has presented all sorts of difficulties and conflicts of interest. Independence was weak. The BBA is handing over to the new administrator but, critically, the oversight of that new administrator will be the responsibility of the FCA. The behaviour of the new administrator will be regulated, not just the behaviour of the banks supplying the information.

Financial Services Bill

Debate between Baroness Noakes and Lord Sassoon

Tuesday 6th November 2012 Lords Chamber

[Baroness Noakes]

My Lords, what the noble Lord, Lord Eatwell, has said is entirely sensible. I cannot see the distinction between those directions which have been made and continue in force and those which have been made and revoked. This is about public communication, the directions being made and their effect. The information that we gain from a revocation must be at least as good as from the making of a direction.

[Lord Sassoon]

My Lords, the amendment reflects a slight misunderstanding of the purpose of the reviews that we are talking about in new Section 9T of the Bank of England Act, as inserted by Clause 4. The purpose of these reviews centres around live actions and requiring the FPC regularly to look again at all live actions—in other words, at the directions and recommendations that still have effect—and to review whether or not the action is still needed. That is a rather different matter from the admittedly important question of reviewing past actions and learning lessons, which is not the subject of the clause.

The idea behind the new section is to ensure that FPC actions do not remain in place if the circumstances which originally merited them have disappeared or changed substantially. Of course, we would expect the FPC as a matter of course to keep its past actions under review and revoke them once they are no longer needed, but new Section 9T ensures that this will be the case by creating a formal requirement for the FPC to review regularly all of its live directions and recommendations.

Amendment 7D seeks to remove the wording in subsection (1)(a) which provides that the FPC need not review directions that have already been revoked. The provision is appropriate because once a direction has been revoked there is no need for the FPC to review it to determine whether it is still needed; the direction is already defunct. It is as simple as that.

The concern of the noble Lord, Lord Eatwell, lies clearly in the importance of the FPC evaluating the impact of its actions. I can reassure him that mechanisms already exist elsewhere in the clause to address this issue. First, new Section 9S requires the FPC to set out for each of its actions an explanation of its reasons for believing that the action is compatible with its objectives and associated “have regards”, including where practicable an estimate of the costs and benefits of the action. Secondly, subsection (4)(b) of new Section 9W requires the FPC to include in each financial stability report an assessment of how its actions have succeeded in achieving its objectives. Finally, the new oversight committee of the court has an explicit remit to oversee the FPC’s performance and can undertake or commission a more comprehensive review of the FPC’s past actions or approach where appropriate.

I am confident that the FPC’s actions are already subject to extensive mechanisms of oversight and evaluation and, as I said at the outset, that the amendment reflects, perhaps, a slight misunderstanding of what the purpose of the specific provisions in new Section 9T is all about. I hope that on the basis of that explanation the noble Lord will feel able to withdraw his amendment.

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[Baroness Noakes]

My Lords, we do not need to hardwire this into legislation. If the FPC thinks that it needs some form of advice from other parties in relation to most of the matters mentioned in subsection (3) of the amendment of the noble Lord, Lord Eatwell, it can arrange it. Similarly, if the oversight committee thinks that it needs any assistance from outside parties in relation to matters mentioned in paragraph (e) of subsection (3) of the amendment of the noble Lord, Lord Eatwell, it can arrange it. I do not see why these matters need to be enshrined in law. If there are gaps within the resources available to the Bank, it can supplement them, or it may have them sufficiently internally. The statute does not need to deal with these matters.

[Lord Sassoon]

I completely agree with my noble friend Lady Noakes. This amendment was debated in Committee, as the noble Lord, Lord Eatwell says. The gremlins seem to have been getting into one or two of these amendments. He has already pointed out that this has been retabled in the previous form that it was in and should refer to the oversight committee and not the supervisory panel.

Putting that aside, the nub of this is that I am puzzled and disappointed that the noble Lord, Lord Eatwell, does not agree that the oversight committee that we have already created will have responsibility for carrying out the function of performance evaluation referred to in this amendment, and that the oversight committee will have a wider-reaching role looking over the entirety of the Bank’s financial stability remit. That is surely better than an advisory panel with rather limited and specific terms of reference.

I am also disappointed that the noble Lord, Lord Eatwell, feels that an independent oversight committee led by non-executives would be either inadequate or insufficient to hold the Bank to account. I cannot see how it is better to create a committee chaired by an executive of the Bank who would simultaneously be a member of the FPC, responsible for providing advice to the FPC and expected to assess its performance.

Of course, the Bill already creates in the FPC a committee on which the deputy governor for financial stability sits, together with external members, some of whom may indeed be academics. As we have discussed before, there is plenty of provision for either the FPC or the oversight committee to take on any additional expert, academic or other advice that it requires at any point. The FPC will have a statutory responsibility to assess risks to financial stability and to take action to mitigate them. If it wants to take advice it is entirely able to do so, but it should have the autonomy to do so on its own terms if it is to be properly responsible for financial stability.

In conclusion, the effect of the amendment of the noble Lord, Lord Eatwell, would be to create duplication of responsibilities, to blur accountabilities and to diminish focus. As such, there is no way that I could accept such an amendment and I hope that, on reflection, he will withdraw it.

Financial Services Bill

Debate between Baroness Noakes and Lord Sassoon

Tuesday 6th November 2012 Lords Chamber

[Baroness Noakes]

My Lords, as a former member of the court, I feel slightly under attack this afternoon, but I was long gone before the financial crisis. In the context of the previous amendment, my noble friend Lord Flight pointed out that the important way to express accountability is on an ongoing basis, not at the point of appointment. The most important thing, going forward, is whether or not the new oversight committee will do its job and who will make sure that it is held to account. It seems to me that it should be the Treasury Select Committee in another place and it is not something for which we need to legislate. The Treasury Select Committee is well apprised of the need to ensure that there are proper accountability mechanisms to act as a counterweight against significant additional powers for the Governor of the Bank of England; and that there are proper checks and balances within the Bank of England and then from the Bank to Parliament.

[Lord Sassoon]

My Lords, I am grateful to the noble Lord, Lord McFall of Alcluith, and to my noble friend Lady Noakes. My noble friend was an estimable member of the court and I am sure that she brought great distinction to its deliberations. As she reminds the House by referring to the oversight committee, the noble Lord, Lord McFall is right to say that the court has not always necessarily done everything that Members of Parliament would have wished in recent years. Critically, that is why the oversight committee that we are introducing changes the way that the court and particularly non-executives on the court will operate. I am grateful to be reminded of this critical background to our discussion. The other background point to make is that the noble Lord, Lord Eatwell, has made a number of references in this and earlier debates about politicisation and transferring powers from elected politicians to the Bank. This is a red herring. I am sure that I should not say it is nonsense, but I simply do not accept this background analysis.

Powers are not somehow being moved from elected politicians to the Bank. The Bank is being granted a range of powers which are regulatory in nature. Financial regulation has been undertaken by independent regulators for over a decade in the UK and before that, of course, large swathes of it were not in any way carried out by elected politicians or even properly constituted regulators. They were done in a self-regulatory way. So this idea that somehow we are transferring stuff from politicians to the Bank, as if some heinous crime was being committed and that we need lots of belts and braces, is the wrong background.

Let me specifically address the amendments here and the role of Parliament in key appointments. As we have heard, they are different in some respects from the previous amendment about appointing the Governor. The appointments of non-executive directors of the court are not currently subject to a pre-commencement hearing by the Treasury Select Committee. As with the Governor, the appointments of non-executive directors are made by Her Majesty and governed by the OCPA code. As I explained earlier, this stipulates certain practices in terms of a robust and fair appointment process, with appointments made principally on merit. Members of the court are accountable to Parliament and it is right that the Treasury Select Committee can and does invite them to give evidence at the appropriate juncture. However, the non-executive directors are not policymakers. Their role is to oversee the running of the Bank and it would be highly unusual to make such appointments subject to the consent of the Treasury Select Committee. The Government therefore believe that the current appointments process for non-executive directors of the court remains the right one. Similarly, the appointment of external FPC members will be subject to a robust process that seeks qualified and experienced candidates. External members of the FPC will be subject to pre-commencement hearings—as was the case with the appointees to the interim FPC. The FPC will be accountable for its actions to the Bank’s oversight committee and directly to the Treasury Select Committee, which we expect to take regular evidence from the external members of the FPC, as it does already from the MPC and the interim FPC.

As with the roles of governor and external members of the MPC, the market-sensitive nature of these roles means that the combination of pre-commencement hearings and Treasury Select Committee scrutiny in-post offers an appropriate balance in terms of parliamentary scrutiny. Again, the Government welcome the ongoing role played by the Treasury Select Committee. I hope that I have provided sufficient reassurance for the noble Lord to withdraw his amendment.

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[Baroness Noakes]

My Lords, I recall that when the previous Government set up the Monetary Policy Committee, they formulated its secondary policy objective in precisely this form, “Subject to that”. Can the Benches opposite explain when they had a damascene conversion on this topic?

[Lord Sassoon]

No? Sometimes silence speaks volumes. We can all—

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[Lord Sassoon]

My Lords, of course, this is another issue that was discussed at some length in Committee. The Government recognise the importance of proper public and parliamentary scrutiny and accountability for macroprudential tools. That is why the Bill requires that macroprudential orders be subject to the affirmative procedure.

The Government have given a number of undertakings to further demonstrate our commitment to ensure transparency and effective scrutiny of macroprudential orders. In another place the previous Financial Secretary to the Treasury, Mark Hoban, clearly stated the importance that the Treasury places on taking a consultative approach to policy-making, and that he expected this to apply to macroprudential tools. In addition, my right honourable friend the Chancellor of the Exchequer has said that he would be happy for debates on tools to take place on the Floor of the House, subject to arrangement through the usual channels.

