City Deal

Greg Clark Excerpts

Thursday 12th September 2013 Written Statements

[The Financial Secretary to the Treasury (Greg Clark)]

Following the successful completion of the first wave of city deals in July 2012 with the “core cities”, the Government committed to work with a further 20 cities and their wider areas to negotiate a second wave of city deals in October 2012.

These cities—the next 14 largest cities and the six cities with the highest population growth—are in the process of negotiating the devolution of specific powers, resources and responsibilities required to deliver locally-determined economic priorities.

Over recent months I have been in negotiation with Preston city council, South Ribble borough council, Lancashire county council and the Lancashire local enterprise partnership and I am pleased to inform the House that the following proposals from Preston, South Ribble and Lancashire will take effect as the Preston, South Ribble and Lancashire city deal, the first of the second wave of city deals.

The Preston, South Ribble and Lancashire city deal will help to ensure that the city deal area continues to grow by addressing strategic transport infrastructure and development challenges to deliver new jobs and housing across the city deal area.

Over a 10-year period the local enterprise partnership assesses that the deal will support:

More than 20,000 net new private sector jobs, including 5,000 in the Lancashire enterprise zone;

17,420 new homes; and

£2.3 billion in leveraged commercial investment.

The key proposal of the city deal is:

The City Deal Infrastructure Delivery Programme

The city deal infrastructure delivery programme will deliver the critical infrastructure required to enable the full development of significant housing and commercial development schemes. This includes four major new roads, a motorway junction, the preparatory works for a new Ribble crossing bridge and the necessary local community infrastructure, such as new schools, health facilities, open spaces and district centre improvements required to support the scale of such ambitious development.

To achieve this and as a result of significant local investment, the Government have agreed to:

10-Year Transport Majors Allocation—Following prioritisation of transport projects by Transport for Lancashire (TfL) the Government will give TfL a six-year confirmed allocation and a four-year indicative allocation confirming the ten-year investment profile.

Stewardship Board—The homes and communities agency will also invest in the deal through the creation of a city deal stewardship board. The city deal stewardship board will be responsible for guiding the sale of assets belonging to the HCA and local partners for inclusion within an infrastructure delivery programme. Government will transfer into the infrastructure delivery programme the proceeds from the sale of assets placed in the stewardship board and allow the infrastructure delivery programme to retain any uplift in HCA land values over and above the book value of £50.75 million, up to a maximum of £37 million.

The City Deal Investment Fund

The Lancashire county pension fund’s agreement to allocate £100 million for investment in commercial schemes in the city deal area is a core city deal offer. The Lancashire pension fund committee has agreed to approve a new local allocation of £150 million for Lancashire—approximately 3% of the £5 billion fund—to be funded through a re-allocation of existing global equity allocation. This allocation is targeted at the acquisition of real income generating assets in Lancashire, with a target of £100 million within the city deal area and £50 million across the rest of Lancashire.

Banking Act 2009 Reporting

Greg Clark Excerpts

Thursday 12th September 2013 Written Statements

[The Financial Secretary to the Treasury (Greg Clark)]

The Treasury has laid before the House of Commons a report required under section 231 of the Banking Act 2009 covering the period from 1 October 2012 to 31 March 2013. Copies of the document are available in the Vote Office and the Printed Paper Office.

Oral Answers to Questions

Greg Clark Excerpts

Tuesday 10th September 2013 Commons Chamber

[Ann McKechin (Glasgow North) (Lab)]

6. What recent progress he has made on implementation of the mortgage guarantee scheme.

[The Financial Secretary to the Treasury (Greg Clark)]

The Government are making good progress in working with mortgage lenders to introduce the mortgage guarantee scheme from January 2014. The scheme would allow people who can afford repayments on a mortgage but do not have a large deposit to own their own home.

[Ann McKechin]

The dangers of feeding a housing bubble are real. According to the Office for National Statistics, house price inflation in Greater London is four times higher than in the rest of the United Kingdom. Will the Minister confirm his assessment as to the extent that funds spent on the scheme in Greater London will exceed their pro rata share, based on the UK’s population?

[Greg Clark]

The scheme comes into effect in January. Government Members believe that home ownership should not be reserved for the well-off and the children of the well-off, which is why we are introducing this measure. The average deposit has risen to 79% of the income of a first-time buyer. That is why we are introducing the scheme: we are determined to help ordinary working people who want to own their own home.

[Mr Marcus Jones (Nuneaton) (Con)]

I recently met a constituent who purchased a one-bedroom flat at the height of the boom when she was single. She is now married and expecting her first child. They are desperate to move but are in negative equity and cannot move, despite having two good incomes and good savings. Will the mortgage guarantee scheme offer a positive solution for my constituents, and how can they access the scheme?

[Greg Clark]

Yes it will. The scheme is available to purchasers who already own their own home but want to move to a bigger one, perhaps because, like my hon. Friend’s constituents, they have had children. They are currently trapped in the home they have bought, and that is why the scheme we are introducing is important. It will allow people who can afford to pay the mortgage to achieve their dream of home ownership.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

The mortgage guarantee scheme does nothing to help housing supply. In those circumstances, many organisations suggest that the scheme will be inflationary. What is the Minister doing to reassure those who are concerned that the scheme will increase house price inflation?

[Greg Clark]

The hon. Gentleman is wrong to say that the scheme has done nothing to encourage supply; 10,000 homes have been started under the current scheme. The Home Builders Federation itself has said that a lack of affordable mortgage availability remains the biggest constraint on housing supply. That is a problem; we are solving it.

[Miss Anne McIntosh (Thirsk and Malton) (Con)]

7. What his policy is on the payment of corporation tax by foreign-based companies; and if he will make a statement.

--- Later in debate ---

[The Financial Secretary to the Treasury (Greg Clark)]

Manufacturing output grew in the most recent quarter by 0.7%, contributing to the growth of the economy as a whole. Growth was broadly based. In June, output increased in all 13 of the published manufacturing sectors, the first time that this has happened since 1992. The whole House will welcome today’s news that Jaguar Land Rover is to create a further 1,700 new jobs in the west midlands and 24,000 jobs in the supply chain.

[Neil Carmichael]

I thank the Minister very much for that answer. Does he agree that the news that manufacturing output has increased to its highest level in 20 years, as exemplified by firms such as Renishaw, Xograph and Delphi in my constituency, represents a good start to the rebalancing of the British economy?

[Greg Clark]

My hon. Friend is absolutely right. I pay tribute to him for doing his bit in an important cluster of manufacturing businesses in Stroud. He has invented and promoted the festival of manufacturing and engineering in Stroud, which will take place between 11 and 15 November, helping to give a further boost to the already successful companies in Gloucestershire.

[Andy Sawford (Corby) (Lab/Co-op)]

According to the Office for National Statistics, Corby is the manufacturing capital of the UK, but over the past three years our businesses have survived despite this Government’s policies not because of them. Will the Minister look again at the decision to pick winners in the boat-building industry and not to award money from the regional growth fund to my local firm, Fairline Boats?

[Greg Clark]

The hon. Gentleman is wrong in his assessment. He failed to say that the 13% collapse in manufacturing happened during the last three years of the previous Government. In the first three years of this Government, it has recovered. He mentioned the regional growth fund—paying tribute, I assume, to another successful intervention, which has helped firms such as JLR and will help others, including in the east midlands.

[Emma Reynolds (Wolverhampton North East) (Lab)]

16. What recent progress has been made on implementation of the national infrastructure plan.

--- Later in debate ---

[Mr Barry Sheerman (Huddersfield) (Lab/Co-op)]

As the Chancellor knows, a large number of small and medium-sized enterprises were let down by the conventional banking system. Many are finding that crowdfunding is a useful way of enabling them to start up and grow. Will he and the Secretary of State for Business, Innovation and Skills be very cautious before introducing unnecessary regulation to curb crowdfunding, which is a good thing for most small businesses?

[The Financial Secretary to the Treasury (Greg Clark)]

The hon. Gentleman is absolutely right. We want to see a great variety of sources of finance for small businesses. It is important for consumers and businesses to have confidence in those sources, and the Financial Conduct Authority is considering carefully rules that will strike precisely the balance to which the hon. Gentleman has referred.

[Mr Speaker]

Last but not least, I call Mr Richard Fuller.

Living Standards

Greg Clark Excerpts

Wednesday 4th September 2013 Commons Chamber

[Rachel Reeves]

It is interesting that the interventions from Opposition Members refer to the challenges their constituents face owing to falling living standards. It is a shame that hon. Members on the other side of the House want to talk about anything but that.

I would like to talk about a family I met this week. On my first day back from maternity leave, I visited a family in Thurrock who told me what they were up against. The father, once a partner in a thriving small business, lost his livelihood three years ago during the recession. Desperately trying to keep up their mortgage repayments, he has spent the past three years taking whatever work he could get through employment agencies, often on the minimum wage and often on zero-hours contracts. He recently found a permanent job as a driver which, topped up with evening shifts doing deliveries, gives the family a bit more security, but it falls far short of making full use of his talents and experience.

The wife abandoned her dream of training to be a primary school teacher so that she could hold on to her relatively secure but modestly paid job in retail. Their daughter is studying for university and should do well, but she worries about fees. All of them pointed to a gaping and growing disconnect between their rates of pay and the costs they face for travel, housing and other basic necessities. Under this Government, the situation is getting worse for such families—families who want to get on in life.

[The Financial Secretary to the Treasury (Greg Clark)]

It is possible that the hon. Lady has said something significant: that the Labour party has dropped its commitment to the temporary VAT cut. Given that as recently as June the shadow Chancellor said that he was committed to it, what has happened since then to cause it to be dropped?

[Rachel Reeves]

The shadow Chancellor said in his conference speech two years ago that VAT should be reduced from 20% to 17.5% as an emergency measure to stimulate the economy. The reality is that since then the economy has flatlined and we have continued to argue for that, but he has also said that as the economy slowly begins to move into recovery mode—we hope that the growth over the past two quarters will continue—the emphasis should move to infrastructure investment. Were we in government today, our priority would be the £10 billion of infrastructure investment that the International Monetary Fund has called for.

--- Later in debate ---

[The Financial Secretary to the Treasury (Greg Clark)]

May I begin by welcoming, on behalf of the whole House, the hon. Member for Leeds West (Rachel Reeves) back from maternity leave, and congratulating her and her husband on the birth of Anna? We wish them much joy in the years ahead. Now that she has become used to being interrupted by someone making loud, insistent and sometimes incomprehensible demands, I am sure she is glad to have returned to the House of Commons, where such things never happen.

The necessary condition for rising living standards is, of course, a sound economy. The hon. Lady will be aware that during her absence the economic policy of the Labour party has collapsed. It has spent three years opposing every reduction in public spending that this Government have made; three years calling for more borrowing and more debt; three years denying any responsibility for its failings in government; and three years warning that unless the Government changed course and adopted its so-called fiscal stimulus, the economy would not grow and unemployment would rise. However, because we followed the right policy and did not follow the shadow Chancellor’s advice, and because of the grit and hard work of the ordinary working people of this country, the economy is on the road to recovery.

[Mr Redwood]

Does the Minister agree that President Obama’s economic policy, which has been much misrepresented and much praised by the Labour party, has included a far bigger budget deficit reduction, through spending cuts and tax rises, than anything done here, and that the American economy is growing faster for longer?

[Greg Clark]

My right hon. Friend is right that there is a global consensus, if I could put it that way, that responsibility in fiscal matters is the necessary condition to revive the economy. The only exception to that consensus continues to be Opposition Front Benchers.

We have cut our structural deficit by more than any G7 country. The deficit is forecast to fall this year, next year and the year after that. We have record low interest rates. We are investing more in infrastructure during this Parliament than the previous Parliament.

It is still a world of economic turbulence—let us be clear about that—but the evidence throughout the past few months is that Britain is on the mend. National income has grown for two successive quarters.

[Alison McGovern]

The Minister is talking about economic success and sound economic policies. Would he like to come to my constituency in the Wirral and tell my constituents why sound economic policy and a successful economy have led to their wages being cut by £30 a week under his Government?

[Greg Clark]

As the hon. Lady knows, I spend a lot of time in Merseyside; we met on the other side of the water in Liverpool recently. I would be very happy on one of my visits to Merseyside to meet her and make the point that making the economy competitive, including in the north-west and her constituency, and getting people into jobs and bringing unemployment down is the best way that people can build living standards that are sustainably high. I will come on to say a bit more about that.

There have been 1.3 million jobs created in the private sector, but what has been the Labour party’s reaction, including today, to that news? The first reaction was silence. The entire Labour Front-Bench team went to ground for the summer, although the hon. Member for Leeds West had an excuse. However, three years have passed since she stated in her excellent maiden speech:

“It would not be responsible or sensible to oppose every spending cut or tax increase.”

It was in that same maiden speech that she told the Chamber that she would

“encourage this Government when they get it right”.—[Official Report, 8 June 2010; Vol. 511, c. 239.]

Now would be a good time for her to do what she promised. I would be more than happy to give way to her if she acknowledges that the hard work of the British people is showing success that she did not predict. No answer.

[Geraint Davies]

Does the right hon. Gentleman accept that since his Government took office, GDP per person—productivity per person—and average wages have fallen? We are seeing a glimmer of hope, but the reality is that the 1 million extra jobs are on the same baseline. In other words, that is not success; it is failure. There would have been growth under Labour, as was the case up to 2010.

[Greg Clark]

The hon. Gentleman parts from his Front-Bench colleagues and at least acknowledges that there is progress. He calls it a glimmer of hope, but I think the 1.3 million people employed in new private sector jobs regard it as much more than that. The hon. Gentleman will know that the first step to creating sustainably high living standards is to get people into work and into good jobs. I will say more about that in a moment.

[Chris Williamson (Derby North) (Lab)]

May I take the right hon. Gentleman back to the Conservative manifesto from 2010? It said:

“We want to see an economy where not just our standard of living, but everyone’s quality of life, rises steadily and sustainably.”

Is it not a fact that 20% of the British work force are paid below the living wage and that 60% of the jobs that the right hon. Gentleman is referring to are themselves low paid? How is that a mark of success when people are being forced into poverty wages?

[Greg Clark]

The hon. Gentleman should pay attention to the more thoughtful members of his party. If he looks at the work of respected think-tanks such as the Resolution Foundation, which does some excellent work, he will see that the problem of low wages is affecting many western countries and has been for some time. In fact, the right hon. Member for Southampton, Itchen (Mr Denham) pointed out in the summer of 2010 that the problem under the previous Government was that hard-working families who played by the rules and paid their taxes did not get a great deal back, that their pay had not increased much and that they thought there was fundamental unfairness in the system. This is a problem that afflicts many western countries. It started under the previous Government. I will come on to explain how the best way to pursue the matter is to raise sustainably high living standards.

[Ms Buck]

Does it cause the Minister any concern at all that since his Government took office in 2010 there has been a 50% rise in the number of working people who require help with their housing costs and that this Government will spend £14 billion more on supporting private tenants with their housing costs than the previous Labour Government?

[Greg Clark]

The hon. Lady and my party share the ambition of ensuring that people can earn a living that allows them to pay their and their families’ costs, but the question is how we get there. If Members oppose the reforms necessary to create that possibility they will not make any progress, given the financial situation we inherited.

[Mr Redwood]

I am glad that the Minister has said that we share Labour’s ambition for more people to have better paid jobs. Of course we want people to be better paid, but is not the best way for people to get a better paid job to start with a low-paid job and work their way up and get mentored and trained in the workplace?

[Greg Clark]

My right hon. Friend makes a powerful point. Opposition Members should not be so disparaging about the chances that are being given to millions of people to find work, make progress, learn skills and acquire the necessary experience.

[Several hon. Members]

rose—

[Greg Clark]

I want to make some progress.

The Labour party’s policy, according to the Institute for Fiscal Studies, is to increase Britain’s debt by £200 billion. That would be ruinous, because—this is linked to living standards—that borrowing would fall to the ordinary working people of this country. They would suffer a double hammer blow: more money would be taken out of their incomes to repay debt and there would be higher interest payments on mortgages and business loans. A 1% increase in interest rates would cost householders with a £100,000 mortgage £1,000 a year.

Today and throughout the past three years, the Labour party has persisted in talking down the economy, but its policies would take down the country. In fact, one of the biggest sources of concern in the British economy today is the total absence of a credible economic policy from the people who in 20 months’ time aspire to be the Government of this country. That is of concern even to people in the Labour party. Even the noble Lord Mandelson said recently that the risk of pursuing Labour’s economic policy was too great:

“I don’t think you can really take a chance, I think the markets, whose confidence in us to pay back what we borrow—that confidence is the determining factor.”

He went on to say that

“a lurch in policy…would be quite a risk which I would not blame the chancellor for refusing to take.”

By the way, Lord Mandelson is a friend of the shadow Chancellor. He said:

“I also happen to like him…well, more than I used to.”

We are here to discuss the cost of living and the cost of living is Labour’s legacy. Of course families are finding it tough. The Labour party talks about the cost of living without any mention of its record in government on living standards. It was the Labour Government who doubled council tax. Even in the depths of the recession, when my hon. Friend the Member for Peterborough (Mr Jackson) presciently asked them to consider freezing council tax, as this Government have gone on to do, they flatly refused.

[Andrew Bridgen (North West Leicestershire) (Con)]

On that point, will my right hon. Friend join me in congratulating Conservative-run North West Leicestershire district council, which has frozen council tax for four years running, and in condemning the leader of the Labour group, who suggested that we should raise council tax by 2% this year?

[Greg Clark]

I congratulate my hon. Friend’s council. We know that council tax is an important bill that people face. That is why when we came to office, knowing the pressures faced by ordinary working people and families, we froze it.

The same is true of the Labour party’s record on fuel duty. Its fuel duty escalator meant that what working people paid to fill up their car rose by more than inflation every year. Petrol would be 13p a litre more if Labour had stayed in office.

Energy prices for the home escalated under Labour. Between 1997 and 2010, the average domestic gas bill doubled. These matters were raised in our earlier exchanges, but the hon. Member for Leeds West omitted to say who the Energy Secretary was in the last Government. It was the current Leader of the Opposition. When I shadowed him across the Dispatch Box, these issues were not addressed, despite our urging him to do so.

In its 13 years in office, the Labour party failed to safeguard pensions. In one notorious year, it increased the state pension by 70p. This Government have restored the link to earnings. Labour presided over the biggest fall in the number of homes being built since the 1920s, with the consequence that rents have risen and, for the first time in 100 years, the proportion of people who own their own home has fallen.

[Gavin Barwell]

My right hon. Friend is doing a very effective job of comparing the record of Labour in office with the rhetoric that we have heard today. The shadow Chief Secretary talked about priorities. Will my right hon. Friend tell the House what was the effect of the Labour Government’s abolition of the 10p rate of income tax? Which sections of society were made worse off by that decision?

[Greg Clark]

My hon. Friend makes a very good point. Of course, it was the ordinary working people who were struggling to get by who were penalised by that change. We have not had an apology for that. [Interruption.] The hon. Member for Nottingham East (Chris Leslie) talks about raising VAT. It would be interesting to hear from him whether the Labour party would reverse the rise in VAT.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

Will the right hon. Gentleman explain how much the rise in VAT has cost the typical family?

