LIBOR (FSA Investigation)
Baroness Primarolo Excerpts(12 years, 4 months ago)
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Madam Deputy Speaker (Dawn Primarolo)
Order. I inform hon. Members that there is very important business after this statement and I will therefore be unable to fit everyone in. I plan to let the statement run for another 10 minutes or so, so short questions and short, direct answers would help enormously.
Mark Field (Cities of London and Westminster) (Con)
For the reasons the Chancellor has set out, I very much agree that the long path back to trust in banking and financial services is served by a banking Bill, but will he take on board some of the concerns expressed just now by the hon. Member for Brighton, Pavilion (Caroline Lucas)? Many feel that the LIBOR scandal might be a turning point. In addition to looking at ring-fencing, is he open-minded enough at least to consider the prospect of a fully fledged separation of casino or investment banking from retail banking?
Madam Deputy Speaker (Dawn Primarolo)
Order. I am sorry that I am going to have to end the statement there. We have taken questions from 39 Back Benchers in 47 minutes. I appreciate that it is a very important issue, but we have very pressing business that we need to move on to, and of course this matter will come back to the House again.
Finance Bill
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The Economic Secretary to the Treasury (Miss Chloe Smith)
I beg to move, That the clause be read a Second time.
Madam Deputy Speaker (Dawn Primarolo)
With this it will be convenient to discuss the following:
New clause 8—Biodiesel—
‘(1) With effect from 1 July 2012 the fuel duty payable under the Hydrocarbon Oil Duties Act 1979 on biodiesel produced from waste cooking oil shall be 10 pence per litre less than would be payable apart from this section.
(2) The Commissioners for Her Majesty’s Revenue and Customs may by order made by Statutory Instrument repeal subsection (1) on or after 1 January 2014 or when the Renewable Transport Fuel Obligation has come into effect, whichever is the earlier.’.
New clause 9—Taxes on road fuel—
‘The Chancellor of the Exchequer shall conduct a review into the relationship between fuel duty, other taxes charged on road fuel and the cost of road fuel, and lay a copy of the report before the House of Commons before 1 August 2012.’.
New clause 11—Fuel duties: rates—
‘(1) The Hydrocarbon Oil Duties Act 1979 shall have effect as if the amendments made to it by section 20 of the Finance Act 2011 (Fuel duties: rates of duty and rebates from 1 January 2012) had not been enacted.
(2) This section will have effect from 1 August 2012.
(3) The Treasury may by order made by Statutory Instrument repeal subsection (1), and any such order shall be subject to annulment in pursuance of a resolution of the House of Commons.’.
Miss Smith
I share the concerns that many have raised about driving, the cost of living, and the challenges of running a business. Although the cost of fuelling a vehicle has recently eased as global oil prices have fallen, it is still a very important part of the overall cost of living. That is why the Government have announced that we will provide further support to motorists regarding the cost of fuel by deferring the 3p per litre duty increase that was planned for this August until January next year. That will mean that this Government will have kept fuel duty frozen for a total of 21 months since our decision in the Budget 2011 to cut fuel duty by 1p per litre.
Madam Deputy Speaker (Dawn Primarolo)
Order. In replying to that intervention, I hope the hon. Lady returns to the subject of the debate, which is fuel duties.
Cathy Jamieson
I beg to move amendment 1, page 2, line 6, leave out paragraph (c).
Madam Deputy Speaker (Dawn Primarolo)
With this it will be convenient to discuss the following:
Amendment 2, page 2, line 7, leave out subsections (3) to (6).
Amendment 23, page 2, line 36, leave out clause 4.
Cathy Jamieson
The amendment deals with an unfair situation that I mentioned earlier. People who are already earning considerable amounts, millionaires and others receiving the highest levels of pay, will benefit from the Government’s proposal to reduce their tax rate to 45%. We had a good debate on the subject on Second Reading, but were not able to discuss it in Committee. At that time we wanted the Government to reconsider, and not just because millionaires were set to receive something equivalent to a £40,000 per annum tax cut.
Sheila Gilmore
My hon. Friend may be interested to learn something that I myself learnt from a television programme that had no direct connection with economics. It was part of a series about London streets. A banker who was talking about his home in Portland road said that prices there had risen considerably since the taxpayer had bailed out the banks, and that far from suffering from the current financial situation, people seemed to be benefiting.
Madam Deputy Speaker (Dawn Primarolo)
Order. I must inform the hon. Member for Harlow (Robert Halfon) that only one Member should be standing on the Floor of the House at any one time. Welcome to the Opposition Benches, Mr Halfon.
Cathy Jamieson
I was not sure whether the fuel duty debate or the intervention from my hon. Friend the Member for Edinburgh East (Sheila Gilmore) had exercised the power of persuasion that led the hon. Member for Harlow (Robert Halfon) to cross the Floor and spend some time on the Opposition Benches, Madam Deputy Speaker, but I shall now return to the subject of the amendments, which are fairly simple and straightforward.
Amendments 1 and 2 would remove the cut in the top tax rate for people earning more than £150,000 a year, and amendment 23 would prevent the abolition of the age-related allowance that would increase the tax on millions of older people—the so-called granny tax. As we said in the earlier debate, the amendments are based on the straightforward principle that when times are tough and there is less money around, we must ensure that the burden of deficit reduction is fairly shared. That theme of fairness will be a feature of the contributions of Labour Members this evening.
As I said at the outset, however, the Government have chosen to cut taxes for the richest 1% of the population, and that tax cut is worth £40,000 to those who earn more than £1 million a year. At the same time, they are raising the taxes of 4.4 million pensioners by, in some instances, hundreds of pounds a year. Most of those pensioners are living on less than the average taxpayer.
Green Economy
Baroness Primarolo Excerpts(12 years, 4 months ago)
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Madam Deputy Speaker (Dawn Primarolo)
I call Nigel Evans. [Laughter.] I do apologise. I meant, of course, Nigel Adams.
Interest Rate Swap Products
Baroness Primarolo Excerpts(12 years, 5 months ago)
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Madam Deputy Speaker (Dawn Primarolo)
Order. Before the hon. Gentleman rises to deal with that point, may I gently remind him that he was supposed to speak for about 10 minutes? He has been extremely generous in taking interventions, but there is a time limit for everyone else who wants to contribute, and it is getting shorter the longer he speaks.
