Loan to Ireland

Greg Clark Excerpts

Thursday 7th March 2013 Written Statements

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

I would like to update the House on the loan to Ireland.

Ireland completed the eighth quarterly review of its International Monetary Fund and European Union programme of financial assistance on 23 January 2013, following which the utilisation period for the sixth instalment of the UK bilateral loan began.

Upon request, the Treasury disbursed the sixth instalment of £403.37 million on 6 March 2013, with a maturity date of 7 September 2020.

The interest rate charged on the loan is calculated as set out in the loan agreement as the UK’s cost of funds plus a service fee of 18 basis points per annum, creating an effective per annum interest rate on this tranche of the loan of 2.312%. The UK more than covers its cost of funds.

The Treasury will provide a further report to Parliament in relation to the bilateral loan as required under the Loans to Ireland Act 2010 as soon as is practicable following the end of the next reporting period, which ends on 31 March 2013.

The Government believe that it is in our national interest that the Irish economy is successful and its banking system is stable. The Government continue to support Ireland’s efforts to improve its economic situation.

Financial Services (Banking Reform) Bill

Greg Clark Excerpts

Thursday 7th March 2013 Written Statements

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

I have today deposited in the Libraries of both Houses drafts of the following secondary legislation to be made under the Financial Services (Banking Reform) Bill:

The draft Financial Services and Markets Act 2000 (Ring-fenced Bodies and Core Activities) Order;

The draft Financial Services and Markets Act 2000 (Excluded Activities and Prohibitions) Order;

The draft Financial Services and Markets Act 2000 (Fees and Prescribed International Organisations) Order.

These illustrative drafts are for the benefit of Members in advance of the Second Reading of the Bill. The Government will formally publish a draft of all secondary legislation for public consultation later in the year.

Financial Services and Markets

Greg Clark Excerpts

Wednesday 27th February 2013 Commons Chamber

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

I beg to move,

That the draft Bank of England Act 1998 (Macro-prudential Measures) Order 2013, which was laid before this House on 24 January, be approved.

One of the most significant failings of the previous system for regulating financial services was the lack of clear responsibility for financial stability. It has been all too easy for the identification and management of risks to financial stability to fall in the cracks between what those organisations believed were their respective roles in protecting and promoting stability in the financial sector. That confusion was a key contributing factor to the emergence of the financial crisis in 2007. None of the institutions involved was effectively horizon-scanning to identify macro-prudential risks to stability across the financial system.

In the light of those failings, the Bank of England Act 1998, as amended by the Financial Services Act 2012, gave the Bank of England clear responsibility for financial stability. To support that objective, the Act creates a new committee of the Bank, the Financial Policy Committee, with the role of identifying, monitoring and managing systemic risks to the UK financial system. In order to carry out that role, the FPC will need macro-prudential measures to mitigate the risks to stability it identifies. The FPC will act through the regulators, which work directly with financial institutions.

The FPC will do that in two ways: first, through recommendations, which can be made to the regulators, to industry, to the Treasury, within the Bank and to other persons; and, secondly, through directions that can be given to the Prudential Regulatory Authority and the Financial Conduct Authority. The FPC’s direction power is governed by the measures set out in the order before the House. The regulators must comply with a direction, but they will have discretion over its timing and implementation method.

Before discussing the measures that will be granted to the FPC, it is worth noting that there is an international consensus on the need for macro-prudential regulation. International regulations such as Basel III and the capital requirements directive IV go some way towards establishing minimum standards while retaining room for national discretion, although areas such as the leverage ratio remain under discussion. The UK strongly supports the ability of national supervisors to exercise discretion where appropriate.

In February 2011 the Government and the Bank established an interim FPC to undertake, as far as possible, the work of the statutory FPC ahead of the passing of the relevant legislation. One of the tasks set for the interim FPC was to analyse and recommend macro-prudential measures over which the statutory FPC would have direction-making powers.

[Mr Andrew Tyrie (Chichester) (Con)]

The Minister has just mentioned the leverage ratio. There are two crucial issues: first, the leverage ratio should be firmly in the hands of the FPC, not the Government; and, secondly, the UK should be able to act unilaterally, rather than necessarily having to wait indefinitely for international agreement—we should not move at the speed of the slowest. Indeed, the United States demonstrates how necessary that is. Does the Minister agree with that sentiment and, if so, why is that not reflected in what he is announcing today?

[Greg Clark]

As my hon. Friend knows, that has been a matter of much debate in the Treasury Committee and the Banking Commission, both of which he chairs. It is appropriate to have regard to the international debate on this. There is a difference between the debate on the leverage ratio and the two other tools that we will move on to talk about, the sectoral capital requirements and the counter-cyclical buffer, over which, it has been established internationally, there should be domestic discretion. We are not at that stage with the leverage ratio, as he will know, but I can certainly confirm to the House that the Government’s intention is to provide the FPC with a time-varying leverage ratio by 2018, subject to a review by the European Banking Authority, which is planned for 2017.

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

I am intrigued by the Minister’s 2018 commitment, but would it not make good and prudent legislative sense to take the opportunity in the draft Financial Services (Banking Reform) Bill, which will arrive in the House imminently, to insert provisions that would allow the leverage ratio to be triggered sooner if there is a delay in the international discussions?