The Government have also committed to consult on their proposals for the FPC’s initial toolkit. I note that my noble friend has no complaint on that score. Nevertheless it is important to recognise that the consultation document containing the Government’s proposals, a draft order and an impact assessment on those proposals was published on 18 September. The consultation will run for a full 12 weeks. In Committee a number of noble Lords highlighted the 90-minute restriction on debates and the inability for orders to be amended. However, I believe that consultation and the statement made by the Chancellor address these concerns effectively. I encourage noble Lords to read the consultation and respond if they feel able to improve the drafting of the order. I also hope that the relevant parliamentary committees will make their views on the Government’s proposals known.

Importantly, the Government’s stance on the parliamentary control of these macroprudential orders has been endorsed by the Delegated Powers and Regulatory Reform Committee. Maybe I did not notice it, but I do not think that my noble friend referred to the DPRRC. I know that she regards the committee, in her words, as an early warning system of problems for Parliament to address. In this instance, it has considered our proposed procedure and determined that there is not a problem to address.

As I suspect my noble friend knows, the DPRRC has stated:

“The importance of the power is recognised by the application of the draft affirmative procedure or, in urgent cases, the 28-day ‘made affirmative’ procedure … The Joint Committee on the Draft Bill and the House of Commons Treasury Select Committee have recommended an enhanced affirmative procedure for the non-urgent orders, based on that in the Public Bodies Act 2011. But the affirmative procedure provided for in the Bill should be a sufficient safeguard against inappropriate use of these powers”.

It is also important to remember that orders made under new Section 9K will not always be major pieces of legislation. It could be the case that minor technical amendments need to be made to the tools over time. Under such circumstances, requiring the super-affirmative procedure would be a disproportionate use of parliamentary resources. I note that my noble friend has made some adjustments to the super-affirmative procedure that would make it less onerous, and she has addressed those at some length in her remarks. I still feel that her proposal would require a disproportionate amount of parliamentary time and resource.

The bare minimum amount of time to pass an order under these proposals is 40 days, which can be increased to 60 days by resolution of either House or by recommendation of a committee of either House. The time taken to make an order where the consultation process shows that substantial changes are required is even greater. Even once the 60-day period has elapsed, this amendment would require the Treasury to obtain prior approval to the amended instrument before it could be made. This would introduce a significant amount of uncertainty around the time it would take to amend the FPC’s macroprudential toolkit.

I have stated many times that the Government place great importance on public and parliamentary scrutiny of the macroprudential tools. Given the steps already in the Bill and the commitments made by this Government, I ask my noble friend to withdraw her amendment.

[Baroness Noakes]

My Lords, I am disappointed with my noble friend’s response on this. He has repeated that in the other place there can be a debate on the Floor of the House, but the location of a debate on a statutory instrument is completely irrelevant. The outcome is exactly the same. He has rested on the full process for the early order but, as I said, those ones, with a high degree of international agreement on what the early phase of macroprudential tools should be, were easy to do. That is not really an issue. My noble friend rightly raises the Delegated Powers and Regulatory Reform Committee, for which I have the highest respect. I have equally the highest respect for the Joint Committee which scrutinised the draft Bill, and high regard in particular for the Treasury Select Committee in another place, which has been tireless in its scrutiny of this legislation. I have two committees to play one.

The best parliamentary procedure would in this instance be the super-affirmative. I can only say that I am extremely disappointed with my Government for hiding behind the easiest option of parliamentary procedure, but I will accede to my noble friend’s request and beg leave to withdraw.

Financial Services Bill

Debate between Baroness Noakes and Lord Sassoon

Wednesday 24th October 2012 Lords Chamber

[Lord Sassoon]

My Lords, I do not want to get the Committee too excited about this matter because, as any noble Lord, including the noble Lord, Lord Barnett, will know, it is very rare for a piece of considered legislation, particularly coming from the Treasury, to get any of these matters wrong in the drafting. I really do not want to raise false expectations.

All I would say is that the exercise is carrying on and that the matter raised by my noble friend Lady Noakes is certainly one of the may/must instances that merits serious consideration. When there is any more news to report to Peers who are interested in this Bill, we have plenty of ways of communicating it. If there is anything to say, the noble Lord, Lord Barnett, will be among the first to hear.

The group of amendments on which the noble Lord, Lord Davies of Oldham, spoke rather modestly towards the end of this discussion nevertheless are ones which we need to take seriously. Amendment 192ZZA would provide that if the Treasury issues a direction to the FCA not to proceed with an investigation into possible regulatory failure, that direction must be laid before Parliament. Amendment 192ZZB makes similar provision for such investigations by the PRA.

Amendment 192C would provide that where the Treasury issues a direction specifying the parameters of an investigation into regulatory failure by the PRA or FCA, or suspending or halting such an investigation, that direction must be laid before Parliament.

The Bill is drafted to give the Treasury some discretion here and, all things being equal, we had wished to preserve this. However, in this instance I am somewhat persuaded by the case that noble Lords have made. The Government are very much committed to greater openness and transparency in our regulatory architecture. With that in mind, I am happy to confirm that I will be taking on board the insightful comments of this Committee and will return to this issue on Report, placing the Treasury under a duty to disclose any directions issued under Clause 74, unless doing so would not be in the public interest.

I know that the noble Lord, Lord Davies of Oldham, is looking a bit surprised by this turn of events. On previous occasions he has compared himself and his batting average to the late, great Sir Donald Bradman and I really did not want to disappoint this Committee by seeing his batting average going down too far. I do not think that the noble Lord does himself justice: he is a great strike bowler when it comes to this type of thing. By my reckoning, the noble Lord’s success rate is now back up to around 20%. I have no idea how one translates that into a conventional bowling average but I think that it is pretty good. I note that his fellow Lancastrian, Jimmy Anderson, is on 30.41 for his test average. I think we can say that the noble Lord, Lord Davies of Oldham, is close to that. However, I am left with the question as to why the noble Lord is not being promoted to the strike bowler role. He comes on as the first change bowler day after day; we want to see him, like Jimmy Anderson, as the strike bowler from hereon.

I hope I have reassured the Committee that we share its desire to see accountability and transparency in the system, and that my noble friend will be prepared to withdraw her amendment.

[Baroness Noakes]

My Lords, despite having spent a couple of years in the Treasury in the dim and distant past, I could never do cricketing talk so I shall not try to follow my noble friend the Minister. I am sure that the noble Lord, Lord Davies of Oldham, is thrilled with his success in this opening group of amendments. I am very grateful for the support of noble Lords opposite for my amendments and I was pleased to hear what my noble friend had to say. I look forward, as do we all, to the outcome of the may/must investigations which are clearly occupying the great brains that live in the Treasury night and day. With that, I beg leave to withdraw the amendment.

Financial Services Bill

Debate between Baroness Noakes and Lord Sassoon

Monday 8th October 2012 Lords Chamber

[Baroness Noakes]

I am pleased to see that we are in agreement. Finally, I was concerned whether or not the noble Lord, Lord Davies of Oldham, thought that his amendment meant that all listed companies would be dealt with by the PRA and the FCA, because I do not think they have powers to deal with other than those bodies that are within the regulatory net, so it would only cover a relatively small proportion of his target.

[Lord Sassoon]

My Lords, my noble friend has made the first point that I would make. The noble Lords, Lord Davies of Oldham and Lord Davies of Stamford, talked as if we were debating provisions that related to all listed companies, but my noble friend is completely right that this section does not apply to great global companies such as Vinci and others. Although it relates to an important group of companies, it is related essentially to authorised persons.

The Bill allows regulators to make rules regarding the role of employees in relation to remuneration committees and, in theory, the requirement that remuneration consultants be appointed by shareholders if they think that such rules would advance their objectives. However, I accept that, in practice, it is uncertain that that test would be met, particularly in the latter instance. In any case, other appropriate processes are already in place to consider these questions in the context of wider corporate governance reform—which, again, is precisely the point that my noble friend makes. This is a wider series of issues.

It is important to be reminded that, in January this year, the Department for Business published its response to its consultation on executive remuneration, which considered among others, the possibility of giving employees a say on remuneration. Although I do not want to be drawn into a wider debate—we should focus on financial services—the consultation responses nevertheless illuminate what would be appropriate or, as I would say, inappropriate for financial services businesses alone.

The Government’s view is that, while there will be qualified and enthusiastic employees willing to take on such a role, there are strong arguments against this proposal, including—on this I agree with the noble Lord, Lord Davies of Stamford—that members of the remuneration committee need to be full board members if they are to understand the overall financial strategy and the wider business and economic context which impact on remuneration policy; that introducing external representatives on a single committee risks obscuring directors’ collective responsibility, as well as potentially creating additional tensions, which might reduce the effectiveness of the UK unitary board model; and that the level of responsibility of employee representatives and the possible conflicts of interest they might face would need to be resolved.

As a result of the BIS consultation on executive pay, the Government have decided to proceed with some key reforms, such as the introduction of a binding shareholder vote on remuneration, but the case for requiring companies to include employees on remuneration committees has not been made, and the Government are certainly not going to make or accept it in the narrower context that we are discussing today.

Financial Services Bill

Debate between Baroness Noakes and Lord Sassoon

Wednesday 25th July 2012 Lords Chamber

[Lord Sassoon]

My Lords, to manage expectations before the break I attempted to say that I was not going to be as accommodating all through the day. In qualitative terms I will be as accommodating, but I can only work with the material that is in front of us. In this case, it is possibly a matter of explanation and reassurance. I hope that some, if not all, of the matters here are going to be covered satisfactorily.