Guto Bebb
Thank you for your guidance, Madam Deputy Speaker. I will refrain from taking any more interventions and finish my comments.
The figures from Bully-Banks illustrate the fact that businesses feel that they have been mis-sold such products. The final figure from Bully-Banks that is worth mentioning is that 75% of its members claim that the swap product was a condition of the loan agreement that they entered into. Some Members might say that the way forward is therefore for individual businesses to take legal action on that basis, but I have concerns about that. A solicitor said to me yesterday that the problem in England and Wales is that the law is far too bank-friendly. There is a concern that in many cases businesses that take legal action face costly cases before the banks finally settle and put in place a gagging order. It is also a concern that small businesses should be expected to fund their own cases when they are already in crisis
Guto Bebb
I will not take another intervention, due to the guidance from Madam Deputy Speaker.
Small businesses that have to take legal action also face the risk of losing the support of their banks. There are examples of loans being called in or overdraft facilities being taken away from businesses that are taking action. I therefore do not think that the way forward is necessarily to expect individual businesses to take action against the banks, unless we can have some certainty that the banks will not act in that way.
The scale of the problem is significantly greater than we have accepted to date. Today the Law Society Gazette gives the figure of about 4,000 businesses affected, with about £1 billion-worth of potential claims. In my view that figure is probably an underestimate, so the scale of the problem should be taken seriously.
Let me state what I am calling for from this debate. It is very easy to have a debate in which we all highlight our concerns about individual businesses and our belief that the banks have behaved badly, but this House has a responsibility to try to offer a solution. We need to encourage the Financial Services Authority to move more quickly to a resolution of this issue. It needs to inform the banks that, for example, they have an obligation and a responsibility to act fairly with their clients. We also need some transparency from the banks about the exact size of the problem. We know, for example, that between 2006 and 2010 the banks engaged in significant amounts of swaps. Some of them might have been completely legitimate, but quite a few were sold to small businesses.
Those small businesses are feeling under pressure from their banks, so my specific request today is for the Minister to call on the FSA to give written assurances that the banks will not adversely treat any business that makes a complaint. We live in a country governed by law. If a business wants to make a complaint, it should not be subject to undue pressure from its bank. In the same way, if a complaint has been made to a bank or the FSA, the bank should refrain from foreclosing on that business. Those are my short-term requests for the Minister. In the long term, I think it is crucial—
Madam Deputy Speaker
Order. The hon. Gentleman was allocated 10 minutes. He has now been speaking for 20 minutes. There are about 15 Members wishing to take part in this debate, which is due to conclude at 2.30 pm. Will he please now make one more, brief remark and then resume his seat?
Madam Deputy Speaker
I remind Members that the time limit is eight minutes for Back Benchers. There are a large number who wish to participate in this important debate. It may therefore be necessary to reduce the time limit. We shall have to see how we proceed, but we shall start with eight minutes.
Financial Services (Market Abuse)
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Mr Cash
In that case we are, as so often, ad idem and in agreement, and I am glad to hear that confirmation from my hon. Friend.
This whole business has one way or another been developing over the past 12 years—and before. It has been before the European Scrutiny Committee, and we have recommended it for debate, but it has been overtaken by further developments, particularly since the financial crash, which we are now in. I am extremely doubtful about whether market abuse in itself—important as the subject matter is, and something that needs to be dealt with—is in any way a contributor to the financial mess that the European Union is in.
We are in an economic crisis, we are in a black hole, and we should have a convention at which all those matters, including directives of this kind, are put before the member states with their cards on the table. We should say unequivocally that we want a different kind of Europe and put it to them, and the negotiating position that we adopt, those red lines, should then be put to the British people. We should have a referendum on those matters to make it absolutely clear that the direction of this over-legislated, over-burdensome European jurisdiction is doing no good whatsoever to the free markets—
Madam Deputy Speaker (Dawn Primarolo)
Order. The hon. Gentleman took some time to set his intended comments in context, which I allowed, but I now require him to address the business before us. We do not need any more general scene-setting on his attitudes towards the European Union, so perhaps he could come back to the business before the House.
Madam Deputy Speaker
Order. It is not for the hon. Gentleman to disagree with me. He thought that he was covering the subject by making general points about opt-ins, but I would like him now to refer to the documents before the House. He has been speaking for some time, and he should bring the attention of the House to his points on these documents.
Mr Cash
Well, to put it simply, the Committee is concerned that the Government might opt into the draft criminal sanctions directive once it is adopted. There would be a debate on that matter if they decided to do so. I do not think that we should opt in. That matter is part of the broader landscape and specific issues that are before the House.
The question of what the draft directive means by the word “intentionally” in relation to market abuse raises some very important legal issues. Then there is the question of whether the draft directive would apply automatically if there were proof of intent or whether there would be discretion to apply an administrative penalty rather than a criminal one. Those are all matters on which we could legislate on our own account if we wished to do so. I make no apology for repeating that point.
A further point concerns the practical application of the proposed new definition of “inside information”, which involves the whole issue of insider dealing. The trouble is—I say this with respect to Madam Deputy Speaker—that definitions in relation to European legislation raise the question of how this matter will be adjudicated on by the European Court of Justice. We have our own means and opportunities to pass legislation in this House that will define these questions.
Banking Reform
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The Financial Secretary to the Treasury (Mr Mark Hoban)
With permission, Mr Speaker, I would like to make a statement on banking reform.
The financial crisis exposed a great many flaws in the system. Banks borrowed too much, took risks they did not understand and bought securities that proved to be far from secure. Banking groups became too complex and interconnected to be managed effectively, regulators failed to identify the risks and taxpayers paid the price. Between October 2008 and December 2010, European taxpayers provided almost €300 billion to prop up their banks, with liquidity and lending support in the trillions. In the UK, the bail-out of RBS was the biggest banking bail-out in the world.
Just as the crisis revealed many flaws, there is no single solution. The Government are reforming the substance and structure of the financial architecture, putting the Bank of England in charge of prudential regulation. We have created the Financial Policy Committee to look at risks across the financial system. Our permanent bank levy penalises short-term wholesale funding, and we have introduced the toughest and most transparent pay regime of any major financial centre in the world. We have worked with our international partners to deliver robust, consistent prudential standards for banks and markets.