[Greg Clark]

We do not expect such a delay. The discussions are continuing and are live, as we know, so we do not expect to need that, but of course it is open to the House as it debates the Bill, presumably at some length, to keep that under review as the discussions progress.

The statutory instrument we are debating today relates specifically to the ability to set sectoral capital requirements. I will deal with that tool first before briefly covering the others. The interim FPC recommended that the statutory FPC should have a power of direction to vary financial institutions’ capital requirements against exposures to specific sectors over time. It argued that the over-exuberance that precedes crises often begins in specific sectors before spreading further. The Government agree that this targeted approach would allow these risks to be managed more effectively and proportionately than raising capital requirements more generally. The FPC has stated that it would wish to avoid what it terms an

“overly activist, fine-tuning approach”,

which should limit this risk. However, there may be times when using the tools in a granular way may be necessary, so the Government will keep the use of this tool under review to ensure that it is being used effectively and proportionately. There is also a risk that imposing sector-specific requirements could displace excessive risk into other sectors, so the FPC will need to monitor carefully the impact of any policy interventions using this tool and perhaps consider adjusting more general capital requirements if displacement turns out to be a significant problem.

I should take this opportunity to bring to the House’s attention the one change that the Government have made to the order following the consultation that we undertook on the draft version that was made available for that purpose. The current order excludes investment firms that are not regulated by the PRA from the FPC’s power. This will ensure that systemically important firms are captured while smaller firms that are not systemically important will not be subject to additional requirements.

Let me discuss briefly the other macro-prudential tools that the Government intend to give the FPC: the role of setting the UK’s counter-cyclical capital buffer; and, as we have briefly discussed, the power to intervene to limit leverage ratios. These are not covered by the draft order, but it might be useful if I provide a bit of context to the debate. The counter-cyclical capital buffer is part of the Basel III agreement, and it will be implemented in Europe by the capital requirements directive, commonly known as CRD 4. The directive aims to ensure that banking sector capital requirements take account of the macro-financial environment in which banks operate. It will be deployed by national jurisdictions when excess aggregate credit growth is judged to be associated with a build-up of system-wide risk to ensure that the banking system has a buffer of capital to protect it against future losses. Banks, building societies and larger investment firms will be required to build up capital during upturns. This will help to increase the resilience of the financial system and might also dampen the credit cycle. Unwinding these requirements in the downturn once the threat has passed might help to mitigate contractions in the supply of lending.

It is clear that with its macro-prudential focus, the FPC will be the body best placed to determine the level of the counter-cyclical capital buffer. This was supported by the results of the Government’s consultation. As the counter-cyclical capital buffer is expected to be provided for in CRD 4, on which discussions are continuing, the simplest way to incorporate it into UK law is via regulations made under section 2(2) of the European Communities Act 1972 to transpose into UK law the provisions of CRD 4 which relate to the counter-cyclical capital buffer.

It is vital that the FPC’s decisions in relation to the counter-cyclical capital buffer should be subject to comparable procedural and reporting requirements to the FPC’s other tools. Therefore, in addition to the requirements imposed by the EU legislation, the Government intend to ensure that the counter-cyclical capital buffer will be subject to the same transparency requirements as other FPC decisions, with a summary of the FPC’s discussions when taking decisions on the buffer set out in the FPC’s meeting records, and the FPC’s use of the buffer covered in the biannual financial stability report. The Government will make any necessary changes to achieve this in the regulations that incorporate CRD 4 into UK law.

The interim FPC recommended that the statutory FPC should have a power of direction to set and vary a minimum leverage ratio. The Government think that a leverage ratio could indeed be a useful macro-prudential tool for the FPC. The unweighted nature of the measure would guard against risk weights underestimating the true riskiness of assets and provide a directly comparable figure across firms. Firms’ leverage ratios were a useful indicator of failure during the last crisis, and the period immediately preceding the crisis was characterised by sharp increases in leverage. The Government strongly support the inclusion of a backstop leverage ratio in the EU prudential toolkit and consider it an essential measure to ensure that leverage remains at sustainable levels. It is clear that there is some way to go, but the review in 2017 will address that, and it will not be implemented across the EU until 2018, so we have some time to consider it.

[Mr Tyrie]

Will the Minister explain what possible logic there is to maintaining the leverage ratio at exactly the same level as a back-stop for risk weights of more than 10% as when the risk weights were set at only 8%?

[Greg Clark]

The discussions on those need to proceed separately—I think that the Financial Services (Banking Reform) Bill Committee will have some vigorous discussions—but the order relates solely to the sectoral requirements.

The Government will, of course, be able to add to the suite of macro-prudential tools in the future by further order, subject to the approval of this House and the other place. At the moment, we believe that the measures I have described are appropriate and sufficient starting points for the FPC. The Government expect the tool kit to adapt and evolve as the international debate and academic literature on the subject develops and empirical experience becomes more widely available. We expect the FPC to make recommendations to the Treasury if its macro-prudential measures require amendments or the addition of new measures is required. I hope that my explanation has been helpful.

--- Later in debate ---

[Mr George Mudie (Leeds East) (Lab)]

I rise to put two points to the House. First, I object to the statutory instrument on a matter of principle, which I will outline. Secondly, I want to ask the Minister why he included residential property among the first prudential tools. Some of the tools make sense—including commercial, and, obviously, investment and financial services—but the residential property one does not.