Amendment 127ZA to which my noble friend Lady Noakes spoke would mandate some quite complicated arrangements for the Bank of England to consult the markets practitioner panel of the FCA, in certain cases. I do not make a comment about the drafting, but the general arrangements here would be quite complicated. In addition, the markets practitioner panel would also have the ability to request information from the Bank, but only via the FCA and only for the purpose of assisting the FCA. I had not been quite sure what the amendment was trying to achieve, but I now understand from my noble friend that it is a matter of strengthening the co-ordination between the Bank and the FCA in relation to market infrastructure, as well as strengthening the consultation arrangements in relation to infrastructure matters. I understand why this is important, but will attempt to explain why I believe it to be unnecessary.

There is of course nothing to stop the Bank of England consulting the markets practitioner panel or any other panel, or their members or anyone else. It is worth remembering that. It is also important to bear in mind—it may be more important in this case—that the Bank of England will be regulating only a very small number of institutions in this highly specialist area. That really is the key point. I suggest that there is not a lot to be gained by trying to institutionalise consultation arrangements in this way because of the small number of specialist players.

The Bank will indeed be able to consult each of the entities that it regulates individually, should it wish to do so. That is of course an inconceivable position for most of the other subsectors of financial services, where a panel arrangement is therefore necessary to corral views efficiently. I am not sure what a requirement to consult the markets practitioner panel would necessarily add here. More generally, the Bill already introduces a requirement for the Bank and the FCA to have a memorandum of understanding relating to infrastructure regulation, while there is of course nothing to stop the Bank and the FCA working together in any way that they want, subject to the framework of the Bill.

I think that panels are not required in this area. I hesitate a bit because my noble friend Lady Noakes may come back at me on the settlement question. I accept that on that aspect I should possibly take a bit more time to reflect on my noble friend’s views, just to make sure that all angles have been covered in what I have said and in what has been indicated by the Bank and the FCA, so far as it is relevant to them. However, specifically on settlements, I appreciate that I might reflect a little further.

I turn to Amendments 128AAA, 128AB and 130ZB, the first two of which require the FCA to provide a statement in writing to any panels it establishes where it disagrees with any of the representations. Amendment 130ZB would make a similar provision for the PRA. I note that these amendments replicate the existing provisions in FiSMA. It may help if I explain the thinking behind why the Government consider it right to depart from the existing approach in FiSMA. It is because the Bill imposes a general duty on the regulators to publish responses to the representations they have received, which is wider than the current requirement in FiSMA. The regulators must respond to all representations, rather than simply those with which they may disagree. That was a conscious change because it did not seem right that the only responses the regulators should have to give to the panels are where they disagree with them.

We do not want to promote an antagonistic relationship between the regulators and any of the panels that they may establish. We have also required the regulators to publish their responses to help inform public understanding and enhance accountability. I reassure the Committee that this duty will, in practice, require the regulators to give their reasons for rejecting or departing in any significant way from a recommendation of one of their panels. With those explanations, I hope that my noble friend will feel able to withdraw her amendment.

[Baroness Noakes]

My Lords, I thank my noble friend Lord Trenchard and the noble Baroness, Lady Hayter, for their contributions to the short debate and I thank my noble friend the Minister for his response. I note that he will look again at the settlement system, which raises slightly different issues because of the different way that it is dealt with legislatively. I doubtless await a letter from him during the summer, which I shall look forward to.

The Minister said that there was nothing to stop the Bank of England from consulting anybody—it may be that he was playing that for laughs. The real purpose of tabling this amendment was because there is no specific mention of panels, and there is a concern that the Bank of England will not use its general obligation to consult the right people. The right people are not necessarily just the people they are regulating but also those who are impacted by regulation, such as the people you would find on something like the markets panel. That is also why I tried to press my noble friend the Minister on why the Bank did not have to consult the FCA when dealing with regulatory matters in this area. I put it to my noble friend that he has not quite addressed those issues. I hope that he will think further on this before we get to Report, and I will certainly reflect on what he has said.

In respect of the second amendment in this group relating to explanations in writing, the Bill states:

“The FCA must from time to time publish in such manner as it thinks fit responses to the representations”.

This does not convey the sense of what the noble Baroness, Lady Hayter, referred to, which is dialogue. At the moment the panels operate in a much more collaborative mode, feeding through ideas as well as making formal representations, and they are being seen here, I think, as just another consultee to be dealt with along with responses from any other consultee. The sense that the practitioners have is that the quality of relationships will deteriorate going forward, and that is a matter of concern.

These amendments were tabled by my noble friend, as I said, following the comments made by the financial services. I know that my noble friend will want to talk to them before we return to this Bill at Report. I thank my noble friend the Minister for his reply today but I do not think that I can regard the issues as settled. However, I am prepared to withdraw the amendment today.

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[Lord Sassoon]

First, I am not sure why the noble Lord, Lord Eatwell, talks about advisers to government departments. Here, we are talking about finding firms to carry out value-for-money reviews of the FCA, and independence from the FCA would seem to be the overriding concern. We are not talking about the Bank of England itself or some part of the Bank of England’s wider group doing the review. As I am sure the noble Lord knows, with all the increasingly tough professional codes that exist, the definition of independence is becoming ever tougher. Therefore, although the noble Lord and all of us might like to go back to a sort of common-sense, gentlemanly world that once existed, I absolutely stand by what I said. The amendment—whose effect incidentally goes wider than the noble Lord indicated in speaking to it—would capture a range of firms just because of the way that professional independence has come to be defined these days. Therefore, I stand by my analysis of the amendment.

Amendment 130AA would require that when the Treasury orders a review of the economy and efficiency of the PRA, it informs the Treasury Select Committee of the nature of, and arrangements for, the review. I understand that the amendment is driving at the importance of accountability to Parliament. The Government agree that that is important, which is why there is already a large amount on this subject in the Bill, including the provision for NAO audit, which we have discussed.

Requiring the Treasury to inform the Treasury Select Committee of the nature of, and arrangements for, the review at such an early stage might have some benefits of the sort that the noble Lord identified but I fear that it is more likely to be seen as an invitation for the Treasury Select Committee to comment on or even attempt to change the remit of these important reviews. I suggest to this Committee—I would not suggest anything to the Treasury Select Committee—that adding another political hurdle could slow up the process of producing these reviews. It may even make it less likely that they will be commissioned in the first place if there has to be a negotiation of the sort that I fear.

I hope that those explanations are sufficient for my noble friend to be able to withdraw her amendment.

[Baroness Noakes]

My Lords, I am grateful for the contribution of the noble Lord, Lord Eatwell, to this debate and for my noble friend’s reply. Perhaps I may comment on Amendment 128BB in the name of the noble Lord, Lord Eatwell, concerning independence. I think that my noble friend has stretched even the most stringent modern interpretation of independence way too far. On his interpretation, the NAO might not be independent of the FCA and therefore might not be able to carry out any further reviews of the FCA. I hope that my noble friend will reflect on the need for independence. We have to remember that when the Bank of England, rather belatedly, appointed people to carry out reviews of itself recently, independence was not exactly plain in the appointments that were made.

I thank my noble friend for his responses on value for money. It is slightly odd that the Government intend to use the NAO to carry out value-for-money studies, but they have set up the NAO to be appointed the auditors, so it might carry out value-for-money studies. I am still left with the feeling that the carryover of the ability to appoint somebody to do a review is just repeated legislation which might lay fallow, as the FiSMA legislation largely lay fallow. However, I thank my noble friend for his response and beg leave to withdraw the amendment.

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[Lord Sassoon]

The fact that it has already started on the work which will lead to the document in the autumn and which goes to the most expensive element of getting authorised—namely, the amount of capital required—is a fundamentally important and good start. I do not pretend that that completes the business, but it tackles first the most expensive element: the cost of putting that capital aside. This is a start. It is not before time, but it is happening as we speak.

[Baroness Noakes]

My Lords, I start by apologising to the noble Baroness, Lady Kramer, for having appropriated her amendment incorrectly in my opening remarks. I do not quite know when I made the mistake, but I made it quite early and perpetuated it. I latterly discovered that I did not quite like the drafting, and so was slightly disobliging about the amendment of the noble Baroness, which I thought was my own. With apologies to the whole Committee and particularly to the noble Baroness, Lady Kramer, I did not intend to add my name to her amendment. I would not have signed up to the precise wording but, as has come out in this debate, I think we are all speaking from the same territory.

That apart, I believe that there has been quite a lot of agreement among those who have spoken that the Government have not quite got this right. I am concerned that the Government keep saying that they will not repeat the mistake of giving conflicting objectives, which is alleged to have been one of the causes of the problems of the FSA, so this body has to have a single focus. However, I cannot see that a single focus is going to be good for the financial services industry or for the consumer, particularly where competition is just not in its lexicon. If it is not good for them I cannot see how it is good for the UK, so it seems to me to be bad policy.

The amendments that we have put forward today, in varying ways, have been trying to make it a slightly better policy by giving the PRA a broader remit. My noble friend the Minister said that he had undertaken to come back at Report to give a wider economic context, as he had already undertaken to do on the FCA. With respect, that does not meet the points that have come out from the debate today. I believe that there was quite a lot of agreement between my noble friends Lord Flight, Lord Trenchard and Lord Hodgson and I on the amendment tabled by my noble friend Lord Hodgson. When my noble friend the Minister thinks carefully about what to come back on Report with, I hope that he will look again at this issue. Expecting the FCA’s objectives to bear all the burden of reflecting competition in the way that the PRA operates is just bonkers. With that, I beg leave to withdraw the amendment.

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[Baroness Noakes]

My Lords, can the Minister explain in a little more detail why the FCA is not allowed any discretion about whether it has panels but the PRA does have discretion? Is it just because it is the Bank of England, and the Bank is saying that it has to have discretion?