The White Paper that we are publishing today sets out how we will implement the recommendations of the Independent Commission on Banking. The Government’s reforms will form a key part of our broader programme of reform. In the same way that the action we have taken on the deficit has meant that UK debt is currently seen as a safe-haven asset by investors around the world, we will ensure that British banks will be resilient, stable and competitive, and so attractive to investors at home and abroad.
The eurozone crisis makes reform more, not less important. The link between the strength of a country’s banking sector and that country’s stability could not be clearer. At the same time, our proposals reflect the progress that has been made in European and international regulation since December. The Government welcome the European Commission’s bank recovery and resolution directive, which will improve member states’ ability to resolve cross-border banks without imposing costs on taxpayers. We will also continue to press for full Basel III implementation in Europe.
The goals of today’s White Paper are clear. First, since financial crises rarely repeat the pattern of the past, we must ensure that banks are more resilient to shocks. Secondly, we must make our banks more resolvable, so that if they fail, they do not threaten the provision of vital services to the real economy. Seeing through those two goals will achieve our third—to curb risk-taking in financial markets. It must be clear that investors reap rewards when banks do well, but take the pain if banks fail.
The Government will ring-fence retail deposits from the risks posed by international wholesale and investment banking. A ring-fenced bank will be economically and legally separate from the rest of its group and run by an independent board. The ring fence will not in itself prevent a bank from failing, but it will insulate the deposits of families and businesses, and if a bank does fail those essential parts of the banking system can continue without recourse to the taxpayer.
The deposits and overdrafts of individuals and of small and medium-sized businesses will, in general, be placed in ring-fenced banks. To minimise the risks that a ring-fenced bank is exposed to, it will be prohibited from conducting the vast majority of international wholesale and investment banking. It will not be permitted to carry out activities through branches or subsidiaries outside the European economic area, or, except in limited circumstances, with financial institutions. Beyond that, and within certain constraints, firms may decide what to put inside the ring fence. Ring-fencing will provide customers with flexibility, but not at the cost of financial stability.
The Government also propose to strengthen the ICB’s recommendations by applying strict controls to the use of derivatives by a ring-fenced bank to hedge its balance sheet. That will ensure that a ring-fenced bank does not take excessive risks when managing its own risks, as was the case with J. P. Morgan’s much-publicised trading loss.
Governance of the ring-fenced banks will be important. The Government propose to strengthen the ICB recommendations in that area, establishing separate risk committees and possibly also separate remuneration committees. However, it is important to focus these reforms where they will have the biggest impact, which is on the biggest, too-big-too-fail banks. We therefore propose that smaller banks, with less than £25 billion of mandated deposits, will be exempt from those requirements. Large, systemically important banks gain a competitive advantage from the perceived implicit guarantee. Our targeted reforms will remove that advantage, helping smaller banks and new entrants.
One of the clearest lessons from the crisis is that investors and creditors, not taxpayers, should bear the costs of failure. That is why we have supported Basel III, which increases bank capital to 7%, with a top-up for systemically important banks, and why we have pressed for that to be implemented across Europe, but to protect taxpayers, the Government will go further. The largest UK ring-fenced banks should hold an additional 3% of equity on top of the Basel III minimum numbers. The Government also strongly endorse the introduction of a binding minimum leverage ratio. The White Paper supports the Basel proposal of a 3% leverage ratio for all banks, including UK ring-fenced banks, and we will continue to press for the implementation of the Basel standard through EU law.
Large ring-fenced banks should hold a minimum amount of loss-absorbing capacity—made up of debt or equity—of 17% of risk-weighted assets. Their overseas operations should be exempt from that requirement unless they pose a risk to financial stability. For smaller UK banks, as the ICB recommends, the minimum requirement should be lower.
To deliver those proposals, the authorities need a way to “bail in” bank liabilities so that bondholders, not taxpayers, bear the losses. The Government will work with European partners to ensure that the ICB recommendations on bail-in are credibly and consistently applied across Europe through the recovery and resolution directive. We intend to introduce the principle of depositor preference for insured deposits. Unsecured lenders to banks are better placed to monitor the risks that banks are taking and should take losses ahead of ordinary depositors.
Our proposals on financial stability also improve competition in UK banking. The implicit guarantee to large banks distorts competition; its reduction will help to create a level playing field. However, we want to do more to encourage new entrants and promote competition. We will shortly issue a consultation on reform to the payments system. I welcome the reviews by the Bank of England and the FSA into the prudential and conduct requirements for new entrants to ensure that they are appropriate and not disproportionate. We strongly support the need for a stronger challenger bank to emerge from the Lloyds Banking Group divestment. We are engaged with Lloyds and the European Commission to ensure that the divestment process creates as strong a challenger as possible. A more competitive banking system will work only—[Interruption.]
Madam Deputy Speaker (Dawn Primarolo)
Order. Government Members do not need assistance from the Opposition on where they should sit. The Minister is making a serious statement to the House. Perhaps Opposition Members could hear what he has to say.
Mr Hoban
That really sums up the Opposition. All they can talk about is who sits where. They have no ideas on how to resolve this banking crisis.
I welcome the reviews by the Bank of England and the Financial Services Authority into the prudential and conduct requirements for new entrants to ensure that they are appropriate and not disproportionate. However, as I have said, a more competitive banking market will work only if consumers are prepared to change banks. The Government are pleased with the progress on the industry-led initiative to make current account switching faster and easier for customers. Providers covering 97% of the current account market have signed up and the scheme is on track to be launched next September. However, to switch, customers need better information, so the Government welcome the fact that the Office of Fair Trading and the Financial Conduct Authority will take forward the ICB recommendation to improve transparency across all retail banking products. Work is already under way on a number of projects, such as making account data available to customers electronically, to enable them to shop around.
Financial stability is a prerequisite for growth. Our analysis suggests that the proposals in the White Paper will cost, in gross domestic product terms, in the region of £0.6 billion to £1.4 billion per annum. However, that should be compared with the estimate that the 2007 to 2009 crisis has already cost the UK economy £140 billion, which is one hundred times the maximum cost estimate of our proposals.