Specifically, I object to how we are dealing with discussion, debate and decisions on the macro-prudential tools. I have constantly raised the matter in the Treasury Committee and the Independent Commission on Banking, and I have raised it on the Floor of the House with the Chancellor. As my hon. Friend the Member for Nottingham East (Chris Leslie) said, these can be seen as boring matters, but it is accepted that they could lead to decisions that affect the standard of living of many of our constituents; affect the future of industries such as the construction industry; and affect the economy. The decisions will be taken by non-elected individuals and tonight appears to be the House’s only opportunity to debate and challenge the measures.

The matter is being dealt with by statutory instrument. In other words, we have 90 minutes to discuss the measures and cannot amend them. We can only vote against the whole measure if we disagree with it or feel strongly about any part of it. The measures are proposed by the Government. If Opposition Members have strong feelings, they have only one chance to influence the decision, and they must turn down the whole order. That is a nonsensical procedure.

I have raised the matter with the Chancellor of the Exchequer in the Chamber. He indicated that he understood the measure’s sensitivity and importance and that he had an open mind. He accepted that the usual channels would deal with it. I pay tribute to him for placing the order on the Chamber’s agenda rather than dealing with it upstairs in Committee in the normal way. That is a step forward. The FPC is made up of unelected individuals, but they set policy, so the statutory instrument is a pretty disgraceful way to deal with the matter. Statutory instruments and secondary legislation are not supposed to deal with policy or principle—they deal with measures that need to be adjusted as time passes. They are not a way to decide things of such importance.

The Treasury Committee raised the matter with the Minister when they discussed macro-economics. He seemed to accept what we said and I have a quote if he challenges me. However, his approach to the question—sadly, because he is a well regarded Minister—was this: “We’ve appointed these individuals and should not second-guess them.” That is a recipe for disaster.

The Treasury Committee yesterday heard evidence from the Monetary Policy Committee, including officers and non-executives from the Bank of England. It was a hairy meeting, because those individuals take decisions, but there was no sign that the battle of inflation is definitely winning the argument against the battle for growth. If we read the words of the former Chancellor, my right hon. Friend the Member for Edinburgh South West (Mr Darling), and see the present Chancellor, we can see the difficulty they have had in getting so-called independent bodies to accept the sensitivity of some of their decisions. It is an impossible task. The bodies shelter under their independence. Both Chancellors have experienced this, and if they want bodies to do something they feel is necessary, the issue of independence is thrown back in their face: “You gave us independence and therefore you should not interfere”. I am worried about this issue, which is why I am taking the opportunity to put it on the record.

On residential matters, to which my hon. Friend the Member for Nottingham East referred, one of the macro-prudential tools discussed in the Financial Policy Committee and dropped was loan-to-value mortgages. Most of us were pleased when that was dropped, but it was a runner and was being discussed in Financial Services Authority circles for some 18 months. I am certain, from watching the industry, that that had a great effect on the industry’s decisions—it was trying to second-guess the FSA. The business of 90% and 80% mortgages had a devastating effect on individuals and couples who were trying to buy a house and begin family life. They were unable to take that step because the regulator was signalling to the regulated that they should be going in the direction of 90% and 80% at a time when the economy was dying for the construction industry to pick up and start building houses, which would have had a roll-on effect of people buying carpets, furniture, curtains and so on. The regulator was conditioning the decisions and behaviour of the regulated—it is that sensitive.

On a higher level, we are going through this business with the Monetary Policy Committee. As someone said—maybe in a crowded House this might have an effect—when an individual or a couple cannot get a mortgage, they do not blame the building society. When the building societies say it is the Monetary Policy Committee, they come to see us and we say it is the Monetary Policy Committee. The ordinary person in the street will ask, “Who set up the Monetary Policy Committee? Who is it answerable to?” It is answerable to us, but it is not really answerable to us because there is no real opportunity to make things happen. A yearly remit from the Chancellor is hardly a procedure for democratic accountability, and we are prevented from dealing with these matters on the Floor of the House in order to indicate our displeasure and unhappiness. I see the Treasurer of Her Majesty’s Household, the right hon. Member for Uxbridge and South Ruislip (Mr Randall), a very prominent member of the usual channels sitting in the Chamber. I hope he is listening to this debate and gets people to think about it.

I want to ask the Minister why on earth residential property was placed in the initial order. This is 2013. The Minister is as anxious as I am—probably more than I am—to see houses being built and sold and the whole procedure started. There is no question of any systemic risk in the foreseeable future. Even when the problems were at their worst, there was no systemic risk, just an industry with problems. I accept that some banks that had over-extended on their loans had real problems. I accept the point about the commercial side and the likes of RBS and HBOS—it was on a greater scale and of greater concern than on the residential side—and the point about investment and financial houses. However, for the MPC to start worrying—in shades of the FSA—about systemic risk in the construction industry spreads unnecessary alarm.

[Greg Clark]

indicated assent.

[Mr Mudie]

I see the Minister nodding. I am sure that he will explain, but that is the sort of thing I am talking about. If the loan-to-value ratio had been in this statutory instrument—if the interim FPC had stuck at it—I think this place would have been full and the Minister would have had little choice but to allow the thing through. None of us could have tabled an amendment stating how important it was that the rest of it went through; as politicians and constituency MPs, we would have had to vote against the whole thing to prevent it from happening. I hope that the Minister will consider both those issues.