[Lord Sassoon]

No, my Lords, of course it is not because it is the Bank of England and it says that it has to have discretion. This is government legislation and the Government are presenting a Bill that we believe is appropriate to the new financial architecture. Of course we consult the Bank of England, the FSA and all sorts of other people. We have also had the input of the Joint Committee. My noble friend is quite right to challenge me on this but I am quite clear on it. As I have tried to explain, it is understandable but simplistic of people to read across that there are panels now that would like to continue to be engaged with both new regulators. I can understand where the panels come from and why, as I have explained, since consumers have a considerable interest in the decisions taken by both bodies, consumers superficially may say, “Actually, we would like to be engaged directly with both”.

Financial Services Bill

Debate between Baroness Noakes and Lord Sassoon

Tuesday 10th July 2012 Lords Chamber

[Baroness Noakes]

I may be able to help the noble Lord, Lord Peston, with his last question. In two groups’ time, we will be discussing precisely the nature of the procedure that will accompany these new tools. The noble Lord might like to wait until then.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

I am always grateful to my noble friend or anyone else who wants to take the heat on challenging questions. We will come back to the nature of orders.

On the question of what the experiment is here, the experiment that has failed is that of creating the FSA, and we now need to go back to putting the Bank of England at the heart of matters, which is what this is all about. I rather preferred the noble Lord, Lord Eatwell, referring to a “project”, which he did at the end of his speech, rather than an “experiment”. It is indeed a major project.

To dispose of the not entirely relevant question about the Joint Committee on banking ethics and standards, the procedural Motion to set up that committee will be before us very shortly. There is not much more that I can usefully add. I do not think it is directly relevant to these amendments, but I am sure that that Motion will come forward very soon.

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[Baroness Noakes]

Perhaps I might intervene on whether there is the power to amend or not. Debating under super-affirmative procedure is not like considering a Bill. There are no amendments tabled and voted on but there is the ability of either House to pass a resolution saying what it thinks. Much as the noble Lord, Lord Peston, articulated, either House would be able to consider whether it thought that the tools were up to the job. More importantly, as I tried to explain in my opening remarks, Parliament could consider the potential impact of using those tools and say to the Government whether it thought the tools appropriate in the context of the wider impact, not simply the narrow impact, on the regulation of financial institutions. The super-affirmative procedure does not allow a specific amendment process but it allows Parliament to say, “Government, we think you have got this wrong”. It is in contradistinction to any of the other procedures where we have the nuclear option: we either accept the order or we do not accept it. It is a more deliberative and amenable process, in particular for considering these very new tools which are being talked about. I hope that helps the Committee.

[Lord Sassoon]

My Lords, this has been a helpful additional go-round of the tracks because it illustrates, I suggest, that with the procedures already in the Bill and the commitment that my right honourable friend the Chancellor has made to debate the toolkit on the Floor in another place—the same could apply here, clearly, subject to the usual channels agreeing it—we have in substance exactly what my noble friend wants to achieve. We have that without locking ourselves into the difficulty that goes with the 124 days, plus Recess time, which we can get locked into in cases that may be either minor ones where none of this is warranted or, more particularly, ones that started off not being urgent but then became more so. Having had this useful go-round and with the reassurance I have given of what the Chancellor has committed to, I ask my noble friend if she will withdraw her amendment.

[Baroness Noakes]

My Lords, the Minister has not appreciated the difference between the affirmative procedure and the super-affirmative procedure. Simply having a debate can have only one outcome, of approving or not approving the order, and that is the fundamental flaw. It is the thing that we all learn in opposition and that all Governments forget. Whether or not additional time is allowed or whether a different procedure is adopted in the other place may well improve the quality of debate but it cannot change its outcome. In your Lordships’ House, it is always open to us to have a debate on a draft order on the Floor of the House by the simple mechanism of any noble Lord tabling some kind of Motion disagreeing with it. That will automatically bring it into the Chamber. That is not the problem; the issue is the outcome.

The super-affirmative procedure is a more deliberative procedure; it allows views to be expressed without going so far as to say, “We are not having it”—the outcome of which is usually described as very harmful. That is why the House has a general practice of not voting orders down, because it is such a dangerous thing to do. That is why this super-affirmative procedure gives each House of Parliament more opportunity to debate all the issues contained within the order. It may be that we need a greater range of ways of handling this; however, all the methods of handling an order other than the super-affirmative can allow only acceptance or rejection of the whole. That is a difficult thing for the House to do—to put itself in the position of disagreeing with the whole.

The other issue is delay, although I do not see an issue here. The issue is about whether we take the right amount of time to get the thing right. The Government have available in the Bill, unaffected by my amendment, the ability to put something through on an urgent basis. Nobody would dream of circumscribing that power, because it may well be necessary. Even in the middle of the process to get a new measure through, if it was suddenly decided that it was so important that it had to come in urgently, the Government could default to that procedure. As I said earlier, the timing issue is therefore a red herring. The issue is about whether government can give the proper amount of time and consideration to these important new measures.

I will consider carefully what my noble friend has said, but my first instincts are that he has not said enough to convince me that the super-affirmative procedure is not the appropriate procedure for these new measures. I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Sassoon]

My Lords, in giving those four examples the noble Lord knows very well that the first and fourth of his examples very much fit the bill, and the second and third very much do not. This is all about markets that work essentially to assist the end user of those markets. It has nothing within it to do with working well for a trader or something superficial that all looks smooth on the surface but does not provide the end result of liquidity, price discovery or choice for consumers. The noble Lord knows very well that it would be impossible within the compass of such a piece of legislation to try to define the well working of a market, but the Bill spells out the main ways in which the FCA will seek to promote the well functioning of markets—those operational objectives that I touched on.

Those operational objectives give clues and pointers to the FCA. It will be for the FCA’s board to consider if and when it needs to consider these questions of well functioning markets. I believe that it will be well equipped with its expertise to consider market by market what well functioning means. I see absolutely no problem with this. However, there needs to be something that brings together the FCA’s very diverse and individual functions, roles and responsibilities.

That relates to one of the questions asked by my noble friend Lady Noakes, who asked why the FPC and the PRA do not have strategic objectives. It is precisely because they have much more narrowly focused objectives that they do not need the overall strategic objectives that the FCA needs because of the breadth of its responsibilities. I agree with my noble friend and others that we have not provided this strategic objective for the FCA on some whim. We have not put it in for the FPC and the PRA because it is not necessary. It is precisely because of the diversity and the potentially conflicting nature of the objectives of the other bodies that we believe it is right to have it in the case of the FCA.

By the same logic, the strategic objective will act as a check and balance. If, say, the FCA seeks to advance its consumer protection objective by placing detailed requirements on firms, we want it always to ask itself whether what it is doing contributes to the ultimate end goal of ensuring that markets function well. What functioning well means will be determined with some commonality across all markets, but some of it will be market-specific, particularly depending on whether it is a consumer or a wholesale market. This is no afterthought. It reflects the Government’s desire to enshrine regulation which seeks to ensure that markets can do their job.

My noble friend also asked a question about how the FCA could act in a way that was not compatible with its objectives. There are examples which we need to take into account, one of which might be a short-selling ban which is, arguably, in the interests of end-consumers but is a measure which is not normally thought to be compatible with a well functioning market.

[Baroness Noakes]

I thank my noble friend for that example, in which a short-selling ban could be introduced because it was compatible with one of the operational objectives yet was incompatible with the strategic objective. What, then, is the point of having the strategic objective sitting in this Bill?

[Lord Sassoon]

My Lords, I have explained why a strategic objective is necessary in order to tie together the very disparate responsibilities of the FCA. Nevertheless, in answer to my noble friend’s question about the “in as far as reasonably possible” carve-out, I give her an example of why there will be circumstances where those words are necessary. It is entirely compatible with the need for the general, overarching statement to admit and allow for the possibility that there will occasionally be instances of conflict with that overarching objective. We have done that in the Bill and this does not in any way invalidate it.

I turn briefly to Amendment 101D in the name of the noble Lord, Lord Eatwell. This seeks to extend the FCA’s strategic objective to ensure that markets function in the best interests of society as a whole. Consistent with what I have already said about the well functioning of markets, I support the sentiment underpinning the amendment. We want markets which serve the wider economy, underpin growth and contribute to a more prosperous society as a whole. We are not talking about markets that are working exclusively for those who are operating in them. This sentiment is very much part of what drives this whole programme of financial services reform.

Having said that, I am conscious about the amendment for two reasons. First, it is not the FCA’s job to decide what is ultimately in the best interests of society. The FCA is being set up as a focused, tough and proactive conduct-of-business regulator. If its new style of conduct regulation contributes to ensuring that the financial sector serves the wider economy, that is good and what we want to see. However, I suggest that deciding what benefits society as a whole cannot be the role of a financial services regulator.

Secondly, and linked to that, is an important question of expectations. The FCA will have some important powers but it is questionable whether we could argue that it has all the powers to deliver a market that benefits all of society all of the time.

There are difficult judgments to be made here, not least because there will always be trade-offs between policy choices. It is my strong belief that these societal choices are, ultimately, for the governor and not the regulator. I cannot, therefore, support Amendment 101D. I may be proved wrong in just a moment, but I sense that I have not completely won over my noble friend—no, I will not be proved wrong. However, she is always very reasonable about these things and she recognises the very considerable way that the Government have moved on the FCA’s strategic objective. I ask her to withdraw her amendment.

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[Lord Sassoon]

I said the Government. I hope he would agree that it was for the Government, not the governor. Good.

[Baroness Noakes]

My Lords, I am glad that my noble friend has cleared that up because I heard him say “governor” too. Perhaps there was a small slip, but Hansard will doubtless make sure that what he intended to say is recorded as having been said.

I thank the noble Lord, Lord Eatwell, for his support for my amendments and I agree with him that the current drafting is not much more than a vacuous statement. The Minister said that this is going to be an overarching goal, that it is going to be a check and balance but the first example he gave me, of short-selling, means that it can be ignored. This seems to be some form of window dressing. It is trying to appear that the Government agree with as many people as possible. It probably has no meaning whatever and it is therefore possibly something that we do not need to get overexcited about. It certainly does not add to clarity in the Bill. I shall think further on what my noble friend has said before we return to this on Report. For now, I beg leave to withdraw the amendment.