The proposals, although ambitious in scale, are proportionate in impact. They will promote financial stability while supporting sustainable growth and making the UK’s role as the world’s leading international financial centre secure. The reforms we are announcing today, together with the changes we are making to the regulatory architecture, demonstrate that the Government are determined to take action to deliver a stable and sustainable banking sector that underpins rather than undermines economic growth. I commend this statement to the House.
Ed Balls (Morley and Outwood) (Lab/Co-op)
Let me begin by thanking the Minister for notice of today’s Treasury statement on the vital issue of banking reform. The reforms are so important that—we read in the newspapers—they are to be the subject of the Chancellor’s Mansion House speech tonight.
The Minister said the statement was serious, and I am sure Opposition Members and Government Members will all be thinking: “Why is the Chancellor not making it?” Should I call him the part-time Chancellor? He was able to spend the afternoon on the Government Bench yesterday to support the embattled Secretary of State for Culture, Olympics, Media and Sport, but he is seemingly unwilling, despite media trails, to come to the House today. What is the Chancellor running scared of? Is he too busy this week on his other duties to be the Chancellor, or is the truth that he is ducking answering the questions because—once again—he is not on top of the details of his brief?
There are questions to answer. Last September, the Opposition welcomed the report by Sir John Vickers and the Independent Commission on Banking, which sets out radically to reshape our banking industry. We urged the Government to implement the reforms without foot-dragging or watering them down, but I fear that watering down is where we are heading. Is not the truth that, having failed to secure international agreement in Brussels and Basel on tougher international banking standards, the Chancellor is now being forced to water down and fudge the Vickers reforms?
That is one area in which the Opposition would not welcome a U-turn from the Chancellor. The Minister will say in his response that I am wrong, and that there is no U-turn, just as Ministers said we were wrong to spot U-turns on pasties, caravans, churches, charities and skips, but a pattern is emerging with this Chancellor. He declares, “This Chancellor is not for turning,” and then sends along a hapless junior Minister to do the job for him. We can ask the Exchequer Secretary all about that.
If the Chancellor is not watering down Vickers, why will he not agree to the Opposition’s request to ask the Vickers commission to come back this autumn and publish an independent report on progress in implementing its reforms in the past 12 months? The Chancellor could publish that report alongside the autumn statement, when he will have to come to the House to explain why his failing economic plan has plunged our economy back into recession. That is one area where a U-turn would be warmly welcome.
On progress against the three tests for banking reform, first, to protect taxpayers, the Opposition support the Vickers conclusion that banking services should be safeguarded and ring-fenced. In November 2006, the Minister told the House that
“light-touch…regulation is in the interests of the”
financial
“sector globally.”—[Official Report, 28 November 2006; Vol. 453, c. 995.]
May I ask this champion of light-touch regulation to explain why, contrary to Vickers, it is right to allow retail banks inside the ring fence to trade in derivatives and hedging products, which are among the controversial interest rate swap products that many small firms complain they were mis-sold in recent years? I have said many times that the previous Government got bank regulation wrong. Those on the Government Front Bench also got it wrong, but they are getting it wrong again. The Chancellor should be careful about leaving the door too wide open.
The Opposition agree with the Vickers view that we need a minimum leverage ratio and higher equity requirements for larger ring-fenced banks, but will the Minister confirm that the Chancellor is setting a lower minimum leverage ratio than the Vickers commission recommended, and that he is departing from the recommendation that larger banks should have tougher rules?
The Chancellor implied in December that he would mandate those services specifically within the ring fence to provide clarity and certainty. Can the Minister explain why the Chancellor is now delegating that detailed task to the Bank of England—the regulator—and not putting it in primary legislation? Will the Chancellor—or, on his behalf, the Minister—commit to inserting in the Bill the requirement that large UK retail banks should have equity capital of at least 10%? Is not the real problem that the Chancellor is not in the driving seat on this agenda?
That takes me to our second test, on international agreements. In December, I asked the Chancellor whether he was confident that he would get the necessary international and EU-wide agreements to implement Vickers. The answer is that he has not succeeded in delivering that. The Chancellor himself said at last month’s ECOFIN, when he refused to agree to an EU statement on capital requirements, that they would
“make me look like an idiot”—
a muttering idiot perhaps! Two weeks later, though, he signed up to exactly the same deal. The problem is that there remains the risk that he will be overruled by the EU.
There is a wider problem. We agree with the Chancellor that the UK should not contribute to a eurozone-wide deposit insurance scheme, but the Commission’s proposals go much wider and are said to be intended to apply to the 27. The Chancellor gives the impression that he has a veto on the plans, so that they would apply only to the 17. Will the Minister tell us, then, whether the proposals for Europe-wide banking supervision will be subject to qualified majority voting under existing treaties, and will he tell us how the Chancellor is doing in building alliances across the EU to ensure that British interests are properly protected and that Vickers is implemented?
That brings me to my final test: the impact on growth and the wider economy.
Madam Deputy Speaker (Dawn Primarolo)
Order. I hope that the shadow Chancellor will be brief, given how much of the time allocation he has already taken.
Ed Balls
I shall put my questions briefly, Madam Deputy Speaker. I only regret that I cannot put these questions to the Chancellor because he has not turned up.
We have consistently urged the Chancellor to take a swifter approach to competition and to have a growth objective for the new Financial Policy Committee. We and the CBI agree on that, but the Chancellor will not listen. The problem is that in those circumstances Vickers implementation could lead to a continuing impact on business lending at the expense of small businesses.
To conclude, we set three tests for Vickers, but on each one the Government are failing, causing uncertainty where we need confidence, lending and growth. They are failing to take the lead on reforms in the EU, and fudging and watering down proper taxpayer protection. We need a Chancellor who can do the economics, grip the detail and work full time on the job—someone who at least turns up in the House and answers questions on this vital issue.
Public Appointees (Tax Arrangements)
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Margaret Hodge (Barking) (Lab)
I welcome the Chief Secretary’s statement and I join him in congratulating David Hencke on the work that he did in uncovering the situation. Will the right hon. Gentleman confirm that he and his officials will co-operate with the investigation that my Committee will now undertake on his review?