[Greg Clark]

It is 20 months before the election and the Labour party cannot say whether it would keep or reverse the rise in VAT.

The Labour party established the beer duty escalator, the council tax escalator, the fuel duty escalator and the biggest escalator of them all—the deficit escalator. The deficit trebled in its last two terms in office and that all has to be repaid by the hard-working people of this country. The facts are stark: the deficit that we inherited equates to about £6,000 per household every year. Of course it is painful to find an average of £6,000 per household in revenues and savings, but that is the effect of the previous Government’s profligacy.

[Emily Thornberry]

rose—

[Debbie Abrahams (Oldham East and Saddleworth) (Lab)]

rose—

[Greg Clark]

I will give way to the hon. Member for Islington South and Finsbury (Emily Thornberry) because she has been patient.

[Emily Thornberry]

I wonder whether I might drag the right hon. Gentleman back from the political knockabout to the realities of life. A point was made earlier about the number of working people who are now dependent on housing benefit. Is he aware that the cheapest four-bedroom flat to rent on Rightmove yesterday cost £440 a week? Given that the minimum wage is £212 a week, how can people live?

[Greg Clark]

Where has the hon. Lady been for the past three years? We have reformed the planning system. Since the national planning policy framework was adopted, which I had something to do with, planning permissions for new homes have risen by 22%. That is the action that is required if the problems that she identifies are to be solved.

The Labour motion talks about the standard of living, but no Government in living memory have done more to scupper the standard of living of ordinary working people in this country than the last Labour Government.

[Stella Creasy]

The Minister wants to talk about his Government’s record, so let us talk about the last six months alone, during which the proportion of people in this country who are worried about their personal debt has risen to 50%—20 million people in this country are desperately worried about the level of personal debt that they are in. Does he accept that his low-wage economy is part of the reason why so many families in this country are lying awake at night, frightened about how they will put food on their table and make it through to the end of the week?

--- Later in debate ---

[Greg Clark]

The hon. Lady is an experienced and effective campaigner on debt issues, but she will know that the explosion in debt happened under the last Labour Government. The reforms that we have made in financial services, the line-by-line scrutiny of which the hon. Member for Nottingham East participated in, have improved the regulation of such matters. She is right in the sense that the only way of ensuring that people can confidently earn enough to support themselves and their families is for them to be in work and in a good job. That is the purpose of our reforms.

[Gavin Barwell]

The hon. Member for Walthamstow (Stella Creasy) is right to identify low wages as a problem. They are a particular problem in the parts of the country that have the highest living costs because we have a national minimum wage. The second part of the problem is the high level of tax that the Government levy on people who are in low-paid work. Will my right hon. Friend therefore answer the question that the shadow Chief Secretary ducked and tell us what has been the change in the income tax bill for somebody who works full time on the national minimum wage?

[Greg Clark]

Of course, the amount of income tax that is paid by somebody on such modest earnings has been halved. That is the purpose of our reforms. Those people are better off.

Every Member of the House wants the standard of living enjoyed by the people of this country to rise. That is the purpose of economic policy. Let us therefore have a serious analysis of how that can be achieved.

[Several hon. Members]

rose—

[Greg Clark]

I will make some progress, then I will give way.

We must have a serious analysis of how that can be achieved in a way that is substantial and sustained. The first requirement is to do everything that we can to ensure that people are able to earn a good living. The second is to do everything that we can to reduce the costs that people face—especially those that are imposed by the Government.

On the first requirement, if people are to earn enough to generate a good standard of living, our country needs to be competitive against its rivals. The UK is at the top of KPMG’s league of the best countries in which to do business, ahead of Switzerland, the USA and France for the first time ever.

[Kwasi Kwarteng (Spelthorne) (Con)]

I am grateful to the Minister for the point that he is making about international competitiveness. How did Labour’s 12 increases in fuel duty improve competitiveness and the living conditions of British families?

[Greg Clark]

Those increases hit people in two ways: they hit the people who paid the duty when they filled up their tanks and they hit small businesses who employed people. It was a disastrous policy, which is why we scrapped it.

We will shortly have the joint lowest corporation tax in the G20. Last year, Britain was the biggest destination in Europe for inward investment. That competitiveness is creating jobs—jobs that give people incomes. Since 2010, 1.3 million jobs have been created in the private sector. More people are working in Britain than ever before and we have the lowest proportion of workless households for 17 years. There have been more net new private sector jobs in the past three years than there were in the previous 10 years under the Labour party.

People’s living standards are higher if they are in work, but I also want people to be able to earn higher wages. The only way to achieve that is to improve the levels of education and skills in the workforce. That is why the reforms of my right hon. Friend the Secretary of State for Education are so vital. It is why we need rigour in the exam system. It is why his announcement this week that we must ensure that people leave school qualified and skilled in all ways, but especially in maths and English, is so important. It is why the 86% increase in new apprenticeship starts between 2009-10 and 2011-12 is so important.

[Barbara Keeley (Worsley and Eccles South) (Lab)]

I would not want to waste the opportunity, with the Secretary of State for Education in his place, to raise again the cost of living issue of school uniforms, which the Prime Minister ignored earlier as though there were no issue to consider. In Manchester, one of the new academy secondary schools is charging £300 for a boy’s uniform. Families are really struggling, as I mentioned to the Prime Minister, although he did not seem to take the point on board. That cost is pushing a lot of families into debt and payday loans. The Financial Secretary talked about families struggling to get by, and this month some families are struggling to get by because they have had to shell out £300 to send their children back to school. What does the Secretary of State for Education have to say about that?

[Greg Clark]

I suggest that the hon. Lady turn up to Education questions if she wants to question the Secretary of State, but since her question refers to the cost of living, I hope she would not want the policies on such matters for every school in the country to be set from the Department for Education. It would be an interesting statement from the Labour party if it did want that. My experience of good schools in my constituency that have a uniform code, which parents welcome, is that they typically have schemes and mechanisms to help people obtain uniforms if they find themselves in financial difficulties.

Getting good jobs requires investment in skills and education for those in work. For those who are retired, incomes have been helped by the biggest ever increase in the state pension.

[Several hon. Members]

rose—

[Greg Clark]

The hon. Member for Leeds West did not give way to Members who had already intervened once. Given the number of Members who want to speak, I think I will do the same thing. However, I will give way to my friend the hon. Member for Birmingham, Erdington (Jack Dromey) before I make some progress.

[Jack Dromey (Birmingham, Erdington) (Lab)]

I am grateful to the right hon. Gentleman. May I first correct the figures that he gave earlier? Under the Labour Government there were 2 million new homes; it was under the current Government that house building fell to its lowest level since the 1920s.

This is “Yes to Homes” week, and housing organisations all over Britain have predicted that without fresh measures by way of investment in housing supply, rents will rise by 46% by 2020 and the price of buying a house by 42%. Why not heed the advice of the International Monetary Fund, which has said that if we want a serious, sustainable economic recovery, £10 billion should be invested in our economy? Why not invest that in building 400,000 affordable homes and creating 600,000 jobs and apprenticeships?

[Greg Clark]

I have enjoyed debates with the hon. Gentleman over the years, and he will know that no one in the Government is more committed than I am to increasing the number of homes. He knows that our reforms to planning—I have heard some recent statements suggesting that the Labour party may wish to resile from them—are increasing the number of planning permissions given for new homes. I would have thought that he would welcome that.

The Government are relentless in driving up employment and the quality of skills, which are the foundations of high living standards. However, we must also act to reduce the costs that people have to pay, where the Government can influence those costs. A credible plan for reducing the deficit has kept interest rates low, as the IMF has acknowledged. We must not underestimate the importance of those low interest rates to the monthly budgets of thousands of families. Indeed, as I said, if mortgage interest rates were to rise by just 1%, average mortgage bills would increase by about £90 each month.

We have enabled local authorities to freeze council tax for five years, meaning that the average person pays £200 less each year than they would under the Opposition’s plans. We are increasing the tax-free personal allowance to £10,000 from next year, meaning that the average person will pay nearly £500 less each year than they would under the Opposition’s plans. We have frozen fuel duty, meaning that the average person pays nearly £170 less each year than they would under the Opposition’s plans.

On top of that, we have capped rail fares, extended free nursery care, taken action to reduce energy costs and cut the tax paid on a pint of beer. Under the Opposition’s plans, it would cost more to drive a car, more to take a train, more to heat a home and more to drink a pint. In fact, if we add it all up, someone with a car to run, a mortgage to pay and a home to heat would be about £2,000 worse off every year under the Labour party, yet it has the audacity to claim that things are getting worse for millions of working families.

The combination of rising employment and the increase in the personal allowance meant that last year, real household disposable income rose by 1.4%. However, there is more to do, and as the recovery continues we want to see living standards rise. The people of Britain know that there is no shortcut to higher standards of living and no magic money tree. They know that the only way is for us to live within our means; invest in education and training; spend prudently, not profligately; and exercise the same values in government as people do in their own lives. That is what this Government are doing, that is the path to prosperity for all, and that is why a good future awaits the people of this country.

[Several hon. Members]

rose—

Financial Services Authority

Greg Clark Excerpts

Wednesday 10th July 2013 Written Statements

[The Financial Secretary to the Treasury (Greg Clark)]

The annual report 2012-13 of the Financial Services Authority (FSA) has today been laid before Parliament.

Copies are available in the Vote Office and Printed Paper Office. The report forms a key part of the accountability mechanism for the Financial Services Authority under the Financial Services and Markets Act 2000 (FSMA), and assesses the performance of the Financial Services Authority over the past 12 months against its statutory objectives.

Financial Services (Banking Reform) Bill

Greg Clark Excerpts

Tuesday 9th July 2013 Commons Chamber

[John Thurso]

Yes, something like that.

I am very tempted by new clauses 8 and 10, which were tabled by the Opposition. I will not vote against them, but I will not vote for them at this stage. There is an immense amount in them, but I will wait to hear what the Minister says. There is also a great deal of debate to come in the other place. I do not want to say that I am against the new clauses, but I am not sure that the wording is exactly what I would like to have seen. I ask for the forgiveness of the hon. Member for Nottingham East (Chris Leslie) on that.

On new clause 10, there was a lot of debate in the commission about the good bank/bad bank split. We ended up with a central point that we all agreed to, but a number of us wanted to go more in one direction. However, whether a good bank/bad bank split is a good idea is a completely different issue from what should be done afterwards. If one takes the view that a good bank/bad bank split is not needed, one can still consider all the points that have been put forward, including the many things the hon. Member for Brighton, Pavilion (Caroline Lucas) said could be done to enhance regional banking and credit unions. All those things are equally possible whether or not one decides that the bad bank is necessary.

To my mind the good bank/bad bank argument is separate to what one does with a bank going forward. I happen to be somebody who believes that a good bank/bad bank split is right for the simple reason that if we take the flakier assets out of the bank and put them in a run-off bank, therefore liberating the capital being used in the balance sheet to support it, capital is then available in the good bank to be lent to SMEs and individuals. It is a simple mechanism for getting more capital flowing through, but I would make the point that it is not inextricably linked.

Following on from the slightly more partisan comments from the right hon. Member for Wolverhampton South East, one thing that comes out of this process, and which I have observed right the way through it, is that United Kingdom Financial Investments Ltd has not been the most successful of bodies. We have seen that there are politics in such situations, and that trying to put a mechanism in between muddies the water. That is one of the reasons why the commission’s report made its suggestions on UKFI.

Finally, the commission very much supports new clause 8. As I said in my intervention, I do not think this matter needs legislation. What I would be looking for from the Minister is a commitment that does not require me to look carefully between the lines, but is, in fact, a further commitment.

[Greg Clark]

This has been an interesting debate so far, and it will be a tall order to live up to the great expectations of my hon. Friends the Members for South Northamptonshire (Andrea Leadsom) and for Caithness, Sutherland and Easter Ross (John Thurso).

This set of new clauses has the common denominator of measures that can improve competition in banking. The parliamentary commission has made it clear that competition can, and should, bring about higher standards in the banking sector. It concluded that

“effective market discipline, geared to the needs of consumers, can be a better mechanism for improving standards and preventing consumer detriment than regulation, which risks ever more detailed product prescription.”

The Government completely agree. The British banking industry, at least at the retail level, was too concentrated before the crisis. The forced mergers of the crisis have exacerbated a bad situation. It is imperative that the regulators do not regard themselves simply as regulating incumbents, but act to promote new entry into the industry.

The commission welcomed the prudential reforms contained in the then Financial Services Authority’s barriers to entry review and commented that

“the concerns of challenger banks in this area appear to have largely been addressed”.

We accept the need to go further. Accordingly, we will be adopting the commission’s recommendation that the Prudential Regulation Authority should be given a secondary competition objective, and we will table amendments to the Bill to that effect in the autumn.

[Mr Andrew Tyrie (Chichester) (Con)]

Hear, hear.

[Greg Clark]

I am grateful for my hon. Friend’s contribution.

Government amendment 5 delivers on a commitment made in Committee to accept one of the commission’s earlier conclusions that when considering an exemption from ring-fencing the Government must have regard to any adverse effect ring-fencing provisions might have on competition in the market. The amendment ensures that ring-fencing should not be a barrier to greater competition in the market. To reassure the hon. Member for Nottingham East (Chris Leslie), it does require them to override any questions on whether the continuity objective should be breached. It is there to enable them to bear that in mind, not least for the reasons that we discussed—that competition can have systemic benefits that address some of the regulator’s objectives.

Another recommendation of the commission that we accept is the suggestion that there should be a rigorous study conducted on the benefits to consumers, and competition, of account portability. The House will know that from September the seven-day switching service operated by banks covering 99% of personal current accounts in the UK will come into operation. I do not whether hon. Members have noticed, but there is an excellent exhibition to promote the new changes to the service from September in the Upper Waiting Hall next to the Committee Corridor. It should make it easier, quicker and more secure to change bank account, helping competition, but, as my hon. Friends the Members for South Northamptonshire, for Wyre Forest (Mark Garnier) and for Caithness, Sutherland and Easter Ross said, that might not go far enough. In particular, I congratulate my hon. Friend the Member for South Northamptonshire on the consistent and forensic campaign she has waged on this issue through the Treasury Select Committee and beyond. We will therefore ask the new payments systems regulator to conduct a comprehensive review of account portability, including a cost-benefit analysis, as an immediate priority.

--- Later in debate ---

[Mr Love]

Given that the new payments regulator will take some time to set up, I hope that the Minister will keep a watching brief on seven-day portability, because there is still some controversy over the proportion of fees for the receiving bank as opposed to the bank losing the customer. This was brought to the commission’s attention; we commented on it, and I hope that he will keep it under review.

[Greg Clark]

I certainly will keep a close eye on that, as too, I am absolutely certain, will my hon. Friend the Member for South Northamptonshire. The arrangement is that the fees should be shared between the bank of departure and the bank of arrival, which I dare say reflects the different costs. However, we need to keep an eye on its effect on competition.

In response to the parliamentary commission’s report, the Office of Fair Trading has announced that it will bring forward its investigation into small and medium-sized enterprise banking as part of an ongoing programme of work to investigate concerns about competition in banking. The hon. Member for Nottingham East rightly wants this to go further. The OFT is engaged in a programme of work looking at all sections of the banking sector. As I think Members know, it has recently completed an investigation into the personal current account market, and on that narrow point has argued that there should not be an immediate referral pending some of the changes taking place or in the pipeline.

We have asked that that work considers the impact on the new challenger banks created by the divestments from Lloyds and RBS. The hon. Gentleman asked where they stand. My understanding is that in both cases the parent banks are looking to move forward with initial public offerings of the challenger banks and that they intend them to form part of the competitive environment. The OFT aims to conclude its programme of work next year. It will then decide whether a market referral to the Competition Commission is needed. I can tell my hon. Friend the Member for Caithness, Sutherland and Easter Ross that such a referral would not require legislation; the OFT could make one under its existing powers.

Given that commitment, which is more or less of the same time frame as that envisaged in new clause 8, and given the significant measures being implemented to enhance competition, I hope that hon. Members will agree that the new clause, which calls for such a referral in 2014, following Royal Assent, should not be adopted. It is important that the OFT completes its review in 2014, so that it can build up a file of evidence to be submitted to the Competition Commission. That would be consistent with what both the independent commission and the parliamentary commission called for: that the OFT be in a position to make a referral in 2015. The OFT’s work is absolutely in line with that.

[Mr Tyrie]

Will the Minister confirm that, were there not to be a referral, the Government will ensure a full examination of the case for a market study of the retail side, as well as the SME side?

--- Later in debate ---

[Greg Clark]

That is happening. The review that the OFT is carrying out is comprehensive—it will keep us informed in that process—and is about building up the evidence to make that judgment in accordance with exactly the time frame that my hon. Friend has set out.

New clause 15, standing in the name of the hon. Member for Brighton, Pavilion (Caroline Lucas), would require the Government to consult formally on the creation of a network of regional banks. I strongly agree that a revival of regional banking in this country is a very good thing. Yesterday in the Chamber my hon. Friend the Member for Hexham (Guy Opperman) reported on a meeting that he organised in Gateshead. I am pleased to tell the hon. Lady that a senior director of the Sparkassen, Dr Thomas Keidel, was at that meeting. He very much commended the Sparkassen model in Germany as something that could be emulated in this country. In fact, when one of the delegates objected that it was very much part of the German system and culture, which might be difficult to transplant to this country, Dr Keidel immediately pointed out that the German system was explicitly modelled on the UK system before it was abandoned in this country. I am therefore optimistic that what is proposed should be possible.

There was certainly great enthusiasm on Tyneside—indeed, momentum was being established—for launching a regional bank for the north-east. The hon. Lady might also be aware that the Cambridge and Counties bank—a joint venture between Cambridge county council and Trinity Hall, the Cambridge college—is already active and is providing lending to local small and medium-sized enterprises. The steps that the Prudential Regulation Authority has taken to license new entrants—

[Mr Love]

I apologise to the right hon. Gentleman for jumping in rather late, but before he leaves the issue of regional banks I want to mention one of the most promising areas, which is community development institutions. They are working at the regional and local level; however, their sources of funding could be enhanced immeasurably if community interest tax relief was set at a proper rate. I recognise that the Treasury has carried out a consultation. I am not asking the Minister to respond now, but perhaps he will at some stage inform Members of where the Treasury has got with that consultation and whether it will review the incidence of community interest tax relief.

[Greg Clark]

I do not know whether the hon. Gentleman will be reassured or alarmed to learn that I had not left the subject of regional banking just yet. Indeed, I want to come to the precise subject he has just raised.

The Prudential Regulation Authority’s changed procedures were referred to—by, I think, my hon. Friend the Member for Wyre Forest. It is now possible to license new entrants, who could require up to 80% less capital up front than previously. That means that the time is now ripe for new banks in the regions to be established. The hon. Member for Brighton, Pavilion, in her new clause 15, and the hon. Member for Edmonton (Mr Love) refer to CDFIs—community development finance institutions. Some £60 million of wholesale funding for CDFIs is available through the regional growth fund. Tax relief up to 25% is already available on investments made by individuals and companies into CDFIs. Of course I will talk to my hon. Friend the Exchequer Secretary and carry forward the hon. Gentleman’s representation for further changes, but a significant set of advantages is available. Similarly, the more flexible rules for credit unions that have been introduced and the £38 million of funding for this movement have also created greater opportunities.