Financial Services Bill

Debate between Baroness Noakes and Lord Sassoon

Tuesday 3rd July 2012 Lords Chamber

[Lord Sassoon]

My Lords, that is broadly right. [Laughter.] We should remember that the FPC will be made up of a different group of people, including independent members, who will be making recommendations. Taking the example I gave of the supervision of payment systems, the FPC, with its independent members and statutory responsibilities, could be making recommendations to the Bank regarding its supervision of payment systems. It would therefore be a mischaracterisation—it really does not matter who signs a letter to whom, it would be the FPC making a recommendation to the Bank. To reduce it to a suggestion that the governor will be writing to himself would be a mischaracterisation of an important power that should have a degree of formality around it, in the same way that the FPC will be required to exercise its powers of making recommendations for other regulatory bodies.

[Baroness Noakes]

My Lords, I thank the Minister for the explanation that he is trying to provide, but I feel a little as if we are in Alice in Wonderland. Can the Minister give me an example in the real world where people within organisations behave in the way in which we seem to be expecting the Bank of England to behave?

[Lord Sassoon]

My Lords, I am not sure whether one can distinguish the world in which we are talking about financial regulation from the real world. This is the real world. It is a world in which these are very important powers that go to the heart of ensuring the financial stability of the UK. This is not a frivolous point. It may appear on the surface to be Alice in Wonderland territory but, if the FPC is to exercise the really significant powers in the system that it is being given or the responsibility for financial stability, it must first have the levers. One of the important constituencies that it will be addressing—and it would be totally remiss of the Government and this Bill to leave it out—would be directions from the FPC to another important regulatory body, of which the Bank is one.

An awful lot of things could be left unsaid which one would assume would somehow happen. This is not one where it would be safe in any way to do so because, if we did not have this power to make recommendations, there could be a significant risk that the FPC would not have the powers—the levers—over critical areas of the supervision and the regulation of the financial infrastructure that underpins so much of our financial system. One only has to look at recent events to see how computer glitches and apparently relatively simple IT problems can have very significant consequences. I suggest that the FPC would have a huge hole in this armoury if it was not able to make recommendations also directed at those who supervise the infrastructure.

--- Later in debate ---

[Lord Sassoon]

My Lords, my clear understanding of the drafting here—and like these other drafting points that we have dealt with, if I have got it wrong I will of course write—is that a specified regulated person is the key thing, which in the examples I gave would be Barclays or the RBS. We should not be concentrating on the verb “relate” but what we need to be looking at in new Section 9G(4) is the construction on “specified regulated person” and that would be naming an individual firm.

If the FPC were to make a direction related to regulated persons of a specified direction which happened only to be a class of one firm, then I am clear that that is what is intended here. If I have got it wrong, which I do not believe I have, I will clarify the situation. I wish I had the complete Oxford English Dictionary. It would be quite difficult to bring it in to discuss it over a glass of wine, but I have the Concise Oxford English Dictionary at my fingertips and it might help the noble Lord to say that the concise edition defines “relate” interalia as meaning “having reference to”. I do not know whether that helps him, but perhaps we can move on.

We were on Amendments 48 and 66, and I think that that particular point was the major one here concerning the Committee. I would just say more generally that we are absolutely committed to maintaining clarity of responsibilities and distinguishing micro or firm-specific roles from the macro role. We do not want any lack of clarity here, but on the situation which the noble Lord postulates, I hope that I have satisfied him that indeed the drafting is correct. After that long and interesting discussion, I would ask my noble friend to consider withdrawing her amendment.

[Baroness Noakes]

My Lords, given the hour I shall not prolong any further what has been an interesting debate. I would like to thank my noble friend and the noble Lord, Lord Eatwell, for taking part in 50-odd minutes of discussion. My noble friend says that these recommendations to which my amendments were addressed are a lever, and that they need legal backing. I frankly do not see that. I am going to read with great care what my noble friend has said, in particular about making recommendations within the Bank, to the rest of the world and indeed to the Treasury, none of which seems to have any legal effect and is just simply a way of writing down something that might happen. I will not prolong the agony any further this evening and I beg leave to withdraw the amendment.

Financial Services Bill

Debate between Baroness Noakes and Lord Sassoon

Tuesday 3rd July 2012 Lords Chamber

[Lord Sassoon]

No, my Lords, it is not wrong. If we are talking about a British bank, it is a British bank, and that is linked to these metrics and to the remit of the FPC. Of course that is captured in the FPC’s remit. I think we are getting ourselves excessively excited about a simple issue that is perfectly well drafted in the Bill, which is that the FPC has a wide and appropriate remit to deal with financial stability in the UK, but that it should properly take account of systemic risks that may arise both inside and outside the UK. That is exactly what the drafting of the two clauses taken together means. If the noble Lord had been critiquing the Bill as it was introduced in another place, he would have proper grounds for questioning that, but we have plugged a possible gap, and the construction now works.

[Baroness Noakes]

I do not wish to be unhelpful to my noble friend, but I am probably going to be. What the noble Lord, Lord Eatwell, says seems to make sense. The systemic risks in subsection (3)(a) and (b) are defined in subsections (5) and (6) as not having any geographic restriction, but subsection (3)(c), which is defined by subsection (7), as the noble Lord, Lord Eatwell, said, relates only to,

“individuals in the United Kingdom and businesses … in the United Kingdom”,

for credit growth, debt, and so on. That ignores the fact that many banks have global balance sheets. As we do not have rigid subsidiarisation, a UK balance sheet could have significant exposures to other territories, depending on how a particular bank’s overseas operations were organised. Many of them are run as branches out of the UK institution and therefore, I should have thought, would be posing the kind of risks on which the FPC would need to keep an eye. I am unclear why we have chosen that formulation. I accept that for the systemic risks it does not matter where it applies, but when we are talking specifically about credit growth, debt and leverage, it is as if it can impact on the UK only if it happens in the UK, and I do not think that that is correct.

[Lord Sassoon]

I shall have another go, because this is tricky but important. The Financial Policy Committee is charged with responsibility for the overall financial stability of the UK: the systemic risks and the macroprudential role. We need to distinguish that from the situation of individual firms which will or may contribute to the overall systemic risk. In this discussion we risk conflating two things. One is the systemic risk in the system, which the FPC is charged with dealing with. That is credit growth, debt and leverage as defined by subsection (7), which is referenced to the United Kingdom. The financial stability of the United Kingdom is the concern of the FPC. That does not mean that risk may not come from the international financial system—that is made completely clear by subsection (6). However, for individual financial institutions for which the PRA will have first responsibility, if the FPC considers that they contribute to the overall situation, it does not rule out or limit consideration of the factors that affect individual financial institutions. The clause and the definitions do not rule that out. We should not confuse what is being defined here. The definitions are not exhaustive of the systemic risks which the FPC should consider. It may consider whatever else it considers relevant.

Financial Services Bill

Debate between Baroness Noakes and Lord Sassoon

Monday 11th June 2012 Lords Chamber

[Baroness Noakes]

Perhaps I may challenge the suggestion made by the noble Baroness, Lady Kramer. While officials sit rather nearer to the Ministers in Grand Committee, I think that they take no active part. All we have is that the same number of officials sit rather closer to the Minister, so it makes very little difference in terms of determining government policy. In practice, because no decisions are made in Grand Committee, or at least they are made very rarely there, the proximity of officials is of no account whatever.

[Lord Sassoon]

My Lords, I hear the opposition to this Motion loud and clear. Rather than put ourselves through the agony of going through the Division Lobbies at this late hour, let me withdraw the Motion and let some more discussions go ahead.

Independent Commission on Banking

Debate between Baroness Noakes and Lord Sassoon

Monday 12th September 2011 Lords Chamber

[Lord Sassoon]

All I can say is that my noble friend Lord Flight makes three important and interesting observations which we need to dwell on as we take all this work forward.

[Baroness Noakes]

I declare my interest, as recorded in the register, in particular as a director of the Royal Bank of Scotland, although my views are and always have been entirely my own.

My noble friend the Minister will be aware that there remain concerns, not least from organisations such as the CBI, about the impact of these proposals on the availability and cost of lending to smaller businesses. There are also concerns about the impact of the proposals on the strength of our financial services industry, which is and will remain a significant contributor to the economy. I therefore welcome the emphasis in my right honourable friend the Chancellor’s statement on cost-benefit analysis being carried out before implementation. Will my noble friend say a little more about when this cost-benefit analysis will be undertaken?

[Lord Sassoon]

I am grateful to my noble friend Lady Noakes. We will get on with all the consideration of the detailed recommendations and the cost-benefit analysis as soon as possible. I cannot be more specific than that, but as my right honourable friend said, it may be that some things can be brought forward for the financial services Bill, which is an indication of the speed with which we will go at this.

Greece: Default Contingency

Debate between Baroness Noakes and Lord Sassoon

Monday 20th June 2011 Lords Chamber

[Lord Sassoon]

I am not able off the top of my head to break down the analysis of our exports, and I am not quite sure where my noble friend would draw the line between hard and soft. The critical point here is that more than 40 per cent of our exports go into the eurozone. Of course, they are generally distributed in relation to the size of economies, with Ireland, as we discussed in relation to the Irish package, having for historical reasons a disproportionately large share. My noble friend makes the point that it is absolutely in the UK's interest to ensure that the eurozone economies are successful, because that is where the largest part of our exports go.