Will the Chief Secretary comment on the fact that HMRC authorised the payment to the Student Loan Company’s chief executive under this arrangement? What instructions has he given to HMRC to deal differently with exceptions, which he is still allowing? Scope matters. Although his review has looked at the senior civil service, it matters how people are paid, whether they work in NHS trusts or for private companies delivering public service funded through the taxpayer’s pound—
Madam Deputy Speaker (Dawn Primarolo)
Order. The right hon. Lady is not asking a series of questions. This is a statement. I have given her considerable latitude, given her seniority, but I think she has asked enough questions now. Perhaps she should leave some for other Members who are rising.
Danny Alexander
I am grateful to the right hon. Member for Barking (Margaret Hodge) for her questions. Certainly, Treasury officials will co-operate with the investigation which I gather her Committee will undertake into these matters. I welcome that because, as I said in my statement, it is important that the light of transparency is shed on the issue as much as possible. I am sure that her Committee can play an incredibly valuable role in that, as it always does. I gather that the role of HMRC may be the subject of a soon-to-be-forthcoming report from her Committee. No doubt that will speak for itself, but of course the rules that I am putting in place today and the rules that exist for managing public money should be applied by all Departments in relation to public service appointments, and I made clear my view about the particular case that she referred to when I responded to the question from the right hon. Member for Newcastle upon Tyne East (Mr Brown).
I agree that scope matters. I should say in relation to the NHS that although the review looked at board members in NHS organisations, because I wanted it to be done quickly so that we could bring forward recommendations and change the practices across the public sector, its recommendations will apply across the NHS and will need to be applied there in the same way as in any other part of the public sector.
Financial Services Bill
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Chris Leslie (Nottingham East) (Lab/Co-op)
I beg to move amendment 75, page 43, line 16, at end insert—
‘(3) Within a year of Royal Assent to the Financial Services Act 2012, the Treasury shall publish a report on measures to improve the stewardship of institutional investments, which may require amendment under subsection (1).’.
Madam Deputy Speaker (Dawn Primarolo)
With this it will be convenient to discuss the following: Amendment 45, in clause 14, page 64, line 8, at end insert—
‘(3A) In section 73, subsection (1), insert at end:
“(g) to foster ethical corporate behaviour, including respect for internationally-recognised human rights.”.’.
Amendment 38, in clause 22, page 82, line 10, at end insert—
‘(c) provide for a requirement that an employee representative should be a member of the remuneration committee of a relevant body corporate, and
(d) provide for a requirement that the remuneration consultants advising on remuneration policy shall be appointed by the shareholders of a relevant body corporate.’.
Government amendments 5 to 8.
Amendment 73, in clause 40, page 127, line 38, at end insert—
‘Complaints by small businesses
234I Small businesses—complaints and proceedings
‘(1) The Treasury and Secretary of State shall bring forward proposals within three months of Royal Assent to the Financial Services Act 2012 in the following areas—
(a) to introduce provision for collective proceedings before the court in respect of financial services claims made on an opt-out basis by small and medium sized enterprises; and
(b) to introduce provision for complaints by small and medium sized enterprises to the FCA that a feature, or combination of features, of a market in the United Kingdom for financial services is, or appears to be, significantly damaging the interests of small business.’.
Government amendment 9.
Amendment 74, in schedule 5, page 204, line 37, at end insert—
‘(2) In subsection (1) after “approved persons”, insert “and the standards of stewardship expected of approved persons who are institutional investors.”’.
Government amendments 13 to 17.
Chris Leslie
This important Bill took a considerable amount of time in Committee, but it was still insufficient to cover many of the amendments that will be necessary to ensure that it is fit for purpose and able to fulfil the job for which it was designed. The Opposition believe that the Bill can still be improved, so many of the proposals we did not reach in Committee or that were not addressed on day 1 on Report are in today’s amendment paper.
This long group of amendments under the generic title, “Stewardship, etc.” covers a few issues, so I would be grateful, Madam Deputy Speaker, if you would bear with me while I touch on the details. Although amendments 75 and 74 relate to stewardship, other amendments are on different topics, which I should also like to address under this group.
On amendments 75 and 74, it is important to take the opportunity to ensure that the Bill properly improves institutional investors’ stewardship of pension funds or other savings or investments. Such funds are looked after by others on our behalf. In an ideal world, those who have pensions or other savings would spend time considering where they are invested, and whether they are invested ethically or in sustainable organisations and so forth. For reasons of practicality, however, that is often impossible, and investments are often grouped together in a basket of different products, so following the detail of where funds are invested is incredibly difficult.
That is why many people choose to use institutional investors—to ensure their best interests are being served. That means ensuring a good and strong rate of return, but many people care about where their money is invested. Most of British industry is partly owned by the collective pension funds of our constituents. They have voting rights through the shares and equity they hold, but they are often exercised without reference to our constituents and delegated to institutional investors to make decisions on their behalf.
The previous Administration and this one have therefore sought to address the quality of stewardship by institutional investors. Amendment 75 is on the threshold tests in the Bill and the Financial Services and Markets Act 2000 on whether people are suitable or fit and proper, whether they have adequate resources to fulfil their responsibilities, whether they have close links with others in the sector, and so on. The Opposition felt it would be a good idea to ask Ministers to consider whether the array of reforms that should be made to corporate stewardship should be reconsidered in the light of those threshold tests.
Amendment 74 also looks to the 2000 Act and the general rules of conduct of approved persons and seeks to amend the Bill so that it addresses key aspects of the good stewardship agenda. We argued in Committee and earlier that the Bill is a missed opportunity radically to improve the stewardship of some of the key players in corporate Britain, especially those large firms—banks and institutional investors—that have such a direct impact on society at large.
The stewardship code was brought into force in 2010. We have had reasonable progress, with around 230 asset managers, asset owners and service providers signing up in the first 18 months, but sadly, the Bill does not reference the Financial Reporting Council, which is the UK’s independent regulator responsible for promoting, among other things, high-quality corporate governance. We want the Bill to do more to give regulators a proper and clear mandate to strengthen the stewardship code where appropriate and give them sufficient teeth to ensure that significant culture changes can happen. These things do matter. We have to build a framework that roots out bad habits and addresses what some people have called the principal agent dynamic—the fact that shareholders are often very fragmented and, when faced with unified managers, are often unable to make any headway. Senior executives can sometimes respond only if there is a 50% plus one coalition of shareholders.