[Caroline Lucas]

Does the Minister accept that constraints on the amounts that larger credit unions—such as the East Sussex Credit Union, which I know well—are allowed to accept in deposits or are allowed to lend are stopping them fulfilling their potential? Will he look at that again?

[Greg Clark]

I am happy to take that forward. The hon. Lady will be aware that we have liberalised the rules for credit unions, but if problems are being caused, not least in East Sussex, I would be happy if she dropped me a line or came to see me.

We have great enthusiasm for the proposals that the hon. Lady makes, but what is required is not a study, but action. I make this commitment to her, and to any hon. Member who is interested in helping to establish a new regional bank in their area, that I will help them to do so. I hope that they will allow me to do that.

New clause 10 would require the Government to lay a report before Parliament before selling any banking assets. All hon. Members are aware of what the Chancellor said in his Mansion House speech about the next steps for Lloyds and RBS. For Lloyds, the Government are actively considering the options for how its shareholding can be returned to the private sector. Value for money for the taxpayer will be the overriding consideration, and there is no pre-determined time scale. Indeed, the disposal process may involve multiple stages over time, rather than a single moment.

For RBS, share sales are some way off. In line with the recommendation of the Parliamentary Commission on Banking Standards, the Chancellor has announced a review, to conclude in the autumn, into whether a bad bank should be set up for risky assets from RBS. Following the criteria suggested in the commission’s report, the review will assess whether creating a bad bank would accelerate the path back to private ownership, deliver benefits for the wider economy and be in the interest of taxpayers.

As I have mentioned, the OFT is looking specifically at the impact that new challenger banks created by the Lloyds and RBS divestments will have on competition in small business banking. UK Financial Investments has a remit to provide value for money in executing its requirement to devise the means of selling the Government’s shareholdings in the banks, and, in doing so, to pay due regard to maintaining financial stability and to act in a way that promotes competition. In doing so, UKFI and the Treasury must follow the value-for-money principles set out in the Green Book, and they will be accountable, through the Accounting Officer, to the National Audit Office and the Public Accounts Committee, as well as to the House and the Treasury Select Committee.

[Chris Leslie]

The Minister is talking about the edifice of propriety, in relation to UKFI and so forth, but it is as plain as day that the Chancellor made the decision that he did not want that particular chief executive of RBS, so out went Stephen Hester. Will the Minister at least put on record what the plan is for settling the future leadership of RBS? When will the new chief executive be appointed?

[Greg Clark]

The hon. Gentleman knows full well that that is a matter for the board of RBS, not for the Government.

Returning to new clause 10, it is not clear that a new mandatory reporting requirement would add anything to the arrangements that are already in place. In the previous regulatory regime, promoting competition did not play a prominent enough role in ensuring that the banking industry operated in the interests of consumers. The strengthening of the role of competition through the reforms in the Bill will go a long way towards correcting that. The further recommendations of the PCBS underline the role of competition more prominently still, and I thank the commission for its contribution in that regard.

I should also mention new clause 1, which introduces a new schedule of amendments to correct a series of minor and technical points in connection with the Financial Services Act 2012. I was asked some questions about this earlier. It refers to the complaints scheme covering the Financial Conduct Authority, the Prudential Regulation Authority and the Bank of England. The scope of the complaints scheme in relation to the PRA and the FCA was widened to cover all their functions under any legislation, and the current scope includes functions such as those relating to the Data Protection Act and the Freedom of Information Act, which already have their own complaints mechanisms. The new clause will correct that.

I hope that the House will accept that the Parliamentary Commission on Banking Standards and the Government are as one in their intention of promoting competition. We totally agree that placing a high value on competition in pursuing all our objectives for the banking sector in order to make it more competitive, more responsive to the needs of consumers and more resilient is very much in the interests of the country.

[Chris Leslie]

We have had a long, well-informed debate, and I pay tribute to Members on both sides of the House, particularly the members of the Parliamentary Commission on Banking Standards, for their contributions. I am disappointed, however, that the Government are still saying simply that they will think about these things and look into them. The Bill will leave this House in the same thin state in which it arrived. In protecting taxpayers’ best interests, it should not be viewed as asking for the moon on a stick to request a proper report and an options appraisal of what to do with state-owned assets. It is very important that, at the very least, we have a thorough appraisal.

--- Later in debate ---

[Greg Clark]

I beg to move, That the Bill be now read the Third time.

It is good to start the debate with good news. When one is considering a Bill, one is cut off from the outside world, so that is good to hear.

I said on Second Reading that this is a historic Bill that resets the banking system in this country, so that it can once again enjoy the reputation that it had, and its worldwide renown, not just for technical excellence but for high standards of confidence, built on probity.

The Bill is historic in another important respect. It reflects the extensive deliberations and contributions of not one but two bodies of eminent experts: the Independent Commission on Banking, chaired by Sir John Vickers, and the Parliamentary Commission on Banking Standards, chaired by my hon. Friend the Member for Chichester (Mr Tyrie). Both undertook extensive work, and I am grateful to their members, and to the staff who supported them in their work.

Sir John Vickers’s commission was established immediately after the general election, in June 2010. It took extensive evidence before publishing an issues paper in September 2010; an interim report, on which it consulted in April 2011; and a final report in September 2011. The Government gave, and consulted on, an initial response in December 2011, before issuing a White Paper for consultation in June 2012. In the light of that consultation, a draft Bill was published last October, and the Parliamentary Commission was asked to give it pre-legislative scrutiny, which it did, and it concluded its report on 21 December last year.

Following Second Reading, the Committee scrutinised the Bill for more than 40 hours. The process has been characterised by an unusually determined effort to build consensus. Having considered all the options, the Vickers commission made a compelling case for a ring fence separating the riskier investment banking side of banks from personal and business lending. Ring-fencing, an ICB argument, will better insulate retail banks against global shocks and make banks easier to resolve in a crisis. It will thus create a more stable banking system, protecting the economy and the taxpayer against future crisis.

The parliamentary commission, in its first report, recommended some changes to the Bill, which we have been able to make, such as emphasising the importance of competition, as we have just debated, in applying the ring-fencing rules. The commission noted that in putting the so-called Haldane principles on the face of the Bill, the Government went further than its own recommendations. The parliamentary commission, in its December report, also called for the power to be available to force the separation of a ring-fenced bank into its component parts if that bank attempted to game the system or to undermine the ring fence. The so-called electrification of the ring fence is designed to ensure that it is respected in practice.

We debated yesterday the Government’s amendment to implement this power. There was some discussion about whether the power to require separation was too cumbersome to be used effectively in practice. As I said yesterday, there is no difference between the Government’s intentions and those of the parliamentary commission. We agree with the specific reserve power and it has to be usable. We included a time limit by which full separation had to be executed. The PCBS did not specify this, but my hon. Friend the Member for Chichester said that it should be informed by the regulator. That seems right to me and I have no difficulty in expecting to be able to arrive at a formulation that meets all the Chairman’s objectives during the further scrutiny of the Bill in this place.

[Mr Tyrie]

I am very reassured by what I have heard from the Minister. It seems from what he said that it remains the Government’s firm intention to implement the spirit and the letter of electrification for individual banks. It also gives me some reassurance that the commitments that appear to have been made in the paper published yesterday on the recommendations in the fifth report will also be implemented. Can the Minister give some indication when he will produce amendments, so that we have enough time to think about them before they are examined in another place and so that their lordships also have enough time to consider them carefully?

[Greg Clark]

I am grateful to my hon. Friend for his remarks. He is right that we are of one mind on the need to implement faithfully the commitments that we have given. The amendments need to be drafted in a way that is legally watertight, which takes some time. They will be prepared during the summer—the summer holiday will be out of bounds for the officials on the Bill team, sad to say—and they will be introduced in the autumn in the House of Lords.

As well as pre-legislative scrutiny of the Bill, the parliamentary commission’s final report made a series of recommendations concerning standards and culture in banking. As I indicated on Second Reading, in Committee and yesterday, the Government will make use of the Bill and the amendments to give expression to many of the recommendations that require legislation. I gave a commitment to work with the usual channels to ensure that this House has ample opportunity to debate the amendments when they come back for further scrutiny by this House.

[Mr Tyrie]

I may have misheard. Does that mean that we will get two days to consider Lords amendments?

[Greg Clark]

My hon. Friend is nothing if not tenacious as well as ingenious, and his hearing is acute. He will have heard me say that I will work with the usual channels, so the time for consideration will depend on the outcome of those discussions.

The implementation of the commission’s recommendations on culture and standards represents the third pillar of the reforms being made to the banking system. The first pillar was the institutional changes brought about by the Financial Services Act 2012, which received Royal Assent last December. That Act scrapped the failed tripartite system of regulation which, in the words of the parliamentary commission,

“created a largely illusory impression of regulatory control”.

In its place, that Act restored the Bank of England to its rightful place by ensuring, through the Financial Policy Committee and the Prudential Regulation Authority, the stability of the financial system. It established new forward-looking, rather than box-ticking, conduct regulation in the Financial Conduct Authority.

The second pillar of reform is embodied in the ring-fencing provisions advanced by Sir John Vickers and his committee, which are the main focus of the Bill under consideration. The reforms by the Parliamentary Commission on Banking Standards that deal with culture and standards represent the third pillar, and will play a major part in the passage of the Bill.

Having thanked members and staff of the Independent Commission on Banking and the Parliamentary Commission on Banking Standards for their hard work and the exacting standards they set for themselves, I extend my thanks to all those who have participated in the drafting and scrutiny of the Bill so far. First, I thank my Parliamentary Private Secretary, my hon. Friend the Member for Warrington South (David Mowat). Not only has he been assiduous in his more mundane duties of passing notes to and fro, but he has been an invaluable source of wise advice, drawing on a successful career in business. I discovered that he has an ability to see quickly through complexity and get to the heart of the matter—something much needed in matters of financial regulation.

I thank my officials for their efforts and the long hours spent drafting the Bill and Government amendments, as well as briefings for the many clauses we have debated. I hope that the seriousness of this legislation will assuage the loss of weekends and evenings spent with their nearest and dearest, although I hope they were at least able to see Andy Murray play—and indeed win—on Sunday, notwithstanding the timetabling of Report and Third Reading.

I thank those in my private office for their patience and cheerfulness in marshalling the many demands on their skills and expertise, and I am grateful to members of the Bill Committee, and its Chair and Clerks, for the hours we spent in each other’s company during spring. At one point I worked out that I had spent more time that month with the hon. Member for Nottingham East (Chris Leslie) than with my wife, although I hope he will agree that it was not an altogether unpleasant experience.

We had a lively and unusual Bill Committee in which my hon. Friend the Member for Amber Valley (Nigel Mills) went further than the electrification proposed by the Parliamentary Commission on Banking Standards, and demanded the “electrocution” of miscreant bankers. My hon. Friend the Member for North East Somerset (Jacob Rees-Mogg), whom I am delighted to see in his place, was revealed to have a secret life on Twitter, which I hope continues to flourish. I was also able to concede an historic Opposition amendment, given the charming entreaties from the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), even if it was only a single word. All that was done under the beady eye of the Treasury Whip, my hon. Friend the Member for Chelsea and Fulham (Greg Hands), who kept us rigorously to time—indeed, I think we finished a day earlier than was allowed for in the programme motion. Given that the Bill will return and we will have much to discuss, it is not so much goodbye to the Bill on Third Reading as au revoir—or, as I am sure my hon. Friend the Member for North East Somerset would put it, “Hasta la vista, baby.”

Ours is not the only country in which trust in banking collapsed during the financial crisis, but the fact that scandals and bail-outs happened elsewhere is of no comfort. In a world where trust is in retreat, this country must be a beacon of confidence, security and stability, but that will not happen unless we insist on higher standards than apply elsewhere. The overwhelming and urgent imperative is to rebuild that trust. The reforms enacted so far take us a long way, and further than our competitors. The Bill will take us further forward and make the reform necessary to restore the reputation—and with it the prosperity—of banking in the United Kingdom. I commend the Bill to the House.

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[Mr McFadden]

This is an unusual Bill, in that at the same time that it has sought to implement a reform recommended by the Vickers commission two years ago, it has run in parallel with the Parliamentary Commission on Banking Standards, which periodically has produced reports and asked the Government to use the Bill to implement their findings.

I place on record my thanks to colleagues who served on the commission and all its staff. It was an intense effort and I do not think we could have produced our reports without the able efforts of the many staff who worked for us, led by Colin Lee, who is a great servant of this House.

I want to draw the Minister’s attention back to yesterday’s official response from the Government to the commission’s report of a few weeks ago. We read in yesterday’s newspapers that the Government were going to accept the vast bulk of the recommendations and the Minister opened the debate by saying something very similar. However, I have looked through the Government document in detail and wonder whether the Minister could confirm that the position is not that simple.

Paragraphs 2.32 and 2.33 reject part of our recommendations on pay. Paragraph 4.5 makes no commitment to legislation on access to basic bank accounts. Paragraph 3.24 passes to the regulator only consideration of the changes that we recommended on the corporate governance responsibilities of executives and bank chairmen. Paragraphs 3.34 and 3.35 in effect reject our recommendation for gender reports on operations on the trading floor. Paragraph 5.11 rejects our recommendation to consider splitting RBS into regional banks as part of the Government’s study on RBS. Paragraph 5.28 rejects our recommendations on the governance of the Bank of England. Paragraph 5.31 rejects our recommendations on the chairmanship of the Prudential Regulation Authority.

As my hon. Friend the Member for Nottingham East (Chris Leslie) said, the Government have also rejected recommendations on leveraging and ring-fencing, in particular ring-fencing in respect of the sector as a whole. When it comes to the implementation of recommendations, the chairman of the parliamentary commission yesterday described the attempt to ring-fence one particular group as “virtually useless”.

I stress to the Minister that it is not accurate to say that the Government have accepted the vast majority of the parliamentary commission’s recommendations. The document that was published yesterday is full of excuses and sleights of hand that pass on to the regulator for consideration firm recommendations that we made. I stress to those in another place, who may have a greater opportunity to amend the Bill, that they should read the document that was published yesterday with a careful eye to see what has been accepted and what has not.

[Greg Clark]

The right hon. Gentleman is not giving the response a fair reading. First, not all of the recommendations were addressed to the Government. Some of them were addressed to the regulators. Secondly, some of the recommendations that were made to the Government have been taken forward through actions that can be taken by the regulators. When colleagues look at the response, they will see that it is a broad endorsement of what was an excellent report.

[Mr McFadden]

Perhaps the Minister and I have different interpretations of the word “broad”. He may be able to persuade the hon. Member for Chichester (Mr Tyrie), on the basis of some warm words, that these are great concessions, but I remain to be convinced.

The Government have a great deal more to do to convince Parliament—this House and the other House—that they endorse the vast majority of the recommendations. The more one reads the report that was published yesterday, the less one comes to that conclusion. I hope that those who are in a position to amend the Bill in future take heed of that and press with greater determination than Members of this House the amendments that would fully and faithfully implement the recommendations of the Parliamentary Commission on Banking Standards.

Financial Services (Banking Reform) Bill

Greg Clark Excerpts

Monday 8th July 2013 Commons Chamber

Objectives of Prudential Regulation Authority

[The Financial Secretary to the Treasury (Greg Clark)]

I beg to move amendment 1, in page 1, line 20, after ‘body’ insert ‘or of a member of a ring-fenced body’s group’.

[Mr Speaker]

With this it will be convenient to discuss the following:

Government amendments 2 to 4.

Amendment 17, in clause 4, page 9, leave out lines 8 to 21 and insert—

‘Reviews

142J Reviews of ring-fencing

‘(1) The Treasury must make arrangements for the carrying out of reviews of the effects of the operation of the provision made by or under this Part in relation to ring-fenced bodies, including ring-fencing rules made by the PRA and the FCA. Such arrangements shall be set out in a statutory instrument subject to approval by resolution of both Houses of Parliament.

(2) The first review must be completed before the end of the period of two years beginning with the date on which section 4 of the Financial Services (Banking Reform) Act 2013, so far as it inserts this section, comes into force.

(3) Subsequent reviews must be completed before the end of the period of two years beginning with the date on which the previous review was completed.

(4) Not less than nine months, nor more than 12 months, before the date on which a review is due to be completed, the PRA and the FCA must publish a joint assessment of the impact of the operation of their ring-fence rules.

(5) For the purposes of this section a review is completed when the report of it is published.

142JA Persons by whom reviews are to be conducted

‘(1) The Treasury shall appoint not fewer than five persons to conduct a review of whom one is to chair it.

(2) A person may not be appointed to chair a review unless the chairman of the Treasury Committee of the House of Commons has notified the Treasury that, in the chairman’s opinion, the person is likely to act independently of the Treasury, the PRA and the FCA in carrying out the review.

(3) The persons appointed to conduct a review must include at least one person with substantial experience in central banking or financial regulation at a senior level.

(4) The reference in subsection (2) to the Treasury Committee of the House of Commons—

(a) if the name of that Committee is changed, is to be treated as a reference to that Committee by its new name, and

(b) if the functions of that Committee (or substantially corresponding functions) become functions of a different Committee of the House of Commons, is to be treated as a reference to the Committee by which the functions are exercisable;

and any question arising under paragraph (a) or (b) is to be determined by the Speaker of the House of Commons.

142JB Reports of review

‘(1) The persons appointed to conduct a review must give the Treasury a report of the review.

(2) The report must include an assessment of the extent to which the provision made by or under this Part in relation to ring-fenced bodies, including ring-fencing rules made by the PRA and by the FCA, are facilitating the advancement by the PRA of the objective in section 2B(3)(c) and by the FCA of the continuity objective.

(3) If the report is made before section 4 of the Financial Services (Banking Reform) Act 2013, so far as it inserts section 142JD, has come into force it must also include a recommendation as to whether or not section 4 of that Act should be brought into force to that extent.

(4) The report must include—

(a) recommendations to the Treasury as to the provision that should be included in orders and regulations under this Part, and

(b) recommendations to the PRA and the FCA about the provision that should be included in ring-fencing rules.

(5) The Treasury must lay a copy of the report before Parliament and publish it in such manner as it thinks fit.’.

Government amendment 6, page 9, line 21, at end insert—

‘Group restructuring powers

142JA Cases in which group restructuring powers become exercisable

(1) The appropriate regulator may exercise the group restructuring powers only if it is satisfied that one or more of Conditions A to D is met in relation to a ring-fenced body that is a member of a group.

(2) Condition A is that the carrying on of core activities by the ring-fenced body is being adversely affected by the acts or omissions of other members of its group.

(3) Condition B is that in carrying on its business the ring-fenced body—

(a) is unable to take decisions independently of other members of its group, or

(b) depends on resources which are provided by a member of its group and which would cease to be available in the event of the insolvency of the other member.

(4) Condition C is that in the event of the insolvency of one or more other members of its group the ring-fenced body would be unable to continue to carry on the core activities carried on by it.