[Baroness Noakes]

Does my noble friend think that a new set of arrangements made within the euro area by the IMF for Greece will work this time? It did not work last time. Unless there is some confidence that new arrangements made to support Greece will work, in the sense that they can restore the Greek economy—there is very little sign that the Greeks are able to take any medicine which would restore it to health—would we not be better served by working within Europe to help our European friends understand that letting Greece remove itself from the eurozone and take the default that it clearly is in is in everybody's interest?

[Lord Sassoon]

My noble friend Lady Noakes asks a very good question. It is inevitable that people will ask: was the package appropriate? One should take comfort from the fact that the IMF has a long and successful record of implementing restructuring programmes. The IMF programme for Greece was put in place in market conditions and with a market outlook somewhat different from that which Greece and the eurozone subsequently encountered. The first requirement is for the Greek Government to be encouraged to get back on track, to stick to the agreed fiscal consolidation path. Beyond that, it is for the IMF to see what needs to be done. The key thing is for the original plan to be back on track. I therefore think that we should not at this point second-guess whether the plan is or is not appropriate.

I will not be drawn into whether the Greek situation would be better in one hypothetical scenario or another.

Budget Responsibility and National Audit Bill [HL]

Debate between Baroness Noakes and Lord Sassoon

Monday 6th December 2010 Grand Committee

[Baroness Noakes]

But not today.

[Lord Sassoon]

I love it when noble Lords preface their remarks by saying, “This may not be the place in which to discuss these things”, and then go into freshwater and saltwater fishing. The noble Lord, Lord Eatwell, has already said that his study of the 20 spreadsheets has raised some questions that he will address directly to Mr Chote. If my noble friend Lord Higgins would like me to relay his questions to Mr Chote, I will be happy to do so—or he may wish to write directly. Either way, I will return to the amendment. We have so much transparency already that it is provoking lots of questions that I am sure Mr Chote and his colleagues will be happy to answer. I will be happy to act as postman if that would be helpful.

--- Later in debate ---

[Baroness Noakes]

I suggest to the noble Lord, Lord Peston, that it is not so much the requirement to do the assessment as the requirement to publish it that is important.

[Lord Sassoon]

My Lords, I am confused by this, because there are certain other things that I would have thought it would be impossible for the OBR to miss out, such as focusing its forecasts on government economic policies. Where there was a strong wish to put certain things into the Bill that were not there, now it is being said that it is blindingly obvious that the OBR would assess its own performance, so no provision is needed. What goes in the Bill and what does not are matters of judgment. It is my view that this is a sufficiently important matter to justify being included. The noble Lord, Lord Peston, will no doubt be comforted by that, because he has already played back to me the fact that the OBR has stated in its document, Analysis of Past Forecasting Performance, that it is,

“fully committed to transparency, and each year will produce a full and detailed report analysing the accuracy of its economy and fiscal forecasts, and explaining the differences between forecast and outturn”.

It goes on to talk about giving further detail on its forecast methodologies. The office is going to do this anyway and I would like to think that it would be done without the Bill requiring it. However, it is sufficiently important that there should be absolutely no doubting the fact that it will be done.

This is not something that of itself is easy to do. The analysis of forecasting requires fiscal forecasting skills that are in scarce supply. To make the assessment requires access to and full understanding of the data. Critical to the whole process is that actually doing the assessment yourself makes it a learning experience. That goes to the heart of why Mr Chote and his team will do it anyway. We certainly expect to see the OBR doing this and the office has said that it will. However, in the Government’s view the requirement should be on the face of the Bill. In the absence of a discussion that we have not yet had about alternative approaches, I suggest that this is where we need to leave it. For the moment, therefore, I ask the noble Lord to withdraw his amendment.

--- Later in debate ---

[Baroness Noakes]

My Lords, the noble Lord, Lord Barnett, has gone a bit over the top in describing Mr Chote and his colleagues as being “used”. The Statement made by my right honourable friend the Chancellor, to which the noble Lord referred, spoke of an audit of the annual managed expenditure savings. It was not an audit of anything other than one part of the totality of the package that my right honourable friend announced last month. The noble Lord has extrapolated from a relatively small use of the word “audit” into something much bigger that is not justified.

I agree, in a sense, that people such as myself, my noble friend the Minister and the noble Lord, Lord Barnett, who have an accounting background, tend to think that the term “audit” is reserved for this statutory audit function, has a very specific meaning and applies only to the audit of financial statements. However, the term means only “independent examination”, and in that sense I do not see any reason why the figure should not be used.

However, I say to the noble Lord that even when considering the audit of annual financial statements, those statements contain loads of assumptions and forecasts. To do an impairment review, you have to forecast cash flows for 10 years and choose discount rates and things such as that to calculate the figure that you put on your balance sheet. For your pension liabilities, you have to do even more complex calculations involving even more assumptions about the future. So even “audit” has to deal with these difficult areas of future estimation, even within the concept of statutory audit.

It would be helpful if the Treasury were to be reminded that the term “audit” has a rather technical meaning; it would be better to say something like “has independently examined”. Perhaps the Minister could take back to the Treasury that its lexicon could have that amendment added. I come back to my basic point, though, that the noble Lord, Lord Barnett, has gone a little over the top on this amendment.

[Lord Sassoon]

I am grateful to my noble friend for delivering my script for me. Perhaps I should declare my interest as a fellow of the Institute of Chartered Accountants in England and Wales. There is certainly a technical use of the word “audit” that we chartered accountants and other accountants are used to using. As my noble friend Lady Noakes has explained, my right honourable friend was using a more general use of the term. The Chancellor used the phrase in the very specific context of,

“audited all the annually managed expenditure savings”.—[Official Report, Commons, 20/10/10; col. 949.]

To be clear, there is no question of the OBR doing an audit in the sense used by, say, the National Audit Office. In the context in which my right honourable friend used the word “audit”, it is completely clear that he was talking about scrutiny of those particular savings, as set out in the terms of reference given to the OBR when it scrutinised the Government’s policy costings. If the noble Lord, Lord Barnett, wants clarity on the meaning of the word, the terms of reference are clear.

In answer to the questions about the number of contacts between the OBR and the Treasury, that information is now published on its website. Between 4 October and 29 November 2010, there are seven recorded contacts: four e-mails, two meetings and one transmission of a hard-copy document. As I say, all those details are on the OBR’s website for people to look at.

The clarity over the OBR’s role is provided for through the provisions in the Bill and the charter. There is no intention for the OBR to do an audit in the technical sense of the word. I hope that it has been useful to have had this short discussion to clarify that that is indeed the situation and, having agreed that, I do not think that we need to clutter up the Bill in the way that the amendment proposes. On the basis that it is not strictly necessary, I ask the noble Lord if he might withdraw it.

Budget Responsibility and National Audit Bill [HL]

Debate between Baroness Noakes and Lord Sassoon

Wednesday 1st December 2010 Grand Committee

[Lord Sassoon]

My Lords, Amendment 13 is intended to create a legal obligation for the OBR to publish the nature and membership of committees or sub-committees and to publish the reports of those committees. It is inconsistent with the right of the OBR under paragraph 11 of Schedule 1 to determine the procedure of any committee or sub-committee. We should not seek to fetter the way in which the OBR organises its committee structure and processes. While I am happy to talk at greater length, we should leave it up to the OBR to determine how its committees and sub-committees should operate. This would be consistent with everything that we have said about the independent and unfettered way that it should go about its business.

[Baroness Noakes]

I am sorry to interrupt my noble friend. The amendment asks simply that the nature and membership of any committee or sub-committee, and the reports of any such committee or sub-committee, should be made public. That does not fetter in any way the discretion of the OBR to set up those committees; it is merely part of the public accountability of the OBR to explain what it does and how it does it. It is quiet simple and I am not sure why the Minister is resisting it on the grounds that he has given.

[Lord Sassoon]

For example, if the OBR wished to set up a sub-committee to deal with internal personnel matters, it would not be appropriate that it should be required to publish details about that. We are making presumptions that sub-committees have a particular meaning. Perhaps we should step back for a moment. The output of the OBR is essentially the 150-page document that it has now produced, along with a number of other reports and analyses that it has already made, and it has set out plans for future work streams. We must remember that this is not equivalent to talking about the Monetary Policy Committee or the yet to be established financial policy committee of the Bank of England, which will have regular monthly meetings to make decisions about policy.

We need to be clear about this. The output of the BRC of the OBR will be a series of policy documents that will not come regularly out of a minute-taking and minute-making process. Perhaps I was presuming a bit too much in my brief answer. The committee’s structure is up to the OBR, but it is likely to have more to do with the governance and management of the entity than with the reporting that comes out in its major documents. In that context, requiring this straitjacket would be inappropriate for the nature of the entity.

--- Later in debate ---

[Lord Sassoon]

Since the noble Lord is coming to the end of his remarks, I wanted to put something into, if you like, his work plan for thinking more about this matter before Report. This is another point that I had thought hardly needed to be made. The grant-funded NDPB model which we are talking about is common to a great many credibly independent bodies such as the Advisory, Conciliation and Arbitration Service and the Equality and Human Rights Commission. I do not believe that there is any question of funding for other grant-funded bodies of this sort being compromised. They produce explanatory memoranda; the OBR can produce an explanatory memorandum, which will go to parliamentary committees for scrutiny. I simply put on the table that if the noble Lord wants to go on thinking about this, he should also consider the read-across to other NDPB models.

[Baroness Noakes]

Before the noble Lord, Lord Eatwell, takes this away to consider before he comes back on Report, he might want to look at the debates on setting up the Statistics Commission. Very similar points were raised at the time. Although it was a non-ministerial government department rather than an NDPB, the principles are exactly the same. When I sat on that side of the Grand Committee, the concerns were that insufficient resources would be made available to the Statistics Commission to enable it to do the work that it needed to do because it was to be subject to Treasury control.