We need to rekindle that dynamic. Some have said that it is time for a shareholder spring or awakening, and there have been some suggestions recently that certain company shareholders, at the annual general meetings and elsewhere, have begun to ask fundamental questions of the senior executives. It is the mismatch between the power that senior executives can have and the lack of power of—paradoxically—the owners of some of these large companies that needs addressing. In legislative terms, we often have debates about firm rules and fixed ways of doing business. Obviously, it would be preferable if the dynamic between owners and managers were able to ensure that we had a healthier, more open and transparent way of doing business.
I commend those institutional investors who show an active interest in how they use the voting rights of their investors and use that leverage to try and influence positive corporate behaviour by the relevant companies. It must be tempting for many institutional investors, when faced with a company perhaps with a management dysfunction or some behavioural failing, to sell up and walk away from that company. That is too often the history of such shareholding. It would often be far better if shareholders, as owners, could stay and try to fix the culture of the organisations that they own. It is that sort of change that we need to find a way of addressing. Yes, some shareholders will not want to say publicly that they disagree with senior executives, because that could affect the share price and they would therefore be affecting their own financial interests in some ways, but there are several ways in which institutional investors need to have the ability, directly or indirectly, to influence what is going on.
Protests in recent months have, in some cases, seen the rejection of some of the larger pay deals in big companies—for instance, the executive remuneration packages at Trinity Mirror, Pendragon and Aviva. The banking sector has also seen some significant shareholder disquiet, including at Citigroup with the rejection of the chief executive’s pay package. Nearly a third of Barclays shareholders voted against the pay policies in that particular company.
So there have been some signs that shareholders are becoming interested in that more active role. This is perhaps to commend the work of the Association of British Insurers, which has done good work recently in encouraging its members to take a more active role. Those members account for some 15% of the stock market, and they recently wrote an unprecedented letter to the chief executives of some of the major banks in particular, saying that they were not happy and would no longer tolerate a “business as usual” approach when it came to remuneration, especially for executive directors.
Those moves are very positive, but we should not feel that the balance between shareholders and executives is sufficient. The persistent imbalance needs addressing in a number of specific ways. For a start, a shadow is often cast across the Atlantic as many institutional investors feel that what are known as the “acting in concert” rules affect them here. To what extent can institutional investors come together and discuss with each other their ability to voice common concerns about the behaviour of managers? I have sometimes heard concerns expressed that this may somehow be in conflict with anti-trust regulations. If the Government could clarify the “acting in concert” rules, it would help to send a clear signal to institutional investors that it is possible to have those discussions, to come together to form a significant majority and to express a view about corporate behaviour.
John Hemming (Birmingham, Yardley) (LD)
Let me begin by referring Members to my entry in the Register of Members’ Financial Interests. I think that I should declare registrable holdings in RBS and Lloyds as regulated entities. I have just checked my entry in the register, and note that I have a declarable interest in Highway Capital. It is a stock exchange rather than a parliamentary interest, but I think that it should be declared because it is relevant to the debate. I also founded, and still chair, John Hemming and Company LLP, which supplies software to the financial services sector. Although it is not itself regulated by the FSA, it trades with FSA-regulated entities, so I think that interest should be declared as well.
My hon. Friend the Member for Solihull (Lorely Burt) sadly cannot be here today, although she attended 16 of the Committee’s sittings. She has, however, passed me certain comments that she has received from interested parties, which she wishes me to raise with the Minister.
Payday lending has been a substantial issue throughout the debate. My personal view is that it is not a good thing, because it traps people in many circumstances. The question of what is the best way of dealing with it is a complex one, and I think that the Government are entirely right to ask the University of Bristol to investigate it. However, I have spoken to companies in my constituency and have said that I do not think that it is a very good thing.
In Committee, my hon. Friend the Member for Solihull said that the Bill should explicitly encourage the Financial Conduct Authority to seek to maintain and extend consumers’ access to financial services that meet their needs, and that when making regulatory decisions, it should assess their impact on markets and consumers. It should place value on policy proposals and regulations that increase access to savings, protections and other financial products, and also on financial advice. In the absence of such a requirement, there would be a risk of the FCA always being steered towards a risk-averse regulation. Markets might be restricted to large groups of consumers to avoid any consumer getting sub-optimal products.
The Government seek to encourage the development of simple financial products. If we are to succeed, we must have a regulator working with the grain of the policy rather than acting as an obstacle to it, as appeared at times to be the case with the last Government’s stakeholder products initiative. Does the Minister agree that the FCA now has the “teeth” to engage with the industry and engage in issues such as the maximum number of rollovers that a payday lender should be permitted to allow? Could the FCA set a threshold for market entry? Could it impose on companies real penalties that hurt, rather than the £50,000 limit imposed on the Office of Fair Trading, and make lenders pay compensation to consumers who have suffered detriment?
Let me now turn to the reflections of industry practitioners. The smallest businesses are keen to ensure that the cost of the regulation to them is not disproportionate. Forty per cent. of credit licence holders are sole traders. What cost-benefit analysis has been carried out for the smallest practitioners?
What about the implementation time? The Finance and Leasing Association has observed that the less far-reaching Consumer Credit Act took four years to implement. It estimates that implementation of this legislation would take between five and seven years. I am sure that the Government will work with all the professional bodies in devising a sensible implementation plan, but I should be grateful for any reassurance the Minister can give.
The Association of Independent Financial Advisers is fearful about the lack of a limit on time for complaints, which it says will place a burden on provisions that it will need to make to cover this open-ended provision—
Madam Deputy Speaker (Dawn Primarolo)
Order. The hon. Gentleman is speaking quite quickly, but I am trying to follow what he is saying. Will he explain how it is relevant to the amendments that we are discussing?
Madam Deputy Speaker
In that case, it is out of order. Perhaps we should move on, unless the hon. Gentleman is going to speak in order.