(5) Condition D is that the ring-fenced body or another member of its group has engaged, or is engaged, in conduct which is having, or would apart fro m this section be likely to have, an adverse effect on the advancement by the appropriate regulator—

(a) in the case of the PRA, of the objective in section 2B(3)(c), or

(b) in the case of the FCA, of the continuity objective.

(6) The appropriate regulator may not exercise the group restructuring powers in relation to any person if—

(a) either regulator has previously exercised the group restructuring powers in relation to that person, and

(b) the decision notice in relation to the current exercise is given before the second anniversary of the day on which the decision notice in relation to the previous exercise was given.

(7) In this section and sections 142JB to 142JG “the appropriate regulator” means—

(a) where the ring-fenced body is a PRA-authorised person, the PRA;

(b) where it is not, the FCA.

142JB Group restructuring powers

(1) In this Part “the group restructuring powers” means one or more of the powers conferred by this section.

(2) Where the appropriate regulator is the PRA, the powers conferred by this secti on are as follows—

(a) in relation to the ring-fenced body, power to impose a requirement on the ring-fenced body requiring it to take any of the steps mentioned in subsection (5),

(b) in relation to any member of the ring-fenced body’s group which isa PRA-authorised person, power to impose a requirement on the PRA-authorised person requiring it to take any of the steps mentioned in subsection (6),

(c) in relation to any member of the ring-fenced body’s group which is an authorised person but not a PRA-authorised person, power todirect the FCA to impose a requirement on the authorised person requiring it to take any of the steps mentioned in subsection (6), and

(d) in relation to a qualifying parent undertaking, power to give a direction under this paragraph to the parent undertaking requiring it to take any of the steps mentioned in subsection (6).

(3) Where the appropriate regulator is the FCA, the powers conferred by this section are as follows—

(a) in relation to the ring-fenced body, power to impose a requirement on the ring-fenced body requiring it to take any of thesteps mentioned in subsection (5),

(b) in relation to any member of the ring-fenced body’s group which is an authorised person but not a PRA-authorised person, power to impose a requirement on the authorised person requiring it to take any of the steps mentioned in subsection (6),

(c) in relation to any member of the ring-fenced body’s group which is a PRA-authorised person, power to direct the PRA to impose a requirement on the authorised person requiring it to take any of the steps mentioned in subsection (6), and

(d) in relation to a qualifying parent undertaking, power to give a direction under this paragraph to the parent undertaking requiring it to take any of the steps mentioned in subsection (6).

(4) A parent undertaking of a ring-fenced body by reference to which the group restructuring powers are exercisable is for the purposes of this Part a “qualifying parent undertaking” if —

(a) it is a body corporate which is incorporated in the United Kingdom and has a place of business in the United Kingdom, and

(b) it is not itself an authorised person.

(5) The steps that the ring-fenced body may be required to take are—

(a) to dispose of specified property or rights to an outside person;

(b) to apply to the court under Part 7 for an order sanctioning a ring-fencing transfer scheme relating to the transfer of the whole or part of the business of the ring-fenced body to an outside person;

(c) otherwise to make arrangements discharging the ring-fenced body from specified liabilities.

(6) The steps that another authorised person or a qualifying parent undertaking may be required to take are—

(a) to dispose of any shares in, or securities of, the ring-fenced body to an outside person;

(b) to dispose of any interest in any other body corporate that is a member of the ring-fenced body’s group to an outside person;

(c) to dispose of other specified property or rights to an outside person;

(d) to apply to the court under Part 7 for an order sanctioning a ring-fencing transfer scheme relating to the transfer of the whole or part of the business of the authorised person or qualifying parent undertaking to an outside person.

(7) In subsections (5) and (6) “outside person” means a person who, after the implementation of the disposal or scheme in question, will not be a member of the group of the ring-fenced body by reference to which the powers are exercised (whether or not that body is to remain a ring-fenced body after the implementation of the disposal or scheme in question).

(8) It is immaterial whether a requirement to be imposed on an authorised person by the appropriate regulator, or by the other regulator at the direction of the appropriate regulator, is one that the regulator imposing it could impose under section 55L or 55M.

142JC Procedure: preliminary notices

(1) If the appropriate regulator proposes to exercise the group restructuring powers in relation to any authorised person or qualifying parent undertaking (“the person concerned”), the regulator must give each of the relevant persons a first preliminary notice stating—

(a) that the regulator is of the opinion that the group ring-fencing powers have become exercisable in relation to the person concerned, and

(b) its reasons for being satisfied as to the matters mentioned in section 142JA(1).

(2) Before giving a first preliminary notice, the regulator must—

(a) give the Treasury a draft of the notice,

(b) provide the Treasury with any information that the Treasury may require in order to decide whether to give their consent, and

(c) obtain the consent of the Treasury.

(3) The first preliminary notice must specify a reasonable period (which may not be less than 14 days) within which any of the relevant persons may make representations to the regulator.

(4) The relevant persons are—

(a) the person concerned,

(b) the ring-fenced body, if not the person concerned, and

(c) any other authorised person who will, in the opinion of the appropriate regulator, be significantly affected by the exercise of the group restructuring powers.

(5) After considering any representations made by any of the relevant persons, the regulator must either—

(a) with the consent of the Treasury, give each of the persons a second preliminary notice, or

(b) give each of them a notice stating that it has decided not to exercise its group restructuring powers.

(6) A second preliminary notice is a notice stating—

(a) that the regulator proposes to exercise the group restructuring powers, and

(b) the manner in which it proposes to do so.

(7) The second preliminary notice must specify a reasonable period (which may not be less than 14 days) within which any of the relevant persons may make representations to the regulator about the proposals.

(8) The regulator must after considering any representations made in response to the second preliminary notice give each of the relevant person s a third preliminary notice stating—

(a) whether it has made any revisions to the proposals, and

(b) if so, what the revisions are.

142JD Procedure: warning notice and decision notice

(1) If the appropriate regulator has given a third preliminary notice, it must either—

(a) if it still proposes to exercise the group restructuring powers, give each of the relevant persons a warning notice during the warning notice period, or

(b) before the end of the warning notice period, give each of them a notice stating that it has decided not to exercise the powers.

(2) The “warning notice period” is the period of 6 months beginning with the first anniversary of the day on which the third preliminary notice was given.

(3) Before giving a warning notice under subsection (1)(a), the appropriate regulator must —

(a) give the Treasury a draft of the notice,

(b) provide the Treasury with any information that the Treasury may require in order to decide whether to give their consent, and

(c) obtain the consent of the Treasury.

(4) The action specified in the warning notice may be different from that specified in the third preliminary notice if—

(a) the appropriate regulator considers that different action is appropriate as a result of any change in circumstances since the third preliminary notice was given, or

(b) the person concerned consents to the change.

(5) The regulator must, in particular, have regard to anything that—

(a) has been done by the person concerned since the giving of the third preliminary notice, and

(b) represents action that would have been required in pursuance of the proposals in that notice.

(6) If the regulator decides to exercise the group restructuring powers it must give each of the relevant persons a decision notice.

(7) The decision notice must allow at least 5 years from the date of the decision notice for the completion of—

(a) any disposal of shares, securities or other property that is required by the notice, or

(b) any transfer of liabilities for which the notice requires arrangements to be made.

(8) The giving of consent for the purpose of subsection (4)(b) does not affect any right to refer to the Tribunal the matter to which any decision notice resulting from the warning notice relates.

(9) “The relevant persons” has the same meaning as in section 142JC.

142JE References to Tribunal

(1) A notified person who is aggrieved by—

(a) the imposition by either regulator of a requirement as a result of section 142JB(2)(a) or (b) or (3)(a) or (b),

(b) a requirement to be imposed as a result of the giving by one regulator to the other of a direction under section 142JB(2)(c) or (3)(c), or

(c) the giving by either regulator of a direction under section 142JB(2)(d) or (3)(d),

may refer the matter to the Tribunal.

(2) “Notified person” means a person to whom a decision notice under section 142JD(6) was given or ought to have been given.

142JF Subsequent variation of requirement or direction

(1) A regulator may at any time with the consent of the person concerned vary—

(a) a requirement imposed by it as a result of section 142JB(2)(a) or (b) or (3)(a) or (b), or

(b) a direction given by it as a result of section 142JB(2)(c) or (d) or (3)(c) or (d).

(2) The person concerned may at any time apply to the appropriate regulator for the variation of—

(a) a requirement imposed by it as a result of section 142JB(2)(a) or (b)or (3)(a) or (b), or

(b) a direction given by it as a result of section 142JB(2)(c) or (d) or (3)(c) or (d).

(3) Sections 55U, 55V, 55X and 55Z3 apply to an application under subsection (2) as they apply to an application for the variation of a requirement imposed by the appropriate regulator under section 55L or 55M.

142JG Consultation etc. between regulators

(1) Where a notice under section 142JC or a warning notice or decision notice under section 142JD relates to a requirement to be imposed in pursuance of a direction to be given as a result of section 142JB(2)(c) or (3)(c), the appropriate regulator must—

(a) consult the other regulator before giving the notice, and

(b) give a copy of the notice to the other regulator.

(2) The appropriate regulator must consult the other regulator before varying under section 142JF a direction given as a result of section 142JB(2)(c) or (3)(c).

(3) Directions given by the FCA as a result of section 142JB(3)(c) are subject to any directions given to the FCA under section 3I.

142JH Relationship with regulators’ powers under Parts 4A and 12A

(1) Subsection (2) applies in relation to—

(a) a ring-fenced body which is a member of a mixed group, and

(b) a parent undertaking of such a ring-fenced body.

(2) A regulator may not exercise its general powers in relation to the ring-fenced body or parent undertaking so as to achieve either of the results in subsection (3).

(3) Those results are—

(a) that no existing group member is a parent undertaking of the ring-fenced body;

(b) that the ring-fenced body is not a member of a mixed group.

(4) In subsection (3)(a) “existing group member” means a person who is a member of the ring-fenced body’s group at the time when the requirement is imposed or the direction given.

(5) Except as provided by subsections (1) to (4), the provisions of sections 142JA to 142JG do not limit the general powers of either regulator.

(6) For the purposes of this section, a regulator’s “general powers” are its powers under the following provisions—

(a) section 55L or 55M (imposition of requirements in connection with Part 4A permission);

(b) section 192C (power to direct qualifying parent undertaking).

(7) For the purposes of this section, a ring-fenced body is a member of a mixed group if a member of the ring-fenced body’s group carries on an excluded activity.

Failure of parent undertaking to comply with direction

142JI Power to impose penalty or issue censure

(1) This section applies if a regulator is satisfied that a person who is or has been a qualifying parent undertaking as defined in section 142JB(4) (“P”) has contravened a requirement of a direction given to P by that regulator as a result of section 142JB(2)(d) or (3)(d).

(2) The regulator may impose a penalty of such amount as it considers appropriate on—

(a) P, or

(b) any person who was knowingly concerned in the contravention.

(3) The regulator may, instead of imposing a penalty on a person, publish a statement censuring the person.

(4) The regulator may not take action against a person under this section after the end of the limitation period unless, before the end of that period, it has given a warning notice to the person under section 142JJ.

(5) “The limitation period” means the period of 3 years beginning with the first day on which the regulator knew of the contravention.

(6) For this purpose a regulator is to be treated as knowing of a contravention if it has information from which the contravention can reasonably be inferred.

(7) The requirements that a regulator may be required to impose as a result of a direction under section 142JB(2)(c) or (3)(c) include requirements that t he regulator would not but for the direction have power to impose.

142JJ Procedure and right to refer to Tribunal

(1) If a regulator proposes to take action against a person under section 142JI, it must give the person a warning notice.

(2) A warning notice about a proposal to impose a penalty must state the amo unt of the penalty.

(3) A warning notice about a proposal to publish a statement must set out the terms of the statement.

(4) If the regulator decides to take action against a person under section 142JI, it must give the person a decision notice.

(5) A decision notice about the imposition of a penalty must state the amount of the penalty.

(6) A decision notice about the publication of a statement must set out the terms of the statement.

(7) If the regulator decides to take action against a person under section 142JI, the person may refer the matter to the Tribunal.

142JK Duty on publication of statement

After a statement under section 142JI(3) is published, the regulator must send a copy of the statement to—

(a) the person in respect of whom it is made, and

(b) any person to whom a copy of the decision notice was given under section 393(4).

142JL Imposition of penalties under section 142JI: statement of policy

(1) Each regulator must prepare and issue a statement of policy with respect to—

(a) the imposition of penalties under section 142JI, and

(b) the amount of penalties under that section.

(2) A regulator’s policy in determining what the amount of a penalty should be must include having regard to—

(a) the seriousness of the contravention,

(b) the extent to which the contravention was deliberate or reckless, and

(c) whether the person on whom the penalty is to be imposed is an individual.

(3) A regulator may at any time alter or replace a statement issued under this section.

(4) If a statement issued under this section is altered or replaced, the regulator must issue the altered or replacement statement.

(5) In exercising, or deciding whether to exercise, a power under section 142JI(2) in the case of any particular contravention, a regulator must have regard to any statement of policy published under this section and in force at a time when the contravention occurred.

(6) A statement under this section must be published by the regulator concerned in the way appearing to the regulator to be best calculated to bring it to the attention of the public.

(7) A regulator may charge a reasonable fee for providing a person with a copy of the statement published under this section.

(8) A regulator must, without delay, give the Treasury a copy of any statement which it publishes under this section.

(9) Section 192I applies in relation to a statement under this section as it appl ies in relation to a statement under section 192H.’

Amendment (a) to Government amendment 6, at the end of subsection (5) to new section 142JA, insert—

‘(5A) Condition E is that the appropriate regulator judges that there are serious failures in the culture and standards of the ring-fenced body or another member of its group.

(6) When judging whether there are serious failures in the culture and standards of the ring-fenced body or another member of its group, the appropriate regulator must take account of the recommendations in the five reports of the Parliamentary Commission on Banking Standards.’.

Amendment (b), in the title of new section 142JC, leave out ‘notices’ and insert ‘notice’.

Amendment (c) to Government amendment 6, in subsection (1) of new section 142JC, leave out ‘first’.

Amendment (d), in subsection (2) of new section 142JC, leave out ‘first’.

Amendment (e), in subsection (2)(b) of new section 142JC, leave out from ‘require’ to end.

Amendment (f), in subsection (3) of new section 142JC, leave out ‘first’.

Amendment (g),  in subsection (3) of new section 142JC, leave out ‘14 days’ and insert ‘6 weeks’.

Amendment (h),  leave out from subsection (5) to end of new section 142JC.

Amendment (i), in subsection (1) of new section 142JD, leave out from ‘must’ and insert

‘At the end of the period for making representations required under section 142JC(3), the regulator’.

Amendment (j),  at end of subsection (1), insert—

‘(1A) If, following representations, the regulator makes revisions to the proposals, it must inform the relevant persons of those revisions.’.

Amendment (k), in subsection (2) of new section 142JD, leave out from ‘beginning’ to end of subsection and insert

‘at the end of the period for making representations required under section 142JC(3).’.

Amendment (l), in subsection (3) of new section 142JD, leave out from ‘require’ to end of subsection.

Amendment (m), in subsection (4) of new section 142JD, leave out ‘third’.

Amendment (n), in subsection (4)(a) of new section 142JD, leave out ‘third’.

Amendment (o), in subsection (5)(a) of new section 142JD, leave out ‘third’.

Amendment (p), in subsection (7), leave out from ‘must’ to end of subsection and insert

‘specify the period for completion of the actions required by the notice.’.

Amendment 18, page 9, line 21, at end insert—

‘Full separation

142JD General requirement of separation

‘(1) Where the members of any group include one or more ring-fenced bodies and one or more other bodies, the members of the group must, before the end of the period of five years beginning with the relevant commencement date, take steps to secure that there are no members of the group that are ring-fenced bodies.

(2) If in the case of any group steps to secure that there are no members of the group that are ring-fenced bodies are not taken within the period specified in subsection (1)—

(a) at the end of that period the Part 4A permission of each member of the group that is a ring-fenced body shall be treated as having been cancelled to the extent that it relates to a core activity, and

(b) after the end of that period the appropriate regulator must refuse to give any member of the group a Part 4A permission to carry on a core activity.

(3) At the end of the period specified in subsection (1)—

(a) section 142H(1)(b) and (4) to (7), and

(b) section 142JC,

cease to have effect.

(4) In subsection (1) “the relevant commencement date” means the day appointed for the coming into force of section 4 of the Financial Services (Banking Reform) Act 2013 so far as it inserts this section.’.

Amendment 19, page 9, line 21, at end insert—

‘Power to order full separation

142JC Power to order separation in case of particular groups

‘(1) Where—

(a) the members of a group include one or more ring-fenced bodies and one or more other bodies, and

(b) it appears to the appropriate regulator that the conduct of any one or more of the members of the group is such that there is a significant risk that the appropriate regulator will not be able to advance the objective in section 2B(3)(c) (in the case of the PRA) or the continuity objective (in the case of the FCA) otherwise than by acting under this section,

the appropriate regulator may give a notice to each of the members of the group.

(2) The notice must state that the appropriate regulator proposes to require the taking of relevant steps in relation to the group before the date specified in the notice.

(3) In this section “relevant steps” means steps to secure one of the following results—

(a) that there is no member of the group with a Part 4A permission to carry on a regulated activity of a description specified in the notice;

(b) that no member of the group is a ring-fenced body;

(c) that there is no member of the group with a Part 4A permission to carry on a regulated activity which is not a ring-fenced body.

(4) The notice must—

(a) specify a period, of not less than 3 months, during which any member of the group may make representations to the appropriate regulator in relation to its proposal, and

(b) name an independent reviewer who is to report on the conduct of the members of the group and the appropriateness of the proposal made by the appropriate regulator.

(5) A person may not be named as the independent reviewer without the consent of the chairman of the Treasury Committee of the House of Commons; and the reference in this subsection to the Treasury Committee of the House of Commons—

(a) if the name of that Committee is changed, is to be treated as a reference to that Committee by its new name, and

(b) if the functions of that Committee (or substantially corresponding functions) become functions of a different Committee of the House of Commons, is to be treated as a reference to the Committee by which the functions are exercisable;

and any question arising under this paragraph (a) or (b) is to be determined by the Speaker of the House of Commons.

(6) After receiving any representations made in relation to the proposal by members of the group and the report of the independent reviewer, the appropriate regulator must decide whether it intends to implement the proposal.

(7) If the appropriate regulator decides that it does intend to implement the proposal, it must publish notice of the proposal, and of its decision to implement it, at least 60 days before it is implemented.

(8) A person who is aggrieved by the decision of the appropriate regulator that it intends to implement the proposal may refer the matter to the Tribunal.

(9) The proposal may not be implemented without the consent of the Treasury; and the Treasury must publish their decision on any application made by the appropriate regulator for consent, together with their reasons for the decision, at least 60 days before it is implemented.

(10) Once the Treasury has consented to the implementation of the proposal and either—

(a) any reference to the Tribunal under subsection (8) has been dismissed, or

(b) the period for making such a reference to the Tribunal has expired without a reference having been made,

the appropriate regulator may implement the proposal by giving notice to the members of the group requiring the taking of the relevant steps specified in the proposal before the date so specified.