One of the arguments, which I am not sure has been fully deployed, although many good arguments have been, is that the annual report required by Schedule 1 is the vehicle for the body—the Statistics Commission in that case, and the OBR in this case—to say exactly what it wants. The Treasury has no ability to stop anything being put in the annual report, which must be laid before Parliament. This is in addition to the undoubted ability of Robert Chote to get Mr Tyrie to obtain a Treasury examination if he thought there was a problem, which can be done by informal means. Therefore, Mr Chote has a formal means of bringing to the attention of the wider public any concerns that he has about funding.

Budget Responsibility and National Audit Bill [HL]

Debate between Baroness Noakes and Lord Sassoon

Monday 29th November 2010 Grand Committee

[Lord Sassoon]

My Lords, at the risk of repeating myself, the Government’s broader economic policy objective is clear and includes the achievement of strong, sustainable and balanced growth that is more evenly shared across the country and between industries. That is consistent with values of broad freedom, fairness and responsibility. That is absolutely clear, I hope, as regards our broader economic policy objectives. However, as I have tried to explain, what we are talking about is the narrower context for the fiscal policy mandate. I am not personally very keen on too many capitalised terms, but I hear my noble friend’s plea for an initial capital for “mandate”—it is certainly a critically important part of the construct. I will take away the thought.

This is the first time that these fiscal policy objectives have been tabled. We are not debating the charter in the way that we are debating the Bill, because the charter is not part of the Bill itself. It is not a question of debating the precise words, therefore, but I take the point. There are many things within the broader definition of fairness that do not impinge directly and narrowly on the conduct of fiscal policy. Therefore, I am not sure that it would be right to talk about fairness in its full richness here, but I have certainly listened carefully.

As to the question of cyclical adjustment, the absolutely critical point is that cyclical adjustment is now done by the independent OBR; it is not done by Ministers, who could and did rewrite, on a regular basis, the start and end points of cycles. That is important and I am grateful to my noble friend for drawing attention to it.

[Baroness Noakes]

My Lords—

Comprehensive Spending Review

Debate between Baroness Noakes and Lord Sassoon

Wednesday 20th October 2010 Lords Chamber

[Lord Sassoon]

My Lords, as I have reiterated, at the absolute centre of this spending review is the universal credit, which, over the next two Parliaments as we bring it in, will go to the heart of the challenge the noble Lord poses. As to the provision for disabled people, people with long-term conditions account for around 70 per cent of the NHS budget, which is the area of spending being protected above all others.

People with disabilities and social care needs will also benefit from the additional resources given to social care within the health and local government budgets. People with care needs are also being protected from the extension of the single-room rate in the housing benefits. Finally, of the measures to which I should draw the attention of the House, families where someone claims a disability living allowance will be exempt from the new cap on total household welfare payments. Care for disabled people is absolutely at the heart of this review.

[Baroness Noakes]

My Lords, my noble friend was accused by the noble Lord, Lord Eatwell, of ideology in pursuing the excellent programme that he set out in the Statement. Will he confirm that it is necessity and not ideology that has driven today? Will he further confirm that we inherited the largest deficit in the G20 and an economy where public sector productivity had gone backwards for most of the previous 13 years? We found budgets, such as defence, which were overcommitted to an extent more than the annual budget. Will my noble friend confirm that we are committed to restoring efficiency and effectiveness to public spending, which are principles that eluded the Benches opposite for the previous 13 years?

[Lord Sassoon]

I am happy to confirm the very succinct summary put forward by my noble friend Lady Noakes of what is at the heart of this spending review. Effectiveness and fairness are what we are aiming at.

Terrorist Asset-Freezing etc. Bill [HL]

Debate between Baroness Noakes and Lord Sassoon

Wednesday 6th October 2010 Lords Chamber

[Lord Sassoon]

My Lords, I shall come to the Kadi case although I should note that it does not directly relate to this particular regime. There is a judgment to be made as to what actions are ones for the Executive and what are not. We believe that this measure—it is the way this regime has worked over the years—should be operated by Ministers with the appropriate protections. The word “draconian” has to be used and understood in a particular way. The measure is intended to be draconian in the sense of making a material impact on the ability of terrorists to finance their activities but is not intended to be draconian in the sense that we also have very significant safeguards in the regime through the licensing which allows proper expenditures to be made. Therefore, I do not recognise the word “draconian” in that sense as we ensure, under individual or general licences, that money can be released for the appropriate uses, whether that is to pay legal bills or family expenses and so on.

The noble Lord, Lord Pannick, made some very helpful remarks. As we are also discussing his amendment, I reiterate his endorsement of the broad shape of the regime that we propose in the government amendments. He made three specific points in relation to what we are proposing in Clause 29 and asked detailed questions about whether it should be the same evidence or substantially the same evidence. As I think he recognises, these are fine points which I will take away and consider. On the noble Lord’s point about appropriate notification, I should have thought that if certain people had been notified at the outset, at stage two it would be appropriate to notify the same people, so I am not sure that that needs to be stiffened up. Indeed, I am not immediately persuaded as to what difference the use of the same evidence or substantially the same would make in practice, but I will have a look at that.

My noble friend Lady Noakes talked about the procedural points that I have addressed in the Home Office review. My noble friend asked whether the review will detail the number of interim and final freezes and how many interim freezes had become final freezes. I have little doubt that that will be covered in the review. I am not sure that the implication should necessarily be drawn that if a number of interim orders are made, but they actually fall away, that in any sense suggests that they were improperly made or that the evidence was not properly based. I can quite see circumstances in which interim orders have to be made but, for a number of reasons, could fall away. I take my noble friend’s point about—

[Baroness Noakes]

I probably did not express myself particularly well when I put the point to my noble friend. I was not talking about the work of the independent reviewer, but of the requirement in Clause 24 on the Treasury to make a report. I hear the Minister trying to say that nothing can necessarily be inferred from the relationship between interim and final designations. I am really seeking to make sure that that information will be made available in the public domain, and the report by the Treasury under Clause 24 seems to be the obvious route, not the work of the independent reviewer.

[Lord Sassoon]

I thank my noble friend and entirely take her point that it would be a matter for the Treasury report. I am grateful to her for clarifying that she agrees with me that one could not take a simple implication from a read-across of the number of interim reports that might—we will see whether they do—fall away.

My noble friend Lady Falkner of Margravine asked why there should be a period of 30 days as opposed to any other number of days. There is, as she put it, no particular magic in designating a period of 30 days. One could mount an argument for 14 days or 45 days. Thirty sits in the middle, and it seems a reasonable period. Quite a number of cases have come across my desk and that period seems to strike a reasonable balance. However, there is no magic about it.

As for the experience of other countries, I shall look to see what other experience there is. However, I can say that New Zealand, specifically, has an interim designation which can be made for 30 days on the basis of suspicion and a final designation which requires reasonable belief. New Zealand was mentioned in a question from the noble and learned Lord, Lord Davidson of Glen Clova. Regrettably, I met New Zealand’s Deputy Prime Minister yesterday—if the meeting was tomorrow, I could ask him the question. However, the review here operates in a different way, and we also have the regular review which Treasury Ministers have to make. Our regime is different from New Zealand’s, and we have a separate safeguard, the regular review, which is also subject to appeal to the court.

The noble and learned Lord made a couple of points about resource pressures and additional costs. I have no reason to believe that there will be significant additional costs or resource pressures. Perhaps linked to that, the noble Lord, Lord Myners, asked about fishing trips. He said that it was a churlish point, but I would not say so. It is important to question whether there will be fishing trips. I have absolutely no reason to believe that the new regime as proposed will lead to fishing trips. A series of serious tests have to be applied and that includes protection of the public. This is linked to the resources point. Resources will not be significantly increased, because nothing in the proposals will allow Ministers to go off on fishing trips.

Perhaps the last point left hanging concerns the Kadi case. The first thing to say is that the case does not impinge directly on the legislation that we are looking at. The latest judgment annuls the EU regulation and the listing under it dating back to 2001 as it applies to Kadi, but there is a suspension of the judgment for two months and 10 days to allow time for an appeal to be made to the Court of Justice. If an appeal is lodged, it is likely to take 18 to 24 months. I expect that the Foreign and Commonwealth Office will press the Commission to appeal the decision; so the case has a long time to run. Of course, if the judgment were upheld, it would set our EU obligations squarely against our UN obligations, which would present a difficulty: but it is not a difficulty that impinges directly on the Bill.

--- Later in debate ---

[Baroness Noakes]

I have one question in connection with Amendment 51 in the name of the noble Lord, Lord Davies of Oldham, which seeks to insert “grant” into Clause 13. He suggested that the Bill did not contain any power for the Treasury to grant a licence. Could he say whether there is any other way of reading Clause 13, other than as saying that the Treasury may be able to grant a licence?

[Lord Sassoon]

Let us deal with that point. I am advised that Clause 13 gives all the power that is necessary to grant a licence. I am grateful to the noble Lord, Lord Davies of Oldham, for trying to help the Government by making sure that the power is in the Bill. However, I am assured, and my noble friend Lady Noakes confirms this, that Clause 13 grants that power.

I will address Amendments 7 and 10 more generally. There are some important issues here. Although the noble Baroness, Lady Falkner, did not spend long speaking to her amendment, she made an important point. These two amendments would clearly require the Treasury, when deciding whether to designate a person, to consider the UK’s international obligations to prevent terrorism. The Treasury would also be required to consider the humanitarian needs of persons affected by designations, including which licences should be granted immediately after the designated person is notified. The key international obligation is United Nations Security Council Resolution 1373, which requires all UN member states to freeze the assets of terrorists and prevent their nationals and persons within their jurisdictions making funds, resources or financial services available to them. However, it is left to individual member states to decide to whom the measures should be applied. The Government recognise that a decision to designate someone has a significant impact on their human rights. It is for this reason that designations can be imposed only where they are necessary to protect the public from a risk of terrorism.