Madam Deputy Speaker
Order. I should like the hon. Gentleman to do it now. Otherwise I am going to sit him down straight away, given that he knows that he was out of order. Presumably that is why he was speaking so fast. I ask him to speak directly about the amendments.
John Hemming
The Opposition have raised interesting questions about the issues of shareholder activism and the interrelationship between shareholder activists and companies, and I would be interested to hear what the Government have to say in response.
Jobs and Growth
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Madam Deputy Speaker (Dawn Primarolo)
Order. I remind all Members that there is now a six-minute time limit on all contributions to the debate. A great number of Members wish to participate, so the limit does not have to be used in its entirety; that might ensure that more Members get in.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
Last week’s Queen’s Speech was my first as an MP. Although nobody does pomp and pageantry better than we do, I was deeply disappointed with its content: lots of style but no substance.
When this Government came into office two years ago, we were in economic recovery. Since then, we have been bumbling along the bottom with very little growth, and now we are back in recession again. This is not due to the worst global financial crisis since the 1930s; it is due to the mismanagement of the economy by the current Downing street incumbents. Yesterday, the Bank of England yet again had to downgrade forecasts for economic growth, from 1.2% to 0.8%, and the outlook for inflation is well above the 2% target.
Yet this not the experience of every other country. The US, which was at the centre of the global crash in 2008, started to recover, like us, in 2009-10, and it is continuing to recover. Similarly, the rest of the G7 is performing better than we are. Our economic performance is one of the worst in the G7, with Italy coming up just behind us. Brazil has now overtaken us as the sixth largest economy. The austerity measures that this Government have introduced are clearly not working.
The impact on unemployment in the public and private sectors is already being felt. Last year, the public sector lost 276,000 jobs. Some have estimated that the figure will be as high as 700,000 by 2015. In Oldham, £24 million has been cut from next year’s council budget, meaning 400 job losses. That is not the end of it. My local hospital trust, Pennine Acute Hospitals NHS Trust, recently announced a statutory consultation on a further 160 redundancies. It has to find savings of £45 million this year. That comes on top of 600 posts that have already been lost. In spite of the Government’s reassurances that jobs will be created in the private sector, large and small businesses alike are closing, including BAE Systems in Chadderton, Warburtons Bakery in Shaw, Long’s Plumbing and, of course, Remploy.
Although I welcome yesterday’s unemployment figures that show a reduction in the previous quarter, I am afraid that the trend in long-term unemployment is upwards, as we have heard. In Oldham, more than 8,000 people are out of work across the borough, with 11 people chasing every job. The number of women out of work is the highest since 1995. There has been a 25% increase in long-term unemployment among the over-50s. In my constituency, the number of jobseeker’s allowance claimants has increased by 20% since June and doubled since 2006. Young people in my constituency have been particularly badly hit, with a 288% increase in long-term unemployment since last year. Worryingly, young black and Asian men are disproportionately affected, with 56% and 23% respectively being unemployed. Those figures have doubled since 2008, so we should be very worried about that problem.
What was there in the Queen’s Speech for those people? Absolutely nothing. At the Select Committee on Work and Pensions yesterday, I was profoundly disappointed by the apathy and complacency about what is going on and about how it can be addressed. The youth contract is not geared towards focusing on these problems and only quick fixes have been introduced. There are inequalities not only between different population groups, but on a geographical basis. The urban heartlands of Greater Manchester, Liverpool, Newcastle, Glasgow, Cardiff and parts of London are most affected. The Government’s talk about fairness is just that—
Michael Connarty (Linlithgow and East Falkirk) (Lab)
This Queen’s Speech can be summed up by the Prime Minister wandering around the country saying that he is not for turning. I remind him and his party that the last person who said that—Lady Thatcher—was tossed out by the country when people found out that they were getting uncaring Conservatism once again. [Interruption.] Yes, she was, of course, tossed out by her own party.
This is a Government who continue to attack, with ingrained unfairness, the personal income of all apart from those in the super-rich bracket. They boast of attacking citizens’ and workers’ rights. With 100,000 public sector job cuts, it is good to see the Secretary of State for Work and Pensions in his place. How many of the present employees of Remploy will, to his shame, end up on the unemployment list? Only 50% of the jobs have been replaced by the private sector, and many of them are part-time and temporary jobs. Of 16 to 24-year-olds, 21% are in part-time jobs, while analysis suggests that 40% are on temporary contracts.
The national debt is higher, not lower, and the UK is in a double-dip recession for the first time in 30 years. Of course I welcome investment in car manufacturing from US companies. Their choosing a UK work force in a flexible trade union environment and our being near the EU market has nothing to do with the Government, and it follows the investment of Japanese and other international companies that invested under the Labour Government.
I am an economics graduate, so I know that economic growth is based on confidence in business and in consumers. The Chancellor is a one-trick pony, with low interest rates. His stated aim is that interest rates are being held low for the sake of the Government’s bond sales, but this has the effect, for example, of attacking the disposable income of pension funds and investment funds, thus hitting the mainly frugal elderly. Quantitative easing has also hit their income and made them poorer. This signals to UK businesses that the Government believe that the economy has to be held in check, as it is fundamentally too fragile to grow without creating threatening levels of inflation. This is caused by a failure to expand the resource base of the economy so that growth can be inflation-proofed for the future.
I looked at the “Prospects for inflation” chapter of the inflation report of May 2012, which states:
“Output has barely grown since the middle of 2010, and is estimated to have contracted slightly in each of the past two quarters.”
That is what this Government have delivered through their policies. Human resource expansion is required to deal, for example, with training and skills shortages. The ageing population needs to be replaced in industries with which I am involved. There is OPITO—the Offshore Petroleum Industry Training Organisation, which deals with offshore oil, and the subsea employers association—talk about 44% of its vacancies being in non-graduate technical jobs, with an additional 20% in technical graduate jobs. The Chemical Industries Association says that it fishes in the same pond for staff, and it demands science education in schools to provide a base of people who can be skilled up for growth. Mike Mack, the world president of Syngenta, says that he fears he cannot sustain his investment in this country because of the shortage of skilled labour. He steals from other companies, and they steal from him. We need technical apprenticeships. Forget the boasts about the number of apprenticeships that have been started; how many have been concluded? How many newly qualified technicians have we got? The SNP Government falsify the statistics. They say that there are 25,000, and write to companies asking them to include people who are doing part-time work as apprentices in order to supplement the figure.