[Greg Clark]

Let me respond to the points made by the hon. Members for Nottingham East (Chris Leslie) and for Leeds East (Mr Mudie). They made some thoughtful points about the House’s ability to scrutinise the powers that will be available to the FPC, particularly those relating to residential mortgages. Their comments went to the heart of the dilemma behind the setting up of these institutions and powers. The purpose of macro-prudential policy is—to adopt the analogy often used—to take the punch bowl away from the party just when the guests are getting over-exuberant. For the first time, there will be a group of people with the explicit task of monitoring conditions and taking a considered view of what is in the interests of financial stability but which might not be at the forefront of the minds of the people participating, either as practitioners, commercial players or politicians.

The hon. Member for Nottingham East acknowledged the consensus on the need to set up these institutions of macro-prudential policy, but that does not take away from the fact that their establishment is designed deliberately to introduce a necessary tension into the debates. The question arises, then, of whether these powers can be exercised appropriately—for example, whether the House has appropriate scrutiny and discretion over them.

One reason why we have initially given the FPC a minimal—I think he will agree—set of powers through a statutory instrument being debated on the Floor of the House is that these things should be properly scrutinised. We timed this debate so that it could follow the hearing of the Treasury Select Committee, of which the hon. Member for Leeds East is a member and which has considered this matter in recent days. Our intention is that these things should be properly scrutinised and well considered. It is for the Government to bring forward proposals about what the tools should be. Future proposals will be put before the House, and Ministers will be accountable to the Committee and the House. Indeed, the statutory instrument is available for debate. As the hon. Members would acknowledge, we have not loaded it with so many different provisions as to give the House a Hobson’s choice.

[Mr Mudie]

As a member of the Treasury Committee, I hear it said all the time that we have the ability to scrutinise, and that people are accountable to us. That carries little weight with me; it does not impress me. This is ultimately a question of who takes the decisions when a Minister or a Chancellor—such as the last Chancellor—going through a crisis meets an unelected Governor and asks him to do something in the interests of the economy and the future of the country, and the Governor says no. That is what we are talking about.

[Greg Clark]

Let me go on to describe some of the other elements involved. I said that we had committed to bringing to the House particular measures that could be debated. The hon. Gentleman has anticipated one such possibility. He was correct in suggesting that, if we had been proposing a power over the loan-to-value rate, the House would have been substantially more occupied than it is at the moment, that such a matter would engage Members and that there would have been a fuller debate on the matter. However, this is not the only mechanism by which scrutiny can take place.

The secondary objective of the Financial Policy Committee has been mentioned. Through the scrutiny of the House and of the hon. Gentleman’s Committee, that objective has been set up, and it means that the FPC’s duty to support the court of the Bank of England in achieving its financial stability objective is subject to supporting the policy of Her Majesty’s Government, including their objectives for growth and employment. That is significant. That power is there for a reason, and we expect it to be used. It requires the Chancellor of the day to write annually to the FPC to set out what he expects it to have regard to in making its decisions. The House will have the ability through that mechanism to scrutinise and take a view on whether Ministers—in this case, the Chancellor—are giving the right directions to the Committee in terms of what it should understand the Government’s economic objectives to be. I believe that the mention of growth and employment will address one of the concerns that has been raised.

It is worth noting that the measures we are talking about relate to peacetime; they are not for use in a crisis. The Chancellor will retain the ability to give directions to the Bank in a time of financial crisis, for example, when that is in the public interest. The measures before us are for use in the normal course of events.

There will also be a requirement on the FPC to account for its decisions. It will appear before the Treasury Committee after it has held its meetings and published its reports, and it will have to explain the basis of its recommendations and directions. It has made a commitment to setting out in advance the types of indicators that it will bring to bear on those questions, so there will be no arbitrary use of discretionary powers. The committee will seek to be predictable in regard to the types of instrument that it will use.

On the format of statutory instruments, the parliamentary Delegated Powers and Regulatory Reform Committee will take a view on whether the choice of procedure is appropriate. I think that the hon. Gentleman will approve of the fact that the affirmative resolution procedure is to be used in these circumstances.

Let me address the hon. Gentleman’s point about residential property, which is of course a matter of interest to our constituents. It has been pointed out that all these matters have a bearing on our constituents. I think he would acknowledge that any review of the recent financial crisis—and, indeed, of financial crises around the world—would note that housing bubbles are often associated with the kind of over-exuberance and excess that contributes to financial instability, which the arrangements that we have in place are designed to address. It is appropriate for the powers to be there. These sectors have been debated at the European level, and this is one of a limited number of sectors for which it is anticipated that the national regulators should have a sectoral power.

I think it important to note that the power to make recommendations and give directions is available to the FPC, but that there is no requirement that it should get in the business of micro-managing these sectors. It seems to make sense, on the basis of history, for this initial set of sectors to be included. The powers are there, as I say, but there has been some debate about whether they should be more specific in respect of loan-to-value powers, which is not part of the proposals. It is no part of the Government’s purpose, as the hon. Gentleman rightly anticipates, to prevent what we hope will be an increase in home ownership and house building as a result of the order.