It may be helpful if I explain the process that the Treasury goes through when designating someone. Decisions as to persons who should be subjected to terrorist asset freezes are informed by law enforcement and intelligence agencies, which prepare statements of case setting out the material that gives rise to a reasonable suspicion or belief that the person is or has been involved in terrorist activity, and why the freeze is necessary for public protection. When submitting their recommendations, law enforcement and intelligence agencies also provide a risk assessment framework to inform immediate licensing decisions by the Treasury, and ensure that designated persons are not deprived of access to funds immediately after designation and before the longer-term licensing needs of the person can be addressed. That is also informed by the risk assessment framework. Treasury officials and lawyers then scrutinise the statements of case and make recommendations to the Minister on how to proceed. Where a designation is envisaged, this will include recommendations on immediate licensing needs, in accordance with basic principles of good governance, to ensure that a designated person’s basic needs can be met.

It is important that the asset freeze is applied in a proportionate manner—managing the risk of funds being used for terrorism while ensuring that the human rights of the designated person are protected and that third parties are not adversely affected by the freeze. For this reason, several general licences have been issued—for example, to authorise legal aid to be made available for designated persons and to enable them to take out insurance. We have also made clear in Clause 12(3) that the payment of social security benefits to spouses is not caught by the prohibitions, even when they are made in respect of the designated person. Designated persons can also contact the asset-freezing unit to seek additional licences and to make additional representations in relation to their designation or licensing arrangements at any time.

Banking Reform

Debate between Baroness Noakes and Lord Sassoon

Thursday 17th June 2010 Lords Chamber

[Lord Sassoon]

I am grateful to my noble friend Lord Higgins for asking that question. Since I carry the newly-minted title of Commercial Secretary, I can try and explain that my responsibilities straddle both the financial services sector and wider business interests. My friend in the other place, the Financial Secretary to the Treasury, bears the primary responsibility in most areas of financial services policy. If my noble friend would like to look at the Treasury website, he will see a much clearer explanation of the split of ministerial responsibilities. I would be happy to send him a copy.

[Baroness Noakes]

My Lords, I welcome this Statement and I am sure that the City will welcome the clear directional steer that it was given yesterday. In particular, the staff at the FSA who have been very concerned about what the future would hold for them can now see a clear path forward. The suggestion made by the Benches opposite about pre-legislative scrutiny needs to be looked at very carefully. The Financial Services and Markets Bill indeed underwent pre-legislative scrutiny, but that Bill was a much more complicated matter, bringing together a large number of bodies into a completely new body whereas, as I understand them, my noble friend’s proposals are that the existing FSA will be split into a number of pieces and put into different places.

In addition, notwithstanding that that Bill had pre-legislative scrutiny it did not, as far as I am told by those who bear the scars, save one single minute of time in Committee when all the arguments that went on in pre-legislative scrutiny were re-run on the Floor of the House. I am not at all sure that doing that is a good use of time, but that question is above my pay grade—and, doubtless, above my noble friend’s pay grade.

I have two questions for my noble friend. First, what is to happen to the financial stability committee in the Bank of England, which was created in the Banking Act 2009? It seems to me that we are accumulating rather a lot of committees all over the place with a lot of cross-membership. I wonder whether it will have the same purpose once the financial policy committee is created. Can he also say what is to happen to the UK Listing Authority, one of the functions of the FSA which I do not think was covered in his Statement?

[Lord Sassoon]

I am grateful to my noble friend Lady Noakes for letting me off from answering her first observation, but I take the point. There are others better equipped than I to know what will be the appropriate way to take this particular legislation through. On the financial stability committee, that was of course introduced by the previous Government as part of their sticking-plaster job, trying to put together something out of the wreckage of the tripartite system. That will fall away when the new structure gets into place. As I have already stressed, the financial policy committee will be up and running in shadow form. It is also important to note that through the transitional period, the Chancellor, the Governor of the Bank of England and the chairman of the FSA will need to be in close discussion regularly. Concerning the UKLA, the Treasury will be bringing forward proposals prior to the Summer Recess on its future, along with the significant number of other matters on which we will consult.

Public Expenditure: Review of Commitments

Debate between Baroness Noakes and Lord Sassoon

Thursday 17th June 2010 Lords Chamber

[Lord Sassoon]

My Lords, I think that I can help the noble Lord, Lord Harrison, with those questions. Of the 12 programmes and projects that are being cancelled, nine have costs in the financial year 2010-11 totalling £491 million; the total realisable savings from their cancellation will be £474 million in the same year. From that it can be seen that the difference between the two is less than £20 million. Those are the costs that will either be incurred as a result of cancellation or have already been sunk into the projects. However, the great majority of the money is to be saved, starting in the current year.

[Baroness Noakes]

My Lords, we should congratulate the Government on taking early and decisive action to deal with the deficit. The Benches opposite seem constantly to want to ignore the deficit and find a reason for not dealing with it. I am proud that our Government are getting on with it. The announcement made by my noble friend today clearly does not deal with the whole of the deficit and we will expect more from the Budget and the Comprehensive Spending Review later this year, but it is a very good start. It will help to restore confidence in our country, which is a key element of restoring growth. That is the most important aspect that we have to work on at the moment.

I have one question for my noble friend, which echoes the point made by the noble Lord, Lord Newby, in relation to the commitments that relied on underspend or access to the reserve. The Statement refers to billions of pounds’ worth of spending commitments made in this way, but goes on to say that £1 billion-worth will be cancelled. I think that my noble friend said that a total of £7 billion was concerned in this way. Why cannot the whole £7 billion-worth of projects be cancelled, because, in the terms of the Statement, there is not the money to pay for them?

[Lord Sassoon]

I am grateful to my noble friend Lady Noakes for taking us back to what is in fact the basis of this and I share completely her analysis of how important it is to get a grip on the deficit. Let me try to help her with some of the numbers. The total of spending decisions that have been found as a result of this exercise to be unaffordable and bad value for money is £10.5 billion. Those have been put into either the “cancelled” or the “suspended” category. We have cancelled projects with a total value of just under £2 billion, so the rest—approximately £8.5 billion-worth—have been suspended and will go into the process that I have described. I hope that this helps to reconcile the numbers.

Financial Services Regulation

Debate between Baroness Noakes and Lord Sassoon

Wednesday 16th June 2010 Lords Chamber

[Lord Sassoon]

The remit of the banking commission has been placed in the Library of the House. Fundamentally, it refers to reducing systemic risk, moral hazard, firm failure and promoting competition. It will be up to the commission, but I am sure it would value any input from the noble Lord, Lord Brooke, or anyone else from this House who wishes to remind it of the linkage between pay and bonuses, or anything else, and the commission’s remit.

[Baroness Noakes]

My Lords, these Benches send our congratulations to the Chancellor on his decisive action and his strategic leadership in dealing with the consequences of 13 years of a disastrous experiment with financial regulation in this country. For all that the Benches opposite want to airbrush it out of history, we must never let them forget that the experiment which started 13 years ago was one of the worst in the history of our financial system. It is good that our Government are now dealing with it. We shall wait for the detail to emerge and then have a further debate, but would my noble friend remind the noble Lord, Lord Eatwell, in relation to governance—which I am sure would benefit from a review in the context of wider responsibilities—that there has been a separate chairman of the Bank of England since last year, when Sir David Lees was appointed to that position?

[Lord Sassoon]

I am grateful to my noble friend Lady Noakes for reminding us that all this has gone on for far too long and that the 13 years compares ill with the few days in which the Chancellor of the Exchequer has gripped the problem. I shall certainly relay her remarks on to my right honourable friend. I am also pleased to confirm what my noble friend said about the governance of the Bank.

Office for Budget Responsibility

Debate between Baroness Noakes and Lord Sassoon

Monday 14th June 2010 Lords Chamber

[Lord Sassoon]

My Lords, the noble Lord, Lord Desai, has made an important point by drawing attention to the huge illumination, to use his word, of the public finances and the forecast going forward. He makes some interesting technical points about how some of the data should be forecast. All I can say is that, if Sir Alan Budd is not listening now, I will take back the noble Lord’s points and relay them to him, as it is for him to decide how he lays out his forecasts in future.

[Baroness Noakes]

My Lords, I congratulate the Government on their commitment to a level of transparency that we have never before seen. This is a wonderful first move. We should also congratulate the Office for Budget Responsibility on producing in a very short time what I think people have to accept is a very impressive document.

Does the Minister agree with my noble friend Lord Higgins that the report is a depressing read? Nowhere is it more depressing than on the fact that the structural deficit is much worse than we were previously led to believe. That makes the call from the noble Lord, Lord Eatwell, for an apology quite inappropriate, as we were led to believe that the structural deficit was different. The noble Lord, Lord Eatwell, has tried to pick holes in these calculations, but does my noble friend agree that realism and transparency will serve the people of this country much better than unwarranted and hidden optimism, which is what we had from the previous Government?

The Office for Budget Responsibility will be an important part of the way in which Budgets and economic management are handled going forward. It is clearly important that the status of the office is put on to a permanent footing as soon as possible, so that we do not have to take the criticisms from the Benches opposite about its independence and so on. Will my noble friend say when we are likely to get legislation to achieve that?

[Lord Sassoon]

I am grateful to my noble friend Lady Noakes for her remarks and I echo her congratulations to Sir Alan Budd, the OBR and the Treasury officials who have been moved across into the OBR, as what they have produced in such a short time is a remarkable achievement. I agree that the report makes a depressing read in that it exposes how threadbare the inheritance from the previous Government was. On the other hand, it makes a stimulating and positive read, in the sense that we can use it as a basis on which to construct credible Budgets from now on. I also agree that it is important to put the OBR on to a permanent footing. Legislation will be brought forward as was set out in the Queen’s Speech.