(11) If the relevant steps have not been taken by the specified date, the appropriate regulator may—

(a) in a case where the relevant steps are aimed at securing the result in paragraph (a) of subsection (3), take the action specified in subsection (12),

(b) in a case where the relevant steps are aimed at securing the result in paragraph (b) of subsection (3), take the action specified in subsection (13), or

(c) in a case where the relevant steps are aimed at securing the result in paragraph (c) of subsection (3), take the action specified in subsection (14).

(12) The action referred to in paragraph (a) of subsection (11) is—

(a) to cancel the Part 4A permission of any member of the group to carry on the regulated activity specified in the notice, and

(b) to refuse to give a Part 4A permission to any member of the group to carry on that activity.

(13) The action referred to in paragraph (b) of subsection (11) is—

(a) to cancel the Part 4A permission of any member of the group that is a ring-fenced body to the extent that it relates to a core activity, and

(b) to refuse to give any member of the group a Part 4A permission to carry on a core activity.

(14) The action referred to in paragraph (c) of subsection (11) is—

(a) to cancel the Part 4A permission of any member of the group that is not a ring-fenced body, and

(b) to refuse to give a Part 4A permission to any member of the group that is not a ring-fenced body.’.

Government amendments 7 to 16.

[Greg Clark]

This group deals with some of the recommendations of the first report of the Parliamentary Commission on Banking Standards, which was published on 21 December last year. The Government agreed to bring forward amendments on Report to implement those recommendations, and those amendments are amendments 1 to 4, 6 to 10 and 11 to 16. I will turn to them in a few moments, but the amendment proposed by my hon. Friend the Member for Chichester (Mr Tyrie) relates to his parliamentary commission’s final report on standards and culture, which was published on 19 June, and it therefore provides a perfect opportunity—as I suspect my hon. Friend intended—to say something about that further report and how the Government intend to implement its recommendations.

The Government warmly endorse the report. It is a landmark piece of work and I commend its unflinching, clear-sighted assessment of the damage done to the reputation of banking in this country and all around the world.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

The parliamentary commission requested the Government to consider giving their response—and tabling amendments —well in advance of this Report stage, yet that has been given only this afternoon. Why are we faced with having to absorb this document at very short notice?

[Greg Clark]

I pay tribute to the hon. Gentleman for the long hours he has devoted to the work of that commission. The Government did indeed make a commitment on Second Reading and before then to make use of the Bill before us to take forward the recommendations of the commission. It was always intended that that should be at the House of Lords stages of the Bill, but I will have more to say about that in a few moments. We will absolutely give the required time to consider those amendments and to make use of a Bill that is before the House, enabling us to respond rather than wait for a further piece of legislation.

The commission’s central judgment is absolutely right:

“High standards in banking should not be a substitute for global success. On the contrary, they can be a stimulus to it.”

When I visited Germany late last year, I picked up a copy of Handelsblatt and was struck by a double-page spread with a picture of the City of London and the headline, in English, “City of shame”. That shows the impact of the events of the financial crisis and subsequently on the reputation of this country’s banking system. Exactly as the commission says, if we are to restore the system’s global success, as we must, it is imperative that we improve its standards.

Therefore, in response to the commission’s report, I can confirm today that the Government will strengthen individual accountability by introducing a tough new regime that is recommended to cover the behaviour of senior bank staff; introducing new rules to promote higher standards for all bank staff; introducing a criminal offence for reckless misconduct by senior bankers—those found guilty could face a jail sentence; working with the regulators to implement the commission’s proposals on pay, specifically to allow bonuses to be deferred for up to 10 years and enable 100% clawback of bonuses where banks receive state aid; and reversing the burden of proof so that senior staff are held accountable for regulatory breaches within their areas of responsibility. We will also ask the regulators to implement the commission’s key recommendations on corporate governance. That will ensure that firms have to have the correct systems in place to identify risks and maintain standards on ethics and culture.

We will support competition in the banking sector by providing the Prudential Regulation Authority with what the commission asked for, which was a secondary competition objective to strengthen its role in ensuring that we have banking markets that benefit from the vigorous competition that delivers good outcomes for consumers. That will be in addition to the Financial Conduct Authority’s existing competition objective. In addition to introducing seven-day account switching later this year, the Government will ask the new payments regulator, once established, urgently to examine account portability and whether the big banks should give up ownership of the payment systems. The Government have also implemented the commission’s recommendation to conduct a review to look into the case for splitting RBS into a good bank and a bad bank containing its risky assets.

When the commission’s final report was published on 19 June, I undertook to provide an accelerated Government response by way of a Command Paper before the summer recess.

[Mr Love]

The press release that was—

[Mr Speaker]

The Minister may wish to reply, because it is important to be clear about the context in which the observations he is making are made. That is central to this matter, and it is difficult to rule on it unless there is some clarity on the subject. I am grateful to the right hon. Gentleman for his point of order and let us hear what the Minister has to say.

[Greg Clark]

I thought that I had explained the context at the beginning, which was that the amendment tabled by my hon. Friend the Member for Chichester deals specifically with the recommendations of the final report on the culture. As I said, I suspected that he had tabled the amendment in order to afford us the opportunity to debate these matters. I will move on to deal with the other amendments in the group if the House would prefer it.

[Mr Love]

May I seek some guidance from the Chair? I was about to ask a question pertinent to the discussion—

--- Later in debate ---

[Greg Clark]

Of course, and today and tomorrow we will go into some further detail on that point. Let me mention one such finding, however: the Government do not agree with the proposal to abolish UK Financial Investments. I will mention various others later. We brought forward the publication of the response, which, just before the report was published, was intended to take place just before the summer recess, because I thought it was germane to the discussions in the House and I encouraged my officials to work their best to try to make it available for today and tomorrow. It has been sent to Members.

Giving a Government response to an 11-month long, 571-page commission report in just 13 working days is, I think, quite an achievement and I thank my officials for losing a nice weekend watching the tennis to do that. I had hoped that it would help the debate.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

This is a very interesting situation. The Minister talks about the 13-day deadline and said that we had to get this done. Correct me if I am wrong, Mr Speaker, but I thought that the Government decided when the Report stage of a Bill was to be held, so the deadline was rather self-imposed. Why on earth are we wasting this Commons consideration of the Bill in Committee and on Report when he could not get his act together either to table amendments or to get a response together in time for us to properly use our time on Report?

[Greg Clark]

The hon. Gentleman is perfectly aware that the standard response time for a Command Paper responding to a report is two calendar months. That would have taken us into the recess, which clearly is not possible, so we would have had to respond after the recess. I think he is being churlish when I have asked my officials to move at great speed to respond in a very short space of time—13 working days—to make the response available. I thought it was better for us to have it for these debates than to have it next week or in September. I am grateful to my officials for their alacrity, even if he is not.

[Jacob Rees-Mogg (North East Somerset) (Con)]

I join my right hon. Friend in commending his officials for their amazingly speedy response. The only thing I would ask is that we should have plenty of time on Lords amendments. We had an excellent discussion in Committee, but unfortunately it was on a Bill that will be completely different from the one that is ultimately passed. To maintain the supremacy of this House, I feel it is important that we should have a proper discussion of and decision on the amendments that will be made in the other place.

[Greg Clark]

My hon. Friend, who was a distinguished member of the Public Bill Committee, is absolutely right. I have given assurances to the House before that we will have enough time to consider these very important matters, and we always have done. In Committee, we arranged things in such a way that we were able to consider every line of the Bill and every amendment and new clause with time to spare. When I saw the amendments that had been tabled, I made representations through the usual channels to extend what in the original programme motion had been a one-day Report and Third Reading. I had said that I would reflect on the volume of amendments and was able to secure an extra half day of consideration. I repeat that assurance—when the amendments return from the House of Lords, it is absolutely right that this House should have the chance to consider them all at leisure and thoroughly. My hon. Friend has my assurance on that.

Let me turn to amendments 1, 2 and 3. In Committee, I gave a number of undertakings that I would table amendments on Report. One such commitment related to the effectiveness of the ring fence, which is the common denominator of the amendments in this group. The hon. Member for Nottingham East (Chris Leslie) will immediately spot that amendments 1, 2, 3 and 4 act on a commitment I gave to the Committee that in turn reflected the recommendations of the first report of the PCBS, on which the hon. Member for Edmonton (Mr Love) and my hon. Friend the Member for Chichester served.

For Members who did not have the privilege of being part of our discussions in Committee, let me set the context. The Independent Commission on Banking set three objectives for the ring fence: first, to insulate essential day-to-day banking services against shocks originating elsewhere in the financial system; secondly, to make banks more resolvable; and, thirdly, to curtail the perceived implicit Government guarantees to banks, which follows from the first two. The Bill turns those ring-fencing objectives into law by making them part of the statutory objectives of the regulators—the PRA and the FCA.

--- Later in debate ---

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

The new structure that the Minister is outlining looks good on paper, but the key to its success is the role of the PRA. How will he stop the problem of the revolving door that arose with the Financial Services Authority afflicting the PRA, because that would completely undermine the ring fence he intends to put in place?

[Greg Clark]

The hon. Gentleman makes a good point. He will know from our proceedings during the passage of the Financial Services Act 2012 that we needed to reverse the catastrophic decision to take supervision of the banking system away from the Bank of England, which had always exercised that role with authority and commanded respect not only in this country but throughout the world. That Act corrected the situation, and the PRA is part of the Bank of England, as he knows, so we have restored that authority.

[Guy Opperman (Hexham) (Con)]

Does the Minister agree that higher banking standards and the PRA’s new role were enthusiastically endorsed at the multi-level banking seminar in support of regional banking that we held in Gateshead only last month?

[Greg Clark]

My hon. Friend’s ingenious intervention allows me to pay tribute to the excellent event he hosted in Gateshead at which there was palpable enthusiasm for challenger banks entering the market, especially ones with a regional focus. He and I share an ambition that the north-east should be the home of such a bank, which would do wonders for the region’s economy, with its strong, vibrant business culture. The area would benefit from the local knowledge of such an institution. The PRA and the FCA were represented at the discussion, and he is right to reflect that everyone who was present on that Friday was enthusiastic about the steps the PRA is taking to make it easier for challenger banks to come forward.

[Chris Leslie]

If the Government are so enthusiastic about the concept of regional banking, will the Minister explain to the hon. Member for Hexham (Guy Opperman) why their report, which came out at lunchtime, explicitly rules out any review of a structural arrangement involving regional banking for the Royal Bank of Scotland?

[Chris Leslie]

Perhaps the hon. Gentleman did not hear me first time round. I am tempted to repeat myself, but it is important that he realises that his right hon. Friend the Minister has ruled out such an arrangement for RBS.

[Greg Clark]

The right way to approach this is to make it possible for regional banks to enter the market across the board, which is precisely what the PRA is doing. It has reduced the demands that entrant banks must satisfy to establish themselves as a business and speeded up the authorisation process, which is all to the good.

[Guy Opperman]

Does the Minister recall that in April last year, the Labour party, taking its lead from the hon. Member for Nottingham East (Chris Leslie), who is sat in a sedentary, chuntering position on the Opposition Benches, voted against the implementation of the competition regulations that would have made regional banks happen?

[Mr Speaker]

Order. The notion of somebody sitting not in a sedentary position is a challenging one, but I am grateful to the hon. Gentleman for raising his point while on his feet, rather than from his seat.

[Greg Clark]

It is certainly true that the hon. Member for Nottingham East is seated, and it is also true that he was chuntering. My hon. Friend the Member for Hexham (Guy Opperman) has done the House a service in reminding it of the voting record of the hon. Member for Nottingham East, seated or otherwise.

The amendments clarify that the PRA must seek to minimise damage to the continuity of core services caused by the failure of a ring-fenced bank or any other member of its corporate group; an investment bank could, for example, suffer losses that threatened the whole group with bankruptcy. Amendment 1 requires the PRA to minimise the harm to the continuous provision of core services caused by the failure of other group members, as well as of the ring-fenced bank itself.

Amendment 2 clarifies that the failure of a group company includes its insolvency. Amendments 3 and 4 reflect those same changes in the remit of the FCA, in the unlikely event that the FCA ever became the prudential regulator of any ring-fenced bank. I hope that the House will welcome those amendments, which the Committee that scrutinised the Bill and the Parliamentary Commission on Banking Standards suggested.

[Mr Love]

I thank the right hon. Gentleman for being so generous in giving way. I want to take him back to the discussion about regional banking, because one of the parliamentary commission’s recommendations was that the Government should consider measures to break up RBS into regional banking. I seek his reassurance that the Government have not forgotten that recommendation.

[Greg Clark]

It delights me to hear the hon. Gentleman refer to today’s publication; it confirms what I thought and hoped, which was that the publication would inform the debate. I think that tomorrow we will come on to clauses that deal with precisely those matters.

[Caroline Lucas (Brighton, Pavilion) (Green)]

Does the Minister understand the disappointment of those, including me, who believe that the proposals do not go far enough, and that we should look at full legal separation of investment and retail banking, and not just ring-fencing? If we do not, we risk sending a message to the public that politicians still have a surprisingly high degree of trust in the very banks and bankers who caused so much harm to our economy.

[Greg Clark]

I do not agree with that. We will come on to talk about what the commission referred to as the electrification of the ring fence, and whether it is appropriate to have a power to break up the whole system, so I will address that in a second, if I may. Amendments 6 to 10 concern that electrification of the ring fence, to use the memorable phrase of my hon. Friend the Member for Chichester—or, I dare say, the whole commission.

[Mr McFadden]

The Minister is being generous in giving way. I would like to take him back to the intervention by my hon. Friend the Member for Edmonton (Mr Love). Will the Minister confirm that paragraph 5.11 of the publication that his Department published today states:

“The Government does not believe that the case for breaking RBS’s core operations into multiple entities meets the objectives of maximising the banks’ ability to support the British economy”?

In layperson’s terms, the Government have today rejected the notion that their review will look at regional banks, as distinct from a good bank/bad bank split. Is that how we should read that?

[Greg Clark]

No. The right hon. Gentleman has not got it quite right. We are absolutely enthusiastic about creating regional banks, and the exchange that I had with my hon. Friend the Member for Hexham, and the changes made by the regulator to the approvals process, underline that. The right hon. Member for Wolverhampton South East (Mr McFadden) asks a specific question about whether RBS, in which we, of course, have a very substantial stake, should be broken up in that way. It is important that we have regard to value for the taxpayer. I suspect that we will talk about these things tomorrow, but I confirm that it is the Government’s view that we should not damage the potential value to the taxpayer in that way.

As members of the Bill Committee will recall, I made a commitment to introduce on Report amendments to implement electrification, and here they are. The amendments give powers to the regulator, with the consent of the Treasury, to require a group to separate completely its retail and wholesale banking operations. The regulator would be able to require the group either to sell its interests in ring-fenced or non-ring-fenced entities, or to transfer specified businesses to outside ownership. The regulator will be able to require separation if it is satisfied either that the group’s ring-fenced bank is not sufficiently independent of the rest of the group or that the conduct of any member of the group is such that it undermines the regulator’s ability to achieve its new statutory objective to ensure the continuity of core services.

The amendments set out a process for the exercise of that power. The first step is that the regulator must notify all affected members of a group that it is minded to exercise its powers and how it proposes to do so. The affected bank has the right to make representations following the receipt of each notice. Following that stage, the regulator is required to allow members of the group at least a year to take action to rectify the position. If, after that period, the regulator wishes to proceed it must issue a warning notice before a requirement to separate is imposed. The regulator would then allow five years to complete the separation required in line with the disposals required under competition law, particularly state aid interventions.

As the parliamentary commission recommended, the Treasury’s approval is required before that action can be taken. We agree with the commission that providing for a deterrent against any bank that seeks to game or evade the ring fence is a sensible reinforcement in keeping with the recommendations of the Independent Commission on Banking. Government amendments 11,12, 13 and 14 make technical adjustments to ensure that all the necessary components of structural reform comply with the ring fence and are brought within the scope of the ring-fencing transfer scheme.

[Richard Fuller (Bedford) (Con)]

I am grateful to my right hon. Friend for his clear explanation of how the ring fence will work. He is discussing time frames that make sense in benign economic circumstances, but some of the problems with the interaction of retail and investment banking came about in circumstances of great financial trauma. Is he confident that the measures he has proposed will work in those circumstances as well?

[Greg Clark]

My hon. Friend makes a good point. The use of state aid is often a response in the context of difficult circumstances. That was certainly the case in the financial crisis, and it happens in other industries as well. Five years is the standard period for these arrangements to be executed or completed, and that is the reason, anticipating an intervention from my hon. Friend, that period was chosen. I dare say, however, that that there can be reflection on that: my hon. Friend the Member for Chichester may have a different view that he may wish to share with the House later.

Government amendments 15 and 16 reflect concerns expressed both by the Commission and in Committee that the use of ring-fencing transfer schemes to restructure groups could provide unscrupulous banks with an opportunity to shirk their responsibilities, such as liability with past misconduct. The requirement for PRA approval is a substantial safeguard against that, but Government amendment 16 requires that before the PRA can consent to a ring-fencing transfer scheme it must commission an independent report to assess whether anyone other than the bank itself would be adversely affected by the transfer. Government amendment 15 requires the PRA to “have regard” to that report in deciding whether to approve a ring-fencing transfer.

The hon. Member for Nottingham East will of course have more to say about amendments tabled by the Opposition, but his first amendment was debated extensively in Committee. It requires a review of ring-fencing every two years. I am certainly not set against an independent review. Indeed, the Bill builds in future reviews, including the PRA being able to report annually on the operation of the ring fence, and being able to report every five years on whether the detailed rules it has made are still delivering the objectives of the ring fence. Requiring another review specifically to look at the case for full separation risks in many ways achieving the opposite of the Bill’s intention, which is to secure consensus, as far as that can be established, and to provide for a stable regulatory structure.

It would be paradoxical for such a review to be confined to looking at ring-fencing or full separation, but not any other remedy for deficiencies that the review might uncover. Amendment 18 is identical to an amendment that was debated in Committee. The Government’s position is clear: in the Bill, we are following the advice of the commission chaired by Sir John Vickers, which considered the case for full separation—that relates to the point made by the hon. Member for Brighton, Pavilion (Caroline Lucas)—and rejected it. It is a different policy. I know that it has some distinguished advocates, but it is a different policy. Of course, any future Government could adopt it, but they should do so properly, through thorough analysis and following parliamentary and public scrutiny.

It is worth reminding ourselves briefly of the history of the proposals before us. They were not invented during the past few weeks or months. They go right back to 2010, when the Government established the Independent Commission on Banking under the chairmanship of Sir John Vickers. The commission produced three reports, instigated two public consultations, considered 1,500 pages of written submissions and hosted more than 300 separate meetings. The Government produced a response and a White Paper, on which they again consulted fully before coming to Parliament. At each stage there was full cost-benefit analysis. Now in Parliament each detail of the policy is being debated—and has been debated in Committee—and in many cases improved.

--- Later in debate ---

[Mr Love]

The parliamentary commission consulted widely and there was considerable concern about the weaknesses and the ring-fencing that had been suggested by Vickers. That resulted in a proposal for electrification. Is the right hon. Gentleman secure in the view that we have electrified the fence enough on the basis of the amendments he is proposing today?