Let me deal with some points raised by the hon. Member for Nottingham East. He forcefully made the point that we need an explanation from the Financial Policy Committee of why it is using its powers. This should not take place in a vacuum or in secret. I completely agree, and this is provided for in the Financial Services Act, as the hon. Gentleman, a veteran of the Committee, knows. Section 9S requires the FPC to give an explanation of the reasons for its use of direction powers, and the explanation needs to be published in the financial stability report and it needs to account to Parliament for its use of the powers.

Let me pick up one of the hon. Gentleman’s earlier points, which was not quite right. He mentioned credit card repayments, for example. The powers provided for in the statutory instrument do not go into that level of detail, and the FPC will not have those powers and they are certainly not in this order—and neither are the loan-to-value powers available.

The secondary objective addresses the hon. Gentleman’s point about the necessary symmetry of these arrangements. Macro-prudential regulation is certainly about damping down excessive exuberance when it takes place, but on the other side of the cycle, by retreating from some of the provisions by varying requirements downwards, it also has the power to reverse the dampening of those sectors.

[Chris Leslie]

I am sorry, but as I read the order, I note that it says that UK firms can be required to maintain “additional” funds, but there seems to be no provision to dial it down the other way. Have I misread the order?

[Greg Clark]

What I am referring to is the fact that if the requirements have been dialled up, they can be dialled down. That will be required. The fact that they are time varying precisely reflects the different conditions that will apply from time to time.

The hon. Gentleman mentioned the exemption for small firms, and he was quite right to raise the issue of what proportion of mortgages might be covered. To be clear— when he sees my remarks, he will be clear—the exemption applies to small investment firms. It is still the case that all deposit takers and banks, including building societies, will be within the scope of the power. That contribution will be recognised.

As to whether we should take the power—either through the order or, more likely, through the Banking Reform Bill or previous legislation on the leverage ratio, which is a live issue—it is already possible by order under the Financial Services Act to make provisions to vary the leverage ratio. Such an order would, of course, be subject to prior parliamentary approval. There is no requirement for additional primary legislation; the powers will be there at the time we expect to bring the provisions into force.

The hon. Gentleman asked about the penalties for contravening the views of the Financial Policy Committee. The committee makes recommendations to the regulators, and it is the regulators—the PRA and the FCA—who are responsible for implementing them. The hon. Gentleman will know—again, from the Financial Services Act—that considerable powers are available to the FCA and the PRA, in the form of regulatory sanctions, constrictions on firms’ activities, and unlimited fines. That is why the sector regulators have the powers of direction.

The hon. Gentleman raised a geographical point, asking whether the sectoral powers could be used to specify a particular area. The answer is that they could, if there were evidence of a particular problem in a particular area. However, as he will recall, there is a general requirement for the FPC to act proportionately, and one of the principles that has been agreed is that it should not become involved in the micro-management of these matters or in close detail. I consider it unlikely that it would make recommendations on a narrow geographical basis.

I hope that I have responded adequately to the points that have been made this evening. I gather from the Whips that I may have done so to the satisfaction of the House, and I hope that it will agree to the recommendations.

Question put and agreed to.

Resolved,

That the draft Bank of England Act 1998 (Macro-prudential Measures) Order 2013, which was laid before this House on 24 January, be approved.

Terrorist Asset-Freezing etc. Act 2010

Greg Clark Excerpts

Thursday 14th February 2013 Written Statements

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

My noble Friend the Commercial Secretary to the Treasury, Lord Deighton, has today made the following written ministerial statement:

Following consultation with other relevant Departments and agencies, the Treasury is today publishing the Government’s response to David Anderson’s second report on the operation of the Terrorist Asset-Freezing etc. Act 2010. This will be laid before Parliament today as a Command Paper.

UK’s Counter-Terrorist Asset-Freezing Regime

Greg Clark Excerpts

Thursday 14th February 2013 Written Statements

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

My noble friend the Commercial Secretary to the Treasury, Lord Deighton, has today made the following written ministerial statement:

Under the Terrorist Asset-Freezing etc. Act 2010 (“TAFA 2010”), the Treasury is required to report quarterly to Parliament on its operation of the UK’s asset-freezing regime mandated by UN Security Council Resolution 1373.

This is the eighth report under the Act and it covers the period from 1 October 2012 to 31 December 2012. This report also covers the UK implementation of the UN al-Qaeda asset-freezing regime and the operation of the EU asset-freezing regime in the UK under EU Regulation (EC) 2580/2001 which implements UNSCR 1373 against external terrorist threats to the EU. Under the UN al-Qaeda asset-freezing regime, the UN has responsibility for designations and the Treasury has responsibility for licensing and compliance with the regime in the UK under the al-Qaeda (Asset-freezing) Regulations 2011. Under EU Regulation 2580/2001, the EU has responsibility for designations and the Treasury has responsibility for licensing and compliance with the regime in the UK under part 1 of TAFA 2010.

Annexes A and B to this statement provide a breakdown by name of all those designated by the UK and the EU in pursuance of UN Security Council Resolution 1373.

During this period the independent reviewer’s second annual report on the operation of the TAFA 2010 was laid in Parliament. The report made one recommendation, to which the Treasury will respond by 14 February 2013.