Business investment is 6% lower than the target set by the Chancellor. There is £950 billion in company accounts that is not being invested. Companies are holding on to it: they are afraid to invest, because the signals are all wrong. The Chancellor has gone for corporation tax reductions, but they are a blunt instrument. VAT increases hit the supply chain for customers, for business and for personal consumption, whereas VAT reductions—a targeted programme such as the one that the French use, reducing VAT—
Business and the Economy
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Rushanara Ali (Bethnal Green and Bow) (Lab)
This Government have no vision: no vision for a better future for our country; no vision to deliver economic growth; and certainly no vision to create jobs. We saw that in the Budget, and we certainly saw it in the Queen’s Speech last week. With some 3 million people unemployed, including 1 million young people, that isn’t good enough. We are wasting talent, drive and ambition simply because the Prime Minister and Chancellor cannot admit that their plans are not working. It is not good enough for the people in my constituency, who are losing their jobs left, right and centre, while at the same time the Government are giving tax breaks of over £40,000 a year to millionaires. It is not good enough for the millions of people across the country who are working so hard to make ends meet and need a Government who will stand up and work for them. Instead, they have a Government who seem happy to leave them behind and to cast aside their hopes and aspirations.
We are now officially back in recession—something many knew was coming and about which the Labour party has been warning the Government for two years. It is the double-dip recession the Government promised would not happen. Under Labour, the country had started to move out of recession, and progress was being made in creating jobs through programmes such as the future jobs fund and apprenticeships with job guarantees. Now youth unemployment alone is up 7.7% on last year, to more than 1 million. That equates to an extra 73,000 young people who want to work but cannot find the jobs they so desperately need. Also, more than 700,000 public sector jobs will be lost by 2017, with little or no sign that the private sector will be able to absorb those people.
These are tough times to be unemployed. With rising energy and food prices and the benefit changes coming this year, this Government are hurting families, young people, pensioners and public servants—to name just a few—and penalising or demonising those who cannot find work in a labour market that this Conservative-led Government are doing nothing to grow.
That is particularly apparent in places such as my constituency, which has high levels of deprivation, including one of the highest levels of child poverty in the country. The consequences of the Government’s failure on the economy are much more keenly felt in such places. Unemployment in Bethnal Green and Bow stands at almost 12%, which is well above the national average, and youth unemployment is over 9%. I frequently meet parents who are astounded that their university-educated children cannot find jobs, so I echo the point made by my hon. Friend the Member for Huddersfield (Mr Sheerman) about rising graduate unemployment. It is scandalous that even though they have such qualifications, this Government are doing nothing to support them into work.
When I speak to local business owners—the businesses that are at the heart of our local economy and employ thousands of people—they tell me how hard it is to make ends meet given the Government’s VAT rises, which have stifled their potential. In my constituency, the VAT increases are hitting sectors such as technology, the creative industries and restaurants particularly hard. The Government’s failure to do anything substantial to enable them to borrow is also hurting them hard. We need a plan to support small businesses; I echo the comments made by many Opposition Members about the need to support small businesses in order to encourage and enable the economy to grow. SMEs will be a vital part of that story.
We also need programmes to help people into work—programmes that help them develop their skills and thus enable them to compete in today’s labour market. The massive difference such programmes can make in constituencies such as mine is illustrated by the work of, for example, Job Ready hosted by Futureversity, Skillsmatch, the East London Business Alliance, the Adab Trust and City Gateway, a charity in my constituency. Such groups are working very hard, but they are suffering as a result of the impact on charities of the Budget’s tax measures. We must support organisations that develop soft skills and provide training for young people to get into work, but such organisations are being hit hard by this Government’s measures.
My constituents need this Government to step up and take action to address the very real, everyday problems they face. We need to create real jobs for young people, not enforced work programmes that do not offer any chance of employment at the end. Labour promised to introduce a tax on bank bonuses to deliver these jobs—real jobs, with real wages for our young people, who are trying so hard to find work.
This Government have no vision to create jobs and to foster economic growth. Now is the time we need a Government with the vision and aspiration to take radical and ambitious actions, yet that is precisely what is lacking. We need a Government to work for the majority of this country, not a small minority—not the 1% who will gain from tax breaks. I hope this—
Duncan Hames (Chippenham) (LD)
I generally support the hon. Gentleman’s observations on House of Lords reform, but does he agree that one lesson of constitutional reform is that we should not allow the best to be the enemy of the good, and that we should not take an all-or-nothing attitude?
Madam Deputy Speaker (Dawn Primarolo)
Order. May I remind Members that they are not supposed to face the back of the Chamber? They are supposed to address the Chamber, and particularly the Chair.
Martin Vickers
I take note of what my hon. Friend the Member for Chippenham (Duncan Hames) says and agree with much of it.
As I said, the Queen’s Speech provides an essential framework for the narrative that the Government must put forward. I spoke on Friday to the regeneration director of North East Lincolnshire council, who said that he was reasonably optimistic about the future. I think that is partly due to the fact that the Government have shown confidence in the area by creating enterprise zones, reducing tolls on the Humber bridge, which will bring £150 million into the area, and only last week giving the go-ahead to pre-construction work on the A160 into Immingham docks. That is vital if we are to develop the area for the green economy and the offshore energy industry. The director made the interesting point that the area is not looking for Government grants, but it does need some Government investment in vital infrastructure projects such as those.
I add a caveat about regional pay, which I know my neighbour, my hon. Friend the Member for Brigg and Goole (Andrew Percy), spoke about in his contribution to the debate a few days ago. By coincidence, I was visiting the manager of a Jobcentre Plus on Friday morning at just the moment when my telephone rang, and it was a journalist wanting a comment about regional pay. I have reservations about it, and as the jobcentre manager pointed out to me, organisations in both the public and private sector have to pay premium salaries to attract specialists to the low-pay economy of northern Lincolnshire. I have had experience of that as a councillor.
I conclude by commending the report published today by the all-party group on small business. It highlights the desperate need to create enthusiasm for entrepreneurship among our young people. We go a long way towards that in the Gracious Speech, which I commend to the House.