[Greg Clark]

I will be even more secure when I have persuaded the hon. Gentleman, as I hope to do. He, being a fair man, will reflect on the fact that his distinguished commission undertook pre-legislative scrutiny of the proposals made by Sir John Vickers and his commissioners. Sir John did not recommend that there should be the power to separate. In fact, he has been persuaded by the institution-specific power of separation that his commission proposed, but has reflected in evidence to his commission that to go further and introduce a system-wide power is a separate matter and should come before Parliament in an explicit way rather than, as would be the case here, through a statutory instrument following an independent review.

The proposals before us, most fair-minded colleagues would concede, fall very far short of the degree of scrutiny and rigorous assessment, including by the hon. Gentleman’s commission, that the current proposals have gone through. Parliament would not have the ability to present amendments to proposals and at that stage to take account of the recommendations even of the independent review. So the procedures proposed are less than adequate to the scale of the policy change that would be embodied in them. If we are to be serious about the need to respect the views and the role of Parliament—as I have made clear, these are important matters—we must accept that the only right and proper and democratic way of legislating for full separation is by coming back to Parliament with full primary legislation, including the rigorous process that we have undertaken.

[Stephen Barclay (North East Cambridgeshire) (Con)]

I very much agree with the case that my right hon. Friend is making. Is there not a danger with a fixation on structure, which the review advocated by the Opposition would promote, that we work less on making the existing electrification work and getting the behaviours right, and instead allow a focus on structure and the further review? As with any structure, it is possible to ratchet up, but it is also possible to ratchet down, and it would allow a nibbling of the electrification, which would not be constructive.

--- Later in debate ---

[Greg Clark]

My hon. Friend has some experience of these matters. I think that the debates about structure are important and that structural reform will make an essential contribution to making the system safe for the purposes of taxpayers. However, having looked into it, I think that to have hanging over the system the sword of Damocles—the origins of the metaphor were the subject of an erudite debate in the Commission—would introduce an uncertainty into proceedings that might distract from the important work of implementing the existing provisions.

[Mr Love]

The reality is that we are seeking to balance conflicting issues. One respects the Government’s view that Parliament should be supreme in this regard, but the alternative argument, of course, is the one that the Minister has just put to us, about the sword of Damocles keeping the feet of the banking industry to the fire. We know that the industry has not been entirely with us in relation to setting up the ring-fencing arrangements and that it needs some encouragement to make it work effectively.

[Greg Clark]

The hon. Gentleman gets to the nub of the matter, because of course any attempt to evade the ring fence or to nibble the electric fence, as dangerous to health as that would be, could be undertaken only on the part of a particular institution, not the system. That is why we agreed with the commission’s report—it was not part of the Vickers report—that it was necessary, for exactly the reasons the hon. Gentleman mentions, to have a sanction against that type of behaviour, and that is what we have done.

A further power to separate the whole system could not be triggered by an individual and could not punish the actions of an individual institution. That is why I think that is a very different policy. It commands the support of some very distinguished and influential people. The Glass–Steagall approach, which of course the policy is modelled on, has its place in history, but I think that history also reveals that the Glass–Steagall arrangements were not immune to the very dangers my hon. Friend the Member for North East Cambridgeshire (Stephen Barclay) pointed to. It is a good job my hon. Friend the Member for Chichester secured his amendment to the programme motion, because we are having a very interesting debate, but I would like to conclude, because there are other amendments that hon. Members would like to speak to. On that point, however, I urge the House not to allow at this stage the introduction of a very different policy into the Bill.

Let me turn to the amendments tabled by my hon. Friend the Member for Chichester, who I dare say will speak for himself in a few moments. I know that some of them were tabled to afford us the opportunity to discuss his commission’s report, and I think that this is now established as a very relevant opportunity. I will of course listen carefully to what he says. I am confident that the amendment the Government have tabled in response to the commission’s report can be improved during the Bill’s passage to take into account whatever concerns are embodied in his amendments.

Amendment (a) to Government amendment 6 would add a new condition under which the separation powers could be used: namely, when the regulator

“judges that there are serious failings in the culture and standards of the ring-fenced body or another member of its group.”

Of course, under the Government’s amendment the regulator would have the ability to separate the group if its conduct threatened to undermine the regulator’s ability to meet its continuity objective, but I think that, as the commission’s extensive deliberations showed, cultural failings might be present in banks that can result, for example, in significant harm to individual consumers or groups of consumers but nevertheless do not have systemic consequences. I think that the relevance of the proposed new power to take into account the culture is adequately covered under the provisions already in the Bill.

Amendments (b) to (p) concern the procedures for exercising the separation power. They would remove from the process: the second and third preliminary notice stages that extend to six weeks the time for banks to make representations; the requirement that the group be given a minimum of five years to effect separation; and the requirement for Treasury consent before a group can be required to separate. It is, of course, essential that a clear process be established for the exercise of the separation power. As I have said, I will listen carefully to what my hon. Friend says about reducing the number of warnings, which I think is the essence of what he is recommending, and about departing from the standard practice in financial services of allowing 14 days, rather than the six weeks that he proposes, for representations.

[Mr McFadden]

I want to compare the Minister’s six-year timetable with the one that the hon. Member for Chichester (Mr Tyrie) has set out in his amendments. What would be the difference for an individual group between moving to full separation under the Minister’s timetable and its doing so under the timetable that would apply if the amendments tabled by the hon. Member for Chichester were accepted?

[Greg Clark]

As I have said, I shall hear from my hon. Friend. I do not think there is any difference of intent between us; we have accepted the commission’s recommendation. We have taken the period of five years because that is the standard time for the disposal of assets when they are required through competition law proceedings.

I am certainly concerned, however, that the banks should be given a chance to address the concerns, and that chance would be lost if amendment (k) were followed. If amendment (p) were followed, we would deny banks the five-year period for divestments to be made that is typical under competition law. But as I have said, I remain open to considering these matters further during the Bill’s passage. I am confident that it can be improved to meet the concern, as I know that there is no disagreement in principle between me and my hon. Friend on the issue.

The requirement for Treasury consent follows from the commission’s own recommendation, without which the regulator could, on its own initiative, instigate radical structural reforms.

Amendment 19 is retabled as an alternative to Government amendment 6, providing for the specific full separation power. As I explained in Committee when the amendment was previously debated—when the hon. Member for Nottingham East was channelling my hon. Friend the Member for Chichester, as he frequently did—it suffers from technical flaws. That is why I committed to introducing a Government amendment to deliver its objectives.

Specifically, amendment 19 is rather vague, giving the regulator power to require a group to take steps to separate without specifying what those steps are. It also lacks provision for a minimum period over which groups must execute a separation, leaving the risk of the regulator’s ordering a rushed disposal that could be destabilising to the system.

The Government amendment is intended to address those technical problems, although I have signalled our willingness to make any further improvements that may be necessary as the Bill progresses. I hope that my hon. Friend the Member for Chichester will be able to withdraw his amendment at this stage, pending further consideration.

[Chris Leslie]

It is characteristic of the Minister, with his emollient tones, sometimes to give the impression of smoothing over all these issues. He is ever the swan on the surface, yet beneath the water line the chaotic paddling is evident from the Government’s response to the work of the parliamentary commission. That response was rushed out today, in accordance with the Government’s own artificial deadline of a debate on Report, which they could have scheduled so that we had time to consider where the Government stood on some of these issues.

Even the Minister’s hon. Friends did not seem to realise what he was recommending today on RBS—ruling out a review that might consider a regional banking network, for example. The message did not get through to the Government’s own Back Benchers. I do not know whether that is a whipping issue or whether other channels need to be reviewed, but something is not quite right. It would be remiss of me to pass over the fact that we are debating this Bill on Report having had in Committee no consideration of all the hard effort undertaken by the poor souls who had to serve on the Parliamentary Commission on Banking Standards. Hours, days, weeks and months of their lives went by, never necessarily to be regained. There was no response to that in Committee and there has been barely a nod in its direction on Report.

[Greg Clark]

This is uncharacteristically ungenerous of the hon. Gentleman, as in Committee he tabled a whole set of amendments drafted by the parliamentary commission, saving him, I dare say, a lot of weekend drafting work. I think he might want to thank members of the commission and note that the recommendations from its first report were exhaustively considered in Committee.

[Chris Leslie]

The right hon. Gentleman is right. Of course I thank them, but it is my sympathy for them that now requires us to speak in their favour. The Government ignored all those amendments. It is true: I have been channelling the wishes of the hon. Member for Chichester (Mr Tyrie) and, indeed, the rest of the commission. They dutifully drafted all those amendments and they were then totally ignored by the Government. The Government set up the parliamentary commission. They did not want to go for a broader independent inquiry; they wanted to take this route. They set up all the members to do all the work and have all the hearings. Their final report was more than a ream of paper— 570 pages. Not a jot of those amendments was accepted by the Government in Committee, and, significantly, the same applies on Report.

Let us be clear about this. House of Commons consideration of this Bill is not worth anything; all the business is to be done in the other place by members of the commission who are there. It will go to them in October, presumably they will consider it in October and November, and then we will get a little chunk of time at the end of the process for Commons consideration of Lords amendments. I hope that the Minister will allow us a little more latitude to have a look at what is put into the Bill at that time.

[Greg Clark]

I think the hon. Gentleman is labouring under a misapprehension. The amendments in this group are a response to the commission’s first report. The essence of this Bill is the ring-fencing of the banking system. This is a response to the independent commission to which the parliamentary commission responded. The amendments implement these changes. The Government always made it clear that the final report on standards and culture would be taken on board during the Bill’s passage through the House of Lords. The situation is exactly as envisaged and perfectly orderly. He is not seeing the wood for the trees. This is about the ring-fencing of banks.

[Chris Leslie]

Well, pardon me for daring to suggest that the Government have got this totally upside down and the wrong way round. They set up the commission and asked its members to come forward with recommendations, as they dutifully did, for which I thank them, and then ignored them in the Commons Committee and Report stages. That means that it is all to be debated in the detail that is required when the Bill reaches the House of Lords.

--- Later in debate ---

[Mark Garnier]

I, too, pay tribute to the members of the parliamentary commission, with whom I served for 10 months. Huge numbers of people were involved as well as huge amounts of effort. One statistic that has not come out yet is that we apparently asked 9,198 questions of our witnesses, so we certainly got stuck into it in a big way. It was truly a tour de force, as Members can see from the 571-page document I have in my hand.

The Commission was an incredibly important piece of work. We have been trying to deal with the fundamental loss of trust in banking and what pleased me enormously was that one of the passages quoted relatively early in the report, on page 83, was from one of our big banks, Lloyds Banking Group, and was about trust. Let me read it out:

“Trust goes to the heart of what banking is about. Customers need to be able to trust their bank to look after their savings. They need to trust their bank to manage their financial transactions smoothly; trust that their bank will be diligent and not provide levels of credit or mortgage that are more than the customer can re-pay; and trust their bank to provide products that genuinely meet the customer’s needs and which the customer can understand.”

That has been crucial to the problem we have had: of course we considered LIBOR and all the various scandals, but at the end of the day there is a fundamental mistrust between the consumer, who is not very well educated, and the banks, which are well educated. In part, we are seeking to resolve that misbalance of trust.

I urge the Minister not to be shy in legislating to help build that trust. As TheCityUK wrote, again cited on page 83:

“The sustainability of the UK’s position as the pre-eminent global financial services centre is grounded in the integrity of its financial markets and probity of market participants.”

That is key to the debate about ring-fencing, criminal sanctions and the various other important measures available to the Government in the arms race in which we are involved—ranging from the gun locker of the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso) to my offshore nuclear deterrent—to ensure that the people who run the banks pay attention and take seriously their role in looking after those institutions. I speak as someone who spent 17 years as an investment banker and 10 years as a hedge fund manager. As I have now gone into politics, I have the hat trick of holding the three most unpopular jobs on the planet—I plan to become a traffic warden when I leave this place.

We hear threats from the banking community that if we over-regulate, that community will get up and go, but there are two incredibly important points to consider, the first of which is: where would the banks go? They do not have a big range of options. A bank that wanted to go to the far east, for example, would face several problems, not least of which is the fact that were HSBC to up sticks and go to Singapore—this would apply to the remainder of the major four banks—its balance sheet would be about 1,100% of the country’s gross domestic product, and no regulator would enthusiastically receive a bank of such a size. Secondly, we should remember that several factors in this country are incredibly important to banks, such as our robust, transparent and tried-and-tested legal system. We are a member of the single market, which gives banks access to the whole of Europe; we speak English, which is the language of the international business and banking community; and we are also at the centre of the time zones.

Our regulatory regime is also absolutely crucial. A great deal of our work was to try to get rid of the implicit guarantee whereby the Government are seen as standing behind the banks in case they fall over. That guarantee can be worth anything up to £40 billion a year, depending on the stage of the cycle, and that gives the big four banks an advantage. The problem is that that anti-competitive advantage represents another barrier to entry for challenger banks, so we need to get rid of the implicit guarantee. However, by regulating firmly, well and efficiently, and by winning the race to the top on regulation, we will replace the implicit guarantee with a cheaper funding rate for the UK banks, because they will see large amounts of international capital coming to the UK to take advantage of the protection that our regulatory and legal regimes provide. I therefore urge the Minister not to be shy about coming forward and to consider carefully the amendments proposed by my hon. Friend the Member for Chichester (Mr Tyrie), which reflect the recommendations of the Parliamentary Commission on Banking Standards and have a great deal of merit.

[Greg Clark]

We have had a fascinating, high-quality debate. I am grateful for the contributions of all hon. Members, but especially for those of the Members who served with such distinction on the Parliamentary Commission on Banking Standards: my hon. Friend the Member for Wyre Forest (Mark Garnier); the right hon. Member for Wolverhampton South East (Mr McFadden); the hon. Member for Edmonton (Mr Love), who is no longer in the Chamber; the Chair of the commission, my hon. Friend the Member for Chichester (Mr Tyrie); and the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso). With the help of Members of the other place, they laboured hard to produce a report that not only will stand the test of time, but will be a reference document for many generations in this country and throughout the world. The report will be seen as a major contribution to addressing the less tangible aspects of culture and standards, which is something that has eluded regulators throughout the world. I am sure that the report will be read with a great deal of interest.

The report’s central judgment includes the acute point that for too long questions of standards and culture have been contracted out to regulators, rather than being an intrinsic part of the institutions themselves. That aspect of the report stood out as the essence of the required change, because it should no longer be simply for the regulators to decide on such questions, as the culture throughout the institutions should reflect the correct standards that we expect.

I spoke at length at the beginning of the debate, so I shall deal briefly with several of the points that hon. Members raised. I was asked about timetabling. On Second Reading, I made two commitments, the first of which was that the House would have adequate time to consider all provisions, including amendments proposed by the parliamentary commission. I hope that hon. Members will concede that I have been true to that in Committee and throughout our two days on Report, and I repeat that that commitment remains as the Bill goes to the other place. I also said explicitly on Second Reading that the recommendations of the commission’s final report on standards and culture would be reflected in amendments to be made in the House of Lords. Of course, those measures will subsequently be considered by this House, so our intention has not changed. It was right to expedite the response to the report so that it was available much more quickly than usual. It has been useful in informing today’s discussions, as will be the case tomorrow, and it will be available to their lordships during their consideration of the Bill.

The hon. Member for Nottingham East (Chris Leslie) asked several specific questions, including about whether Government amendment 8 contained a typo. It does not, but it would require more than the four minutes remaining for me to explain why, so I hope that he will trust me on that at least. The upper tribunal is not a new invention; it is the court that considers all references made under FSMA for adjudication.

The hon. Gentleman made a substantive point about the notice period, as did my hon. Friend the Member for Chichester and the right hon. Member for Wolverhampton South East. I was asked whether an elongated process in some way diminishes the effectiveness of the ring fence. Our intention was—and is—to implement faithfully the parliamentary commission’s recommendation on the institution-specific ring-fencing rule. As I assured my hon. Friend the Member for Chichester, I am confident that if the Government’s proposals can be improved during the Bill’s passage, all his concerns about the use of the power can be addressed. In fact, the procedure under consideration has been described as pressing the nuclear button.

[Mr Tyrie]

I think that was a concession, so I am extremely grateful to the Minister. I am also grateful that the response was published at the earliest opportunity—it could have been delayed, so at least we have had a chance to look at it. That shows us that the Government are listening, and the response will be helpful in the other place. Above all, it gives us more confidence that there will be full implementation of the proposals. The Government have indicated their general support for them, so I hope that we will not have to go through a rigmarole to get the necessary provisions on the statute book.

[Greg Clark]

I am grateful for my hon. Friend’s intervention. I always take praise when it comes—especially from him, as he is often very flinty in issuing it. I do not think that what I said amounts to a concession, because it has always been our intention to reflect the spirit of his suggestion.

Let me make an important point on the process that my hon. Friend describes. In his amendments, he does not have a time period in mind for the exercise of the power.

[Mr McFadden]

rose—

[Greg Clark]

I have one minute left, so the right hon. Gentleman will understand that I cannot give way. The proposal that there be five years to implement the action has been discussed with the regulators; it reflects best regulatory practice. In point of fact, if there were no time limit in the Bill, which is what one of the amendments tabled by my hon. Friend would ensure, that would render the use of the power without limit, so I think we are in the same territory—the right territory—in wanting to specify that there should be a limit. It should be clearly understood that there is a limit to the use of the electrification powers, in terms of a timetable, and a deadline for action. Of course it is right that the regulators should advise on the appropriate use of that. In terms of the amendment—

--- Later in debate ---

It is incumbent on us as policy makers in this House, and on regulators who have responsibility for the issue, to look at Britain’s specific circumstances as a global financial centre with a medium-sized economy, so that we keep the strengths that that entails without the rest of the economy, taxpayers or the Government being held to ransom.

[Greg Clark]

It is a pleasure to respond to this important debate. First, I should like to correct a grievous omission in my previous remarks. During my paean to the members of the parliamentary commission, I neglected to include my hon. Friend the Member for Wyre Forest (Mark Garnier), who was behind me and therefore was invisible to me. He has been in the Chamber throughout this debate and his contribution is no less sterling and distinguished than those of the other parliamentary commission members whom I did mention. I apologise.

The new clause requires the Treasury to set a leverage target for the

“overall leverage of the…financial system”.

I welcome what I think is the spirit of the new clause. Problems with risk weights clearly contributed to the financial crisis; the right hon. Member for Wolverhampton South East (Mr McFadden) made that point. Those problems must be addressed if risk weights are to have a place in the regulatory regime of the future.

I also share the concerns raised by the parliamentary commission about the importance of having a robust minimum leverage ratio required by the regulator. As my right hon. Friend the Member for Wokingham (Mr Redwood) said, there is clearly support among Members on both sides of the House for that notion. We have consistently argued for a binding minimum leverage ratio to be implemented internationally, to supplement the risk-weighting requirements.

As has been said, the Basel III standard of 3% will come into force in 2018, following an observation period beforehand and a final calibration of the leverage ratio in 2017. Of course, national supervisors must be equipped to respond to new risks as they emerge in banks and financial markets. The PRA, in this country, is empowered to ensure that banks’ risk models are appropriately conservative and, where necessary, to set higher capital requirements.