The following table sets out the key asset-freezing activity in the UK during the quarter ending 31 December 2012:

Coventry and Warwickshire City Deal

Greg Clark Excerpts

Thursday 14th February 2013 Commons Chamber

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

I congratulate my hon. Friend the Member for Warwick and Leamington (Chris White) on his excellent speech, and on securing a debate that is very important to his area. In the two and a half years for which he has been in the House, he has already established a reputation for being a tenacious champion of manufacturing industry and, indeed, the area that he represents. I know that his passion for manufacturing and for the creation of jobs in his area is entirely shared by our hon. Friends the Members for Rugby (Mark Pawsey) and for Nuneaton (Mr Jones). It is delightful to see them both in the Chamber.

As Members will know, the debate is very timely. The expressions of interest in the next wave of city deals were submitted just a few weeks ago. I am considering them as we speak—not at precisely this second, but as soon as I leave the Chamber I will resume my consideration of them. This bid is a tribute to the joint working and the enthusiasm that has been generated locally. The litany of different organisations that my hon. Friend the Member for Warwick and Leamington mentioned underlines the degree of support for and consensus behind what could be a major opportunity for his area, if we are able to approve this city deal.

My hon. Friends will know that I visited Coventry last month to discuss the evolution of the city deal bid, and I was particularly impressed by the level of representation from all the local authorities in the area and businesses at the highest level. Sir Peter Rigby, the chairman of the local enterprise partnership, chaired the meeting, and other business organisations were represented, as were the universities and people from right across the board. It was clear that this is a united bid, very much looking to a very positive future for the area. It was particularly impressive to see everyone working together in that way.

It was also impressive to see the laser-like focus on manufacturing and skills there. My hon. Friend is absolutely right to say that one of the proudest traditions of the area that he and his colleagues represent is that of being the heartland of British manufacturing. Far from that being a story just about the past, it is very much a story of today and of the future. The people behind this bid were prescient in emphasising that the undoubted opportunities that will flow through the increasingly internationally competitive world of advanced manufacturing can be grasped only if we make sure that the work force in the area are equipped with not only manufacturing skills, but the particular skills that the new technologies of the future in this field will offer. The support of the universities, in particular, and of the research institutions make it clear that this is a very high-quality offer that is being made.

My hon. Friend will understand that it would be invidious of me to give any kind of nod or wink to him this evening—tempting though that might be—not least because this evening’s proceedings will doubtless be being viewed by 19 other places around the country. They will be very envious of his good fortune in securing this debate, so he will forgive me if I do not do that. Let me instead take the opportunity to reflect on the city deals process and the arrangements we have put in place. I start with a point that my hon. Friend made, which is that we should recognise the importance of local strengths in the future of our economy.

Obviously, it is of prime importance that our country has the right macro-economic conditions to sustain growth and prosperity in the future. Paying down the deficit we inherited and having an economy in which international lenders can have confidence is the foundation of any future economic success. All Government Members are engaged, day after day, in making the changes necessary to secure that. However, it is also important that we have the right micro-economic conditions: a tax system that is supportive of business and enterprise, and that encourages investment; and flexible labour markets that allow people to go into the places with an expanding number of jobs and allow employers to expand employment with confidence. Again, the work being done in not only my Department, but the Department for Business, Innovation and Skills and the Department for Work and Pensions is very much geared to having those conditions in place.

If we do all that, it is still necessary to reflect that our economic prosperity ultimately depends on local places prospering. Economic growth does not happen in the abstract; it happens in particular places, when employers locate, expand their production and take on people. These are places that people can visit and address; they are tangible.

For too long—over many decades—how we have conducted our economic policy has paid too little heed to the importance of locality. It is tempting for politicians in Westminster and our officials in Whitehall to peer out from London SW1 and assume that the rest of the country is uniform, when we know that one of the glories of our country is that it is full of areas, towns and cities with proud traditions that are the foundation of our future economic success. The city deals programme is intended to ensure that that sense of place is part of our economic policy.

As soon as one considers that we should have a sense of place in economic policy, it becomes obvious that every place is different. We have already discussed the importance of manufacturing in the traditions in the west midlands, but that is true across the country. Everywhere has its local traditions and capabilities. Even cities as close together as Liverpool and Manchester are very different in their economic character, their skills, trades and industries, their politics and in almost every respect, so to treat them as if they are identical seems to me to deny them the possibility of living up to their potential and planning for the future.

The city deals programme was designed to reflect the differences between places. We started with the eight bigger cities outside London and in July 2011, when the Prime Minister asked me to become the Minister responsible for cities, we gave each of those cities the right to take the initiative and set out to negotiate what, in their view, would be the measures that would best unlock their potential. There was some scepticism at the time about whether it would be possible to break the monopoly of Whitehall in determining how things should be done, but in less than a year we were able to conclude a city deal with each of those eight places, which were transformational. In Greater Manchester, for example, £2 billion of local investment in infrastructure is being made in return for the city’s share in the resulting prosperity. In Leeds, apprentices and school leavers are being trained in the skills that the city’s future economy needs, as Leeds and the authorities around it have identified needs that should attract a particular focus.

[Mr Marcus Jones]

My right hon. Friend is making an extremely important point about locality and the need to ensure that we tailor the Government’s support package to each area. Does he agree with me that that is a far better and more effective approach than that taken by the previous Government through regional development agencies such as Advantage West Midlands? Private sector employment fell during that time rather than increasing. I appreciate that, as he has told us, my right hon. Friend will not be able to tell us the result today, but does he agree that if the Coventry and Warwickshire city deal was granted, it would be a far better step forward for the area than the previous regime?

[Greg Clark]

My hon. Friend is absolutely right. The problem was that the regional development agencies were branch offices of Whitehall in the country, which seems to be the opposite of the approach we need to liberate the entrepreneurialism and local strengths of particular areas. The areas should be coming to Whitehall, as they are—as the Coventry and Warwickshire local enterprise partnership has—and saying what they want to do. The problem with the RDAs was that it was the other way around.

The RDAs described a geography created by administrators rather than something that reflected the genuine historic and economic geography that prevails. The west midlands is one example, but the north-west is another. The identities of world-renowned cities such as Manchester and Liverpool were subsumed and became totally anonymous in the Northwest Regional Development Agency, so it is absolutely necessary to make these changes. My hon. Friend is right to point out that even in their own terms the regional development agencies were a failure because the differences between London and the south-east and the regions widened during all that time. So it was right for city deals to be a priority.

One of the contrasts between our country and other countries on the continent of Europe, for example, is that in Germany almost every German city outside the capital of Berlin has a higher income per head than the national average, whereas in this country only one of the bigger cities outside London, Bristol, is above the national average. All the others are below. On the continent, not just in Germany but in France, Italy and other countries, the powerhouses of the regional economy drive the national economy, whereas regrettably over the past 20 years ours have been lagging behind that.

[Mr Jones]

I thank my right hon. Friend for giving way again. He is making an extremely important point, which is reflected in the west midlands region, where gross value added has been on the decline since the mid-1970s, with the decline in manufacturing industry and the unbalancing of our economy. What he says is absolutely right. With the city deal that we hope to get for Coventry and Warwickshire, we could see that manufacturing base start to increase again, accompanied by an increase in gross value added and a better average income in our area, compared with the south-east and London.

[Greg Clark]

I totally agree with my hon. Friend. That is exactly the point of the city deals programme. It is designed to reflect what is undoubtedly the case, especially with the strength and breadth of the local engagement that this bid demonstrates. Who better to be able to make the decisions and the analysis of what is needed for the Warwickshire economy than the business people, the civic leaders and the leaders of some of the finest universities in the country, who are there? It is important that we build on those strengths.

[Mark Pawsey]

Does my right hon. Friend agree that it is refreshing that local people and local businesses, having determined what is best to grow the local economy, ask not for infrastructure, roads, buildings or grandiose schemes, but for investment in people and in skills that will enable the economy to grow and prosper?

[Greg Clark]

My hon. Friend accurately reflects the difference between places. In some places the pressing need is for infrastructure because they have a legacy of infrastructure that is not fit for purpose, that has been made redundant and out of date. In other places the need is to supply the skills. That is the beauty of the bid programme.

Let me say a little about the second wave of city deals. Following the success of the eight initial city deals, I was very keen that the programme should be spread to other cities and areas around the country, so we have issued an invitation to 20 more areas to make a proposition to the Government. It is important to emphasise at this stage that these are expressions of interest and will be evaluated as such. It is not the final word. Those that are invited to go forward will be asked to engage intensively with me and my officials so that we can shape a proposition that can then be put to my ministerial colleagues for approval. There will be some way to go in those negotiations. It is right to remind people locally as well as in the Chamber that this is not the last word. It is an important expression of interest, but it has a further way to go.

We have said that there is no limit on the number of city deals that we will be able to conclude. For all those expressions of interest that demonstrate potential, my ambition is that we should be able to take them forward and achieve something important with them. Having spoken in Coventry with the leaders whom my hon. Friend the Member for Warwick and Leamington mentions, I think it important that we take advantage of the focus on advanced manufacturing and on skills, and the benefit of important institutions such as the Manufacturing Technology Centre and the motor industry research centre being located there.

The prospect that is held out is for 5,000 high quality engineering jobs. I can think of no finer contribution that my hon. Friend, following his advocacy today, could give to his constituents than to inject that into the future of his economy. Without pre-empting the announcement that will be made shortly, I congratulate him on his excellent support for a very encouraging bid.

Question put and agreed to.

Infrastructure

Greg Clark Excerpts

Tuesday 12th February 2013 Commons Chamber

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

I beg to move an amendment, to leave out from “House” to the end of the Question and add:

“notes that the previous administration’s final Budget planned to cut capital investment by 6 per cent more than this Government’s latest plans, in the period 2010 to 2014; further notes that this Government has increased capital plans by £20 billion at the Spending Review and at the last two Autumn Statements, by taking tough but necessary decisions to cut current spending, with a result that public investment as a share of GDP will be higher on average over this Parliament than it was under the previous administration; further notes that this Government announced £5.5 billion of extra infrastructure investment in the last Autumn Statement, including £1.5 billion for roads, £1 billion for new schools, £900 million for science and £1.8 billion for housing and local infrastructure; further notes that it has supported the largest investment in the railways since Victorian times under the High Level Output Specification; further notes that no national infrastructure plan existed under the previous administration whereas this Government has set out for the first time a multi-year long-term strategy for the UK’s infrastructure, with over 50 per cent of the Government’s top 40 projects and programmes due to be in construction, procurement or completed by the end of 2014-15; and believes that sweeping away red tape and developing new finance initiatives such as the UK Guarantees Scheme will also support up to £40 billion of extra important projects”.