As every hon. Member will be aware, the PRA has recently announced that major UK banks need to set out and implement plans to improve their leverage ratios and so to migrate further towards the new Basel III standard even now. The FPC has already been given a number of directive powers, including a counter-cyclical capital buffer and the power to set time-varying sectoral capital requirements. The Government have also made clear their intention to give the FPC the power to vary through time the baseline leverage ratio requirement, always subject to its never being below the requirement determined by Basel III.

Let me address the new clause, in whose support the hon. Member for Nottingham East (Chris Leslie) spoke. The first thing to say is that it requires the Treasury to give the Bank of England a target for the overall leverage of the UK’s financial system; I think I understand the hon. Gentleman correctly when I see an allusion to the inflation target perhaps given to the Bank of England. I have to say, though, that that pulls in the opposite direction to the parliamentary commission’s recommendation, which calls for the FPC—in other words, the Bank of England—to be given the power to determine leverage ratios. In its first and final reports, it noted that

“the leverage ratio is a complex and technical decision best made by the regulator and it certainly should not be made by politicians.”

The new clause cuts across the views of the parliamentary commission, if delivering that recommendation were its intention.

Moreover, the new clause would require a target for the overall leverage of the UK’s financial system. Again, this is not quite the right approach. Banks should certainly be subject to individual leverage requirements to ensure that they have sufficient capital to absorb losses, but an average leverage ratio for the entire financial sector could serve to conceal the risks in particular institutions. It would seem perverse to require the Treasury to set a target for overall leverage and so create an onus on the FPC to allow some banks to remain highly leveraged as long as this is offset by smaller or more conservative institutions running with less leverage. A system-wide average, or net, leverage ratio might be of little value in tackling excesses of leverage, and it could be positively counter-productive.

Another feature of the new clause would be dangerous. The proposal for a target requires the FPC to pursue action to meet the target. It is suggested that the FPC take action to increase leverage in the system when it is less than the target level that the Government are required to set. I am not clear how or why the FPC would want to do that. The target approach seems to me to be wrong. Financial stability is not like price stability; it cannot be boiled down to a single, symmetrical target. As a recent Bank of England paper concluded:

“No single set of indicators can ever provide a perfect guide to systemic risks, or to the appropriate policy responses…Judgement will, therefore, play a material role in all FPC decisions and policy will not be mechanically tied to any specific set of indicators.”

We need to apply caution in any consideration of enshrining in law a system that focuses on one target for systematic financial stability. Goodhart’s law is relevant in these circumstances:

“When a measure becomes a target, it ceases to be a good measure.”

I therefore hope that on reflection the hon. Gentleman will withdraw his new clause.

[Chris Leslie]

I am grateful for the quality of the debate that has taken place in the short time we have had.

I am glad that we tabled this new clause on leverage, because otherwise we would not have had the opportunity to start to focus on the issue. I understand what the right hon. Member for Wokingham (Mr Redwood) said about getting the balance right and the care and caution that are needed as we move towards what we want, which is a better, safer level of leverage within the overall system. It is worth reiterating that we want to do this only to make sure that banks do not over-extend themselves and become so lopsided that when they topple over they are not able to absorb the losses should things take a turn for the worse.

I am particularly grateful for the contribution from my right hon. Friend the Member for Wolverhampton South East (Mr McFadden), who rightly pointed out that saying that we need action either on leverage or on getting lending going into the real economy does not represent opposite poles of the argument. It is not as clear as that. Some are arguing not only that the extra capital could be lent out but, as he said, that compensation ratios, as they are sometimes known—the remuneration levels within banks—could also be tackled. Given that we are the major financial centre worldwide, we should not just be leaving this to international regulators. We certainly should not be leaving it to the European Union completely to decide these things for us. We have a duty in the UK to make sure that we think these things through properly and spend much more time on them.

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[Mr Ruffley]

I shall make two brief points. First, I congratulate my hon. Friend the Member for North East Cambridgeshire (Stephen Barclay) on drawing attention to something very important to the House—that it is this Government who have got behind the idea that there should be, in certain limited circumstances, a custodial sentence for breach of a new criminal offence. It is worth reminding ourselves that although the crash occurred in autumn 2008, the then Labour Government had 2009 and the first five months of 2010 to do something about it, but it is this Government who have made their intentions clear regarding custodial sentences. For that, Ministers should be congratulated.

The second and final point is that we cannot let this debate pass without reminding ourselves of the fact that existing criminal law was not being enforced in relation to the allegations of LIBOR rigging. The Parliamentary Commission on Banking Standards came into existence as a direct result of the allegations about rigging the LIBOR market. The custodial sentences available for those activities were not seriously taken on board by the Serious Fraud Office, for in 2011, it is said, the SFO inquired into whether existing criminal offences had been committed by those manipulating the LIBOR market, and concluded that they had not.

This time last year the Chancellor of the Exchequer told the House that he would ask the Serious Fraud Office to take another look to see whether criminal offences had been committed under existing criminal law. Leading counsel advised me and I said in the Chamber that there were, on the face of it, breaches of section 2 of the Theft Act 1968 through false accounting, the common law offence of conspiracy to defraud, breach of the Proceeds of Crime Act 2002, and possibly even breaches under the Fraud Act 2006.

Although the Minister clearly cannot intervene in investigations by the Serious Fraud Office because prosecutorial authorities are quite separate from the Executive, which has always been the case and will, I am sure, continue to be the case for centuries to come, it would be useful for him to indicate what the state of play is in relation to breaches of existing criminal law that might give rise to custodial sentences in the case of those engaged in LIBOR rigging.

[Greg Clark]

It is a pleasure to respond to this well-informed debate. I start by welcoming the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) to the Opposition Dispatch Box. She proved rather more persuasive in Committee than her hon. Friend the Member for Nottingham East (Chris Leslie), as I was able to accept at least one of her amendments. I think that it was a single word, but I am sure that it was an excellent one, historically so.

We are considering a large group of amendments, as has been evident in the range of the debate, and it has given us the opportunity to have an initial discussion of the parliamentary commission’s recommendations on questions of individual accountability and corporate governance. We agree with the recommendations that have been made. The commission’s report has at its heart the essential point that the UK banking system depends totally on the trust it commands. If it cannot count on the trust of its customers, it cannot truly serve businesses and people, which is the only purpose of banking. If it cannot count on the trust of businesses and people in this country, it cannot possibly sustain a reputation for international pre-eminence, which is what we all want to see.

The commission’s conclusions are comprehensive. Never again must directors of banks be able to preside expensively over failure or misconduct and then claim that they simply did not know what was going on. Never again must banks simply, as the commission sees it, contract out ethical judgments to the regulator. Never again must senior bankers be able to make one-way bets with the money of ordinary working people and walk away financially unscathed, leaving taxpayers with a crippling bill.

Specifically, we will enact the new senior persons regime that the commission proposes and introduce new banking standards rules to require high standards among all staff. We will introduce the new criminal offence of reckless misconduct that has been suggested for senior bankers. We will reverse the burden of proof so that the bosses are held accountable for breaches within their areas of responsibility. We will work with the regulators to implement the commission’s proposals to defer bonuses for up to 10 years and to enable 100% clawback of bonuses where banks receive state aid. We will ask the regulators to implement the commission’s recommendations on corporate governance to ensure that firms have the correct systems in place to identify risks and maintain standards of ethics. As I have said in earlier debates, where legislation is required, we will propose amendments in the autumn in the other place.

Let me deal specifically with today’s amendments and new clauses. New clause 2 was ably moved by my hon. Friend the Member for North East Cambridgeshire (Stephen Barclay). In a powerful speech delivered without notes, he explained that the new clause seeks to reverse the burden of proof when taking action against a senior person where there are regulatory failings by a firm in that person’s area of responsibility. As the hon. Member for Edmonton (Mr Love) pointed out, that is one of the parliamentary commission’s recommendations, but I think that my hon. Friend campaigned for that even before the commission reported, drawing on his own experience as a regulator. I say to the hon. Member for Kilmarnock and Loudoun that my hon. Friend needs no tawdry trinket of the Government accepting his amendment to be lionised in this House for the contribution he has made. We very much accept the thrust of his recommendation and that of the parliamentary commission.

The PCBS put it this way:

“Senior managers of banks will no longer be able to hide behind an accountability firewall, where they are too distant from the consequences of their responsibilities to be held directly accountable when things go wrong.”

At present, the regulator has to be able to show that the person knew what was going on. That cannot be right. It means that while regulators can take action against the firm’s junior employees who might be implicated, they are unable to pin responsibility on someone higher up the chain just because, as the Commission put it, the e-mail trail goes cold when it reaches their level of management. I will take on board the case my hon. Friend made on whether it is necessary to require the corporate offence to be committed, and we will reflect on that before the Bill goes to the Lords.

New clause 3 reproduces a new clause that was considered in Committee, when I predicted that the parliamentary commission would have something to say about the approved persons regime and a code of conduct. My predictions proved uncannily accurate. The commission’s recommendation that the approved persons regime should be replaced is, of course, a major feature of its report, which we accept. We will bring forward amendments to introduce the new senior persons regime to replace FSMA’s approved persons regime. As the commission recommends, the new regime will ensure that key responsibilities within banks are assigned to specific individuals who are aware of those responsibilities and have formally accepted them. As part of the regime, we will implement the commission’s more detailed recommendations, including reversing the burden of proof, which I have just mentioned, and allowing regulators to make the approval of senior persons subject to conditions and time limits.

The regulators will also be able to make rules about the conduct of senior persons, replacing the current system of statements of principle and codes of practice. The new clauses will put in place new arrangements for regulating the conduct of individuals who are not covered by the senior persons regime. The arrangements will include provisions to allow the regulators to make rules covering financial services employees whose appointments are not subject to regulatory pre-approval.

My hon. Friend the Member for Bedford (Richard Fuller) is absolutely right: it is plausible that the deficiencies in the approved persons regime may affect not just the banking sector but other parts of the financial services industry. The relevant FSMA provisions apply to all parts of the sector, so it might be operationally simpler to apply the regime to the industry as a whole. The Government will consider, with the regulators, whether the relevant provisions should allow for the wider application that my hon. Friend has in mind.

As the hon. Member for Kilmarnock and Loudoun said, new clause 3 would not deliver the extent of the reforms that the Parliamentary Commission on Banking Standards is seeking. On that basis, I hope that the hon. Lady will withdraw the new clause.

New clause 4 also reflects a debate that we had in Committee. The commission did not recommend the introduction of a fiduciary duty or duty of care, but it did recommend an alternative route. It said that the Department for Business, Innovation and Skills should consult on changing the duties of the directors of ring-fenced banks, to prioritise the safety and soundness of the firm first, over the interests of shareholders.

The Government strongly believe that bank directors must maintain an awareness of their responsibility to safeguard the security and stability of the firm. Changes that will support a focus on stability and soundness—for example, giving directors specific duties under the proposed senior persons regime—will help. We will indeed consult on whether changing directors’ duties will help further to accomplish those intentions. I hope that that will reassure the hon. Lady.

A duty of care specifically towards customers across the financial sector is difficult to make sense of, as we have previously discussed. Would it mean, for example, that a bank had a duty of care not just to its own customers and those of its competitors but, as the proposed duty is to customers across the financial sector, the customers of an insurance company with no relevance to the firm itself? The new clause has been tabled to confirm the Government’s intentions on the wider duties of banks and their directors, and I hope that the hon. Lady is satisfied.

New clause 5 refers to remuneration. Of course, the Government have already taken significant steps in that regard; under the remuneration code, large parts of bonuses must be deferred and paid in shares, and cash bonuses must be limited. However, it is a question of not just the quantum of bonuses, but how they are decided in the first place. Next year, shareholders will have a binding vote on executive pay.

We strongly support the proposals made by the parliamentary commission. In particular, the commission has recommended that the regulator should have the power to require a substantial part of remuneration to be deferred for up to 10 years when that is necessary for effective long-term risk management. There is a subtle but critical distinction between the commission’s recommendation and the new clause. The power should be with the regulator to determine whether and in what circumstances to require extended deferral; my hon. Friend the Member for North East Cambridgeshire made that point.

The commission has commented that no single deferral period is appropriate but that it should be determined in accordance with the nature of each business and the risks and activities of the employee in question. The Government agree and will ask the PRA to consider the powers that it has to extend deferral periods as part of its consultation on implementing the commission’s proposals. I hope that that commitment will reassure the hon. Member for Kilmarnock and Loudoun and that she will not feel the need to press the matter further.

New clause 7 deals with protections for whistleblowers. As the hon. Lady said, we debated this in Committee, so I do no want to detain the House further today other than to reassure her that, as I explained on that occasion, these provisions already exist in legislation. Disclosures about criminal offences are already covered by the Employment Rights Act 1996. Disclosures about regulatory breaches are covered by FSMA. This proposal would cover, for example, disclosures about the breaches of the regulatory requirements in relation to the ring-fence. I assume that the second requirement is designed to give effect to the commission’s proposal that a non-executive board member, preferably the chairman, should be given specific responsibility under the senior persons regime. Again, the powers to enact this are already available to the regulator under FSMA, and we have indicated that we support the thrust of these recommendations.

--- Later in debate ---

[Chris Leslie]

When?

[Greg Clark]

This summer.

New clause 11 concerns the new criminal offence of reckless misconduct recommended by the parliamentary commissioner. As we have already announced, we agree with the commission’s recommendations and will over the summer draft amendments to create such a legally watertight criminal offence, including compliance with the European convention on human rights. As my hon. Friend the Member for Bedford suggested, the commission did not recommend retrospectivity, and these provisions are intended to enact its recommendations. I hope that he will understand that.

My hon. Friend the Member for Bury St Edmunds (Mr Ruffley) was absolutely right to point out that it was of course this Government who first raised the possibility of criminal sanctions for managerial misconduct in July last year. We are grateful to the commission for its extensive work. We will follow its advice on misconduct committed by persons covered by the regime that is being set up. The commission noted the legal challenges involved in mounting a successful prosecution, but we absolutely agree that the creation of this offence should be justified by the signal that it sends and the potential deterrent effects it can have. We have to make it clear that reckless behaviour by those in charge of our banks cannot be tolerated.

New clause 13 proposes to create a new financial services crime unit. A similar amendment was discussed at some length in Committee. I can assure hon. Members that the Government fully recognise the importance of tackling financial crime. There is to be a dedicated command within the new National Crime Agency responsible for directing the national response to economic and financial crimes. The economic crime command will have a clear remit to reduce the threat from economic and financial crimes, working collaboratively across the different sectors. Substantial progress has already been made in establishing the National Crime Agency and driving early operational success against criminals who seek to engage in economic and financial crimes.

The Government accept the broad recommendations of the parliamentary commission on each of these matters. We will be acting quickly to take the opportunity afforded by this Bill to make amendments that are legally watertight and likely to pass into law in the early part of next year, just six months after the parliamentary commission’s extensive report. In acting in this way, we are keeping faith not only with the recommendations of the parliamentary commission but with the urgency of the need to enact these reforms, which I commend to the House.

[Stephen Barclay]

We have had a full and constructive debate that builds on the cross-party nature of the work of the banking commission. That has been reflected in the consensual tone of hon. Members’ speeches. I am very reassured by the comments of my right hon. Friend the Minister about the Government’s willingness to look at the outcome that new clause 2 seeks, which is in line with the comments made by Members across the House. For that reason, I will not press the new clause to a vote but ask leave to withdraw it.

Clause, by leave, withdrawn.

New Clause 4

Duty of Care

‘At all times when carrying out core activities a ring-fenced body shall—

(a) be subject to a fiduciary duty towards its customers in the operation of core services; and

(b) be subject to a duty of care towards it customers across the financial services sector.’.—(Cathy Jamieson.)

Brought up, and read the First time.

Question put, That the clause be read a Second time.

Finance Bill

Greg Clark Excerpts

Tuesday 2nd July 2013 Commons Chamber

[The Financial Secretary to the Treasury (Greg Clark)]

I think that the hon. Gentleman will find that I went to a comprehensive school in Middlesbrough, not to Eton.

[Geraint Davies]

I am sorry that the right hon. Gentleman no longer has any school friends. Those who have abandoned the communities from which they came have proposed legislation to punish the poorest and reward the richest, which is a great shame. It is not too late for the Minister to think again about what is fair and right in distributive economics.

The reality is that the marginal impact of this change on the competitiveness of the City of London is very small indeed; it is not a serious argument. I can imagine the greed-fuelled lobbyists who come here on behalf of the City to demand an extra £145 million being the sort of people who say, “Oh, well, we have got to give these people more money, because otherwise they will leave the country.” We have heard all that before. In any case, many of those individuals have all sorts of tax havens, about which the Government pay lip service to investigating.

At the same time as we hear alleged concerns about those rich people avoiding tax, the Government say to them, “I’ll tell you what; here’s another 5p off the income tax.” People sometimes ask why there has been a 64% increase in bonuses this year. Could it be because the Government have provoked it, as people move their income from a tax year where they pay 50p to a tax year where they pay 45p? It was completely predictable, and it was even factored into the Treasury figures in the form of behavioural changes. The perverse thing was to hear the argument, “Oh, well, we are going to move to 45p instead of 50p because more money can be raised that way. Look, we are going to encourage our mates to move all their money to save tax”—[Interruption.] That proves that it is an absolute farce.

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[Geraint Davies]

It is interesting to see that the hon. Gentleman has changed from his red braces to blue braces—and very nice, too! I obviously do not regard the whole City of London and the banking community as parasites, as they are a major engine for exports, growth and productivity in Britain. The issue is about managed capitalism and what is the acceptable face of capitalism. It seems to me that many people on the hon. Gentleman’s side are not at all concerned, as more and more money is given to people who have already acquired enormous pots of money.

The distribution of income has shifted massively since 2010. We have seen the incomes of a large number of people in the top 10% growing by 5.5% each year over the past two years—at a time when most people have had pay cuts or pay freezes, certainly in the public sector, or lost their jobs. We have heard the Government boasting—this is their latest creative thought—that an extra 1.2 million people are in jobs, yet that has been contradicted by the Office for National Statistics. Even if there were another million extra people in work, with no extra growth and no extra output in the economy, productivity is going down and things are not going well. Nevertheless, the answer from the Government is still to give more and more money to the richest people and less to the poorest, and that is supposed to get us out of the mess, but it does not.

This stamp duty on transactions is the tip of an iceberg. I am sorry, Mr Deputy Speaker, that I have come on to describe the entire iceberg rather than the tip at the top, which we are talking about. It is important for people to stand up and be counted on this issue. There is no justification for these extra few buckets of money being thrown in the direction of those who have most. There is a great need for a more balanced growth strategy, whereby there is investment in infrastructure across the piece and where the opportunities for tax and spend are more fairly spread, so that together we can build a future that works and a future that cares—a one-nation Britain of which we can all be proud. I do not think that this suggestion makes sense, so I am very much in favour of putting a halt to this £145 million handout to people who are already rich, as it will not make any appreciable difference to the competitiveness of the City of London.

[Greg Clark]

This has been an astonishing debate. I have a lot of time for the hon. Member for Nottingham East (Chris Leslie), but he must have been pretty dozy in recent months if he thinks that this is a Budget measure that has emerged by stealth having hitherto been hidden from view, because it was given considerable prominence in the Chancellor’s Budget speech. The Chancellor said, in the Chamber,

“I also want Britain to be the place where people raise money and invest. Financial services are about much more than banking. In places such as Edinburgh and London we have a world-beating asset management industry, but they are losing business to other places in Europe. We act now with a package of measures to reverse that decline, and we will abolish the schedule 19 tax, which is payable only by UK-domiciled funds.”—[Official Report, 20 March 2013; Vol. 560, c. 939.]

However, the measure did not only feature in the Chancellor’s Budget speech. It was the subject of a press conference, and received quite a lot of publicity on the money pages. I should have thought that the shadow Financial Secretary would be aware of that, and would know what a good reception the proposal was given in the very important financial services industry.

Many misconceptions need to be cleared up. The hon. Member for Swansea West (Geraint Davies) talked about banking, but this measure has nothing whatever to do with banking. A regrettable consequence of what has happened in recent years is that the financial services sector as a whole has too often been equated with the banking industry and associated with its frequently catastrophic misjudgments and regulatory failures, and people have been tainted unfairly by that association. Just as there are hundreds of thousands of ordinary working people employed by banks who bear no responsibility for—indeed, are sickened by—some of the misdeeds that were committed by those at the top before and during the crisis, there are people who work hard for a living elsewhere in financial services, who contribute to our national income, the taxes that pay for our public services and our foreign exchange earnings, and who have certainly not put taxpayers' funds at risk in the way that characterised the worst excesses of the banking industry.

The investment management industry in this country is a case in point. It employs 30,000 people across the United Kingdom, mostly in areas such as administration, IT and legal services. At least 10,000 of these people, who are directly employed in the sector—I am not talking about those who are ancillary to it—are based outside London and the south-east. A large number of them are concentrated in Scotland—I should have thought that the hon. Member for Dumfries and Galloway (Mr Brown) would be aware of that—and in the north-west and the north midlands. In fact, 12% of the asset management industry is in Scotland. I am amazed that the hon. Member for Nottingham East—not just as shadow Financial Secretary, but as a Nottingham Member of Parliament—did not recognise the important contribution made by investment management in his city. He should be aware that the professional services sector in Nottingham is an important component of the city’s economy.

[Chris Leslie]

The Financial Secretary is characterising the Opposition as if we were somehow denigrating the investment management community. Far from it. We are simply asking this question: where is the hardship that justifies £150 million of generosity from the taxpayer at this point in time?

[Greg Clark]

I shall come to that. The hon. Gentleman professed not to recognise the problem that existed. As I have said, given the position that he enjoys, I would expect him to be aware of the long-standing damage to the competitiveness of an industry that employs people in his constituency. There are some very distinguished firms in his constituency. The Nottingham office of Brewin Dolphin has been there for 150 years, and I think that it is a vital component of our regional economy. These are valuable jobs, and they exist throughout the country.

The British investment management industry has a strong reputation internationally, yet—here we come to the reason for the reform—since 2000, countries such as Luxembourg and Ireland have increased their market share of domiciled funds dramatically in comparison with the United Kingdom. In fact, the UK’s share of EU domiciled funds has dwindled to less than half that of Luxembourg and has been overtaken by Ireland.

What is the reason for that? It cannot be because the reputation of British fund management has declined, as many of the funds domiciled elsewhere in Europe are in fact managed remotely by fund managers within the UK. It cannot be because the fundamental competitiveness of UK financial services has declined, because we have maintained, and very often increased, our market share in other parts of the financial services industry. For example, twice as many euros are traded in the UK than in the entire eurozone. One of the principal reasons for this competitive decline is a consequence—unintended, I am sure—of a change in the tax system that was made in 1999, and whose effect everyone agrees has been deleterious.

Schedule 19 to the Finance Act 1999 imposed a special stamp duty reserve tax—SDRT—on the investment management industry when fund managers match investors leaving a fund and surrendering their units with those joining the fund and purchasing the units. Because the fund manager is not buying any UK shares, no stamp duty reserve tax is payable, but schedule 19 imposes a tax of 0.5% on the fund manager, as if the shares have been bought. Of course, whenever a fund manager buys UK shares within a fund, full stamp duty is paid. As well as being complex and burdensome—requiring frequent tax calculations and returns to be sent to HMRC—there is a major flaw with schedule 19. Anyone who does not wish to pay schedule 19 can simply invest in otherwise identical funds, have them managed by a UK fund manager, but have them domiciled elsewhere, and that is what has happened in recent years. Such a non-UK fund could hold exactly the same equities as a UK fund, and that is happening in large numbers. It could be managed by a UK fund manager, but the investor would—by investing in a fund in Luxembourg or Ireland, for instance—not need to pay schedule 19.

Why should this matter? [Interruption.] I think the shadow Chief Secretary should take an interest, since he was not aware of the problem to which this is the solution. What are the advantages of having funds domiciled in the UK? First, there are advantages in terms of jobs, particularly in the regional economy. While fund managers can operate from anywhere, most jobs in fund management come from ancillary services and the professional services associated with them. These are high-value jobs in IT, legal services and accountancy support, and they are typically in the jurisdictions in which the funds are domiciled.

Secondly, there are advantages in terms of tax revenue. Although schedule 19 imposes SDRT on fund managers matching investors for UK funds, the Exchequer would be advantaged by having more funds domiciled in the UK, as that would involve the paying of income tax, national insurance, VAT, business rates and other taxes by people who would be employed here, rather than in Luxembourg, Ireland and other countries, and corporation tax by the companies supplying ancillary services.

Finally, who pays? It is pensioners who pay. Schedule 19 does not come out of the pay of fund managers. It is a cost of business that is invariably passed on to UK investors. It comes out of the returns and lessens the funds that are otherwise available.

[Andrew Selous (South West Bedfordshire) (Con)]

My right hon. Friend is making an excellent speech and I am listening with great interest. Is there not a further point in that, given that the Government have just started rolling out auto-enrolment, many lower paid workers across the country have a real interest in the health of the fund management industries for their pensions, and probably want their money managed in the UK rather than Luxembourg?

[Greg Clark]

My hon. Friend makes an excellent point. He is absolutely right. Already 81% of investors in UK funds are pension funds or insurers, meaning that people’s income in retirement is impaired and fewer funds are available for investment in the real economy. Two-thirds of individuals approaching retirement are contributing to a pension fund from where these charges are taken, and the introduction of automatic enrolment will mean that many more ordinary working people will be saving into a pension for the first time and will be affected.

So there is a double imperative to act now to correct this situation in which funds are moving from being domiciled by choice in this country to overseas. First, any continuing loss of competitiveness by the UK fund management industry risks destroying, possibly for ever, the critical mass and prominent global position that the industry has had. Secondly, we are on the cusp of a once-in-a-generation opportunity for the UK fund management industry, and, with it, the UK economy, because in July the EU’s alternative investment fund managers directive comes into force, creating a much more effective single market across Europe in fund management. It is estimated that €250 billion of funds may be available for the UK, and other competitors, to play host to. That is to say nothing of the significant growth shown in the emerging economies, where a burgeoning middle class is looking to make investments for which the EU is an attractive home.

--- Later in debate ---

[Geraint Davies]

rose—

[Greg Clark]

I want to conclude now. I hope that the House will welcome, as commentators universally have, a significant boost to the competitiveness of a very important sector for jobs in every part of the United Kingdom. I hope that, having had the explanation, the hon. Member for Nottingham East will feel willing to withdraw the new clause and await the formal consultation, which will accompany next year’s Finance Bill.

[Chris Leslie]

You have to hand it to the Financial Secretary, because he managed to keep a straight face throughout that, but I can almost hear the thumping of those trading desks across the City of London as people are delighted at the largesse of a £150 million tax giveaway to those poor, downtrodden investment managers, who really need that helping hand just now. That £150 million is the same amount as the Government saved when they abolished the health in pregnancy grant—that was not a priority; making sure that they abolish stamp duty reserve tax on unit trust transactions is where that £150 million had to go. That is completely crazy. They cannot even agree to a distributional analysis because they know that it is the wealthiest in the society who benefit from this. Therefore, we shall be pushing new clause 11 to a Division.

Question put, That the clause be read a Second time.

ECOFIN

Greg Clark Excerpts

Tuesday 2nd July 2013 Written Statements

[The Financial Secretary to the Treasury (Greg Clark)]

A meeting of the Economic and Financial Affairs Council was held in Luxembourg on 21 June 2013 and in Brussels on 26 June 2013.

At the meeting on 26 June Ministers discussed the following items:

Contribution to the European Council meeting on 27-28 June 2013—European semester 2013

Council approved the fiscal and economic elements of country specific recommendations (CSRs) for 23 member states and also a recommendation on the economic policies for the euro area as a whole. The UK’s CSRs are broadly in line with domestic reform priorities. The Council recommendations are non-binding and there are no sanctions for non-compliance. Additionally, Council approved Council conclusions on Croatia, which joined the EU on 1 July.

Implementation of the stability and growth pact

Council adopted 15 Council decisions and recommendations on the excessive deficit procedure.

Commission/European Investment Bank (EIB) report to the European Council

The Commission/EIB presented their joint report “Increasing lending to the economy: implementing the EIB capital increase and joint Commission-EIB initiatives”. The Commission/EIB then reported to the June European Council on the implementation of the EIB’s capital increase.

Financial assistance to Ireland and Portugal

Council adopted two Council implementing decisions amending previous implementing decisions on granting Union financial assistance to Ireland and Portugal.

ECB/Commission convergence reports and enlargement of the euro area

Euro area member states adopted a recommendation in favour of a proposal to allow Latvia to join the currency union on 1 January 2014. The UK does not have a vote on the decision by EU member states to adopt the euro. Council also approved the text of a letter for the President of the Council to send to the European Council on the outcome of its discussion.

Development of policy options in the climate/energy field—follow-up to the May European Council

Following May European Council, at the request of Poland, there was a brief exchange of views on an enhanced role for ECOFIN in the debate on climate change and energy policy, as they are integral to growth, competitiveness and public finances. The presidency concluded that it would reflect with the incoming Lithuanian presidency, on the next steps for taking this forward.

ECOFIN report to the European Council on tax issues

ECOFIN endorsed this six-monthly report which ECOFIN forwards on to the European Council, summarising the progress made under each presidency on tax issues.

Report by Finance Ministers on tax issues in the framework of the euro-plus pact

ECOFIN endorsed this six-monthly report which summarises progress made under each presidency on tax issues in relation to framework of the euro-plus pact.

Proposal for a Council directive amending directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation

The Commission presented a proposal on amending the existing administrative co-operation directive. The UK could not support any aspects of the proposal that conflict with or undermine the embedding of a new global standard in the automatic exchange of information. The presidency concluded by noting that the working group will start technical work on this in July.

Banking recovery and resolution

Council held an exchange of views, with the aim of enabling the presidency to find an acceptable compromise on the banking resolution and recovery directive. However, the Council agreed to meet again on 26 June 2013 to resume discussion.

AOB: Update on legislative files

The presidency updated Ministers on the state of play of the deposit guarantee schemes directive.

At the meeting on 26 June 2013 Ministers discussed the following item:

Banking recovery and resolution

Council reached a general approach on the banking recovery and resolution directive. The compromise establishes that, through the development of a credible bail-in tool, shareholders and creditors will be first in line to bear losses when a bank fails. Insured depositors will be protected in any bank failure and the UK bank levy can act as the UK’s resolution financing arrangement. Trilogue discussions with the European Parliament and the Commission, yet to be timetabled, will commence under the Lithuanian presidency.

Finance Bill

Greg Clark Excerpts

Monday 1st July 2013 Commons Chamber

[The Financial Secretary to the Treasury (Greg Clark)]

I beg to move, That the clause be read a Second time.

New clause 6 is a technical amendment designed to give a belt-and-braces protection to prevent any possible attempt to avoid the incidence of the bank levy on the part of banks in a particular respect. Paragraph 70 of schedule 19 of the Finance Act 2011 specifies that high-quality liquid assets held by banks are not liable for the levy. This is to make sure that there is no disincentive for banks to hold assets that give liquidity protection in the event of a crisis. By their nature, the return on such assets is small, and without relief the bank levy would reduce the margins, making it uneconomic to hold such assets. It was always envisaged that the definition of assets covered would be the same as that of the high-quality liquid assets recognised by the regulator —now the Prudential Regulation Authority.

It has come to the attention of HMRC that some banks were contemplating arguing that a wider definition of assets might apply, against the intention of the original legislation. In fact, the Government do not believe that the current legislation can be interpreted in this wider way, and HMRC could and would make a legal challenge against any bank engaging in this. However, such a challenge would take some time to be heard, and in the meantime other banks could follow suit and attempt to use a wider interpretation. I hope that the House will agree that the most straightforward way to proceed is to amend the relevant Act to put the matter beyond doubt by defining high-quality liquid assets explicitly as

“assets that are eligible for inclusion in a firm’s regulatory liquid assets buffer”.

It is right that the new clause should be applicable from the introduction of the bank levy in 2011, as the Government have been clear from the outset that this was the intention. For example, the Government’s consultation document in October 2010 stated that the deduction would be for those assets

“which meet the FSA definition of high quality liquid assets for the purposes of inclusion in the liquidity buffer”.

I hope that the House will agree that it is right to move quickly to close the scintilla of a possibility that ingenious lawyers could help any bank to avoid paying its full contribution to the levy.

[Chris Leslie]

It is good to see the Minister popping up in the debates on the Finance Bill for the first time, at the eleventh hour. [Interruption.] That is not true; I apologise. He took part in Committee of the whole House, although he did not do the heavy lifting in Committee upstairs. Perhaps it seems now as though it never happened.

This is an interesting little Government new clause. Because of the hour, it would not be surprising if hon. Members’ eyes glazed over and they did not necessarily spot what is going on, but this is an admission from the Government that their bank levy has not been successful. In fact, they are having retrospectively to adjust the rules around the bank levy to make sure that they can net in the supposed £2.5 billion of revenue that the Prime Minister, no less, promised it would yield.

Let us recall the facts about the bank levy. In the last financial year, 2012-13, the bank levy did not bring in £2.5 billion, it did not even bring in £2 billion—it brought in a pathetic £1.6 billion. We should not forget that that does not include the cut in corporation tax that the Chief Secretary and others collaborating in the coalition gave away to the banks at that time. In other words, it raised a net £1.4 billion—a shortfall of over £1 billion on the amount that the Government said that it was supposed to produce. My hon. Friend the Member for Bassetlaw (John Mann), and others in the Chamber, could certainly think of ways in which £1 billion of revenue could be put to good use. That was the giveaway that the design of the bank levy set in train for the banks. It raised not £2.5 billion but just £1.4 billion in the last financial year.

It is worse than that, because in the previous financial year, 2011-12, the bank levy raised just £1.8 billion. Deducting from that the £100 million in corporation tax, it raised a net £1.7 billion. The levy has not brought in the money it should have. The Government said that it would raise £2.5 billion, but in total it has brought in £1.9 billion—nearly £2 billion—which is less than they said it would raise.

If any other Department promised to bring in £5 billion over those two financial years but raised only £3 billion, there should and would be outrage. However, given that the Treasury hide a lot of these issues in the complex lexicon of bank taxation, many would be forgiven for not spotting that this is an absolute scandal.

--- Later in debate ---

[Greg Clark]

I am glad to respond to this short debate.

I do not think that the hon. Member for Nottingham East (Chris Leslie) listened to my remarks earlier, in which I said that the purpose of the new clause was not to raise additional revenue, but to protect the assumptions that were there from the outset. It was always envisaged, going right back to the consultation documents that the Government published before introducing the levy, that the deduction had to be in line with the regulatory requirement. It was a rumour that legal advice was being taken on whether liquid assets could be deducted that went beyond that regulatory buffer which caused us, in anticipation, to close off that possibility and to emphasise that this definition was always what was intended and that there should be no possibility of wriggling out of it. I hope he would acknowledge that that is sensible.

The new clause is not one of the measures that we are taking to increase the yield of the levy. That is dealt with elsewhere. It will protect the yield that was always assumed would be made by the levy. As the hon. Gentleman raises the question of the yield, he will recall our debates in Committee of the whole House on the new clauses that I moved to increase the rate of the bank levy, reflecting our commitment to raise £2.5 billion from it. He will know that in the Budget earlier this year, the Office for Budget Responsibility made its assessments on the basis of the proposed increase in the levy that we have set out. This year, rather than raising £2.5 billion, the OBR forecasts that we will raise £2.7 billion. Next year and for every subsequent year, the OBR estimates that the levy will raise £2.9 billion. That means that we will recoup the under-collection of the bank levy. It is a new levy and it is not always possible to know exactly what such a levy will raise. It has always been clear that the Government intend it to raise at least £2.5 billion. The OBR’s central estimate is that we will more than recoup the requirement that we set out.

[Chris Leslie]

The Minister has said that there will be a £200 million increase above the £2.5 billion for this financial year. However, we have established that the Government are £2 billion behind the curve. There is £2 billion to be recouped. The Minister is culpable for the loss of significant sums of money. He has not given any commitments on that. It would be wrong if he did not go back to the drawing board and think again about this issue.

[Greg Clark]

Our commitment is clear that we will raise £2.5 billion a year. The amendments that we have made to the Bill will do precisely that. We have introduced a permanent bank levy, in contrast to the one-off tax that the Labour party imposed on the banks. During 13 years in government, the only bank levy that the Labour party introduced was, in effect, a levy by the banks on the taxpayer. This levy is the opposite of that: the taxpayer is benefiting from revenue from the banks.

It is right that we target the £2.5 billion yield that we have always had in mind. In addition, when we spot opportunities that might be taken to avoid the levy, we should close them. That is what the new clause does.

Question put and agreed to.

New clause 6 accordingly read a Second time, and added to the Bill.

New Clause 12

Anti-abuse measures

‘(1) Her Majesty’s Revenue and Customs shall review the possibility of bringing forward measures as part of the GAAR to work in conjunction with other G8 countries to require multi-national companies to publish a single easily comparable statement of the amount of corporation tax they pay in the UK.

(2) The Chancellor of the Exchequer shall review the effect of incorporating a global standard for public registration of ownership of companies and trusts via a convention on tax transparency, including a requirement on companies to publish a single easily comparable statement of the amount of corporation tax they pay in the UK, on Treasury tax receipts.

(3) The Chancellor of the Exchequer shall consider, when counteracting tax advantages arising from tax arrangements that are abusive, what steps HM Government could take, working alongside developing country governments, to assess how UK companies could report their use of tax schemes that have an impact on developing countries, and how the UK could assist in the recovery of that tax.

(4) Within six months of the passage of Royal Assent, the Chancellor of the Exchequer shall place copies of the review in the House of Commons Library, and consult with G8 countries on their effectiveness.’.—(Catherine McKinnell.)

Brought up, and read the First time.

Question put, That the clause be read a Second time.

The House divided: Ayes 231, Noes 300.