I listened attentively to the hon. Member for Leeds West (Rachel Reeves), but there is little that can be said by Labour Members that should not start with an apology. Infrastructure, more than most issues, is an area of policy in which the present is haunted by the decisions of the past. By their very nature, major infrastructure projects must be planned years in advance, capital spending budgets must be allocated years in advance and private sector investment must be secured years in advance. All those things require a Government who can look ahead, anticipate the needs of the future, and make the necessary decisions in a timely fashion.

[Rachel Reeves]

Plans do need to be made for the future, so why did the Government cancel the building of 715 schools under the Building Schools for the Future scheme when they came to power?

[Greg Clark]

I should have thought that in two and a half years the hon. Lady would have learned the lesson from that. The deficit that Labour was running was greater than the deficit in any other G7 country. We needed to sort that out, and to create confidence in our economy. If Labour Members have not learned the lesson after two and a half years, what hope is there for the future?

The economic arguments advanced from the Opposition Benches sometimes purport to draw on the wisdom of John Maynard Keynes, but Keynes recommended that Governments should run a surplus in the good times, enabling spending, especially on infrastructure, to take place in the lean years.

[Mr Binley]

The Opposition are trying to eradicate history before 2010. Will the Financial Secretary estimate what the level of their capital revenue spending would have been this year, on the basis of the mess they left us in?

[Greg Clark]

Our capital revenue spending would have been determined by a visit to the International Monetary Fund if we had followed the course set by the Opposition.

In the years prior to the financial crisis the previous Government ran the biggest structural deficit in the G7. Despite the denials of the shadow Chancellor, that is a matter of record, and the fact that he refuses to acknowledge what has now been made very clear merits an apology.

One of the most enduring mysteries of the 13 years in which Labour was in office is what they did with the money. We would think that 13 years in which they spent, taxed and borrowed like no peacetime Government before would at least have left us with an infrastructure that we could have been proud of and that would have been world-beating.

[Neil Carmichael]

Does my right hon. Friend agree that the almost 30 million jobs we now have in this country will benefit enormously from the fact that we are at last getting something done about broadband, a massively important infrastructure project? We are spending a huge amount on it, and just this week I heard about how much progress we are making in Gloucestershire.

[Greg Clark]

My hon. Friend is right. Not just in our cities, but also in our rural areas, during Labour’s 13 years in office broadband went backwards relative to the rest of the world. We are now addressing that and making progress.

[Sheila Gilmore (Edinburgh East) (Lab)]

Will the right hon. Gentleman concede that during much of the Labour Government’s period in office a good deal of debt was repaid? That was one of the things that was done, and in my constituency people can point to new schools and new buildings, so there is something to be seen. Is that not the case in his constituency?

[Greg Clark]

The hon. Lady seems to be unaware of the fact that under the last Labour Government the national debt almost trebled. That is the legacy that they left and with which this Government are dealing. Over 13 years, they borrowed so much they left us with a deficit that was as big as that of Greece, and bigger than that of Spain, Portugal or Italy.

We would think that there would be something to show for all that money spent. We would think our roads, railways and power stations would be at least as good as those of Spain, Portugal and Italy. That, at least, would be a consolation prize: modern, up-to-date national infrastructure available to support British business and help us to generate the billions of pounds we need to pay off the deficit and reduce our debts.

[Helen Goodman (Bishop Auckland) (Lab)]

I have never heard such an absurd statement in this Chamber. Of course the increase in the debt in the last two years of the Labour Government did not produce new roads; that is because it went into supporting the banks, and if we had not done that, we would have had a banking collapse.

[Greg Clark]

The hon. Lady did not hear what I said. The structural deficit the Labour Government ran was in place before the financial crisis. That is the root of the problems we now face.

I do not for a moment want to suggest those 13 years did not result in a transformation of Britain’s position in respect of infrastructure. It was transformed, all right: the quality of our infrastructure declined in relation to that of our world competitors.

[Mr Nick Raynsford (Greenwich and Woolwich) (Lab)]

Will the right hon. Gentleman address the issue of rail and tell the House what his party did about High Speed 1 and Crossrail when it was in government? Will he congratulate the last Government on completing HS1—the first new high-speed rail link to the channel tunnel, some 15 years after the channel tunnel was opened—and on starting the Crossrail scheme, which is essential to the future of London? How can he possibly repudiate that record of achievement?

[Greg Clark]

That was a good example of cross-party support, and the idea that it was some unilateral initiative by the Labour party is for the birds. We should have been more ambitious; we should have gone further and faster. It will be 15 years before we can count on the first trains running on High Speed 2. Why were those plans not advanced by the previous Government from the beginning? After 13 years we could have been looking forward to seeing progress in a couple of years’ time, rather than waiting for this Government to lay the necessary legislation.

[Mr Russell Brown (Dumfries and Galloway) (Lab)]

Perhaps I can answer the Minister’s question. The investment that the previous Labour Government put into the west coast main line was swallowing up money that could have been spent elsewhere. He is right about investment in schools, hospitals and so on, but will he tell the House what the previous Conservative Government’s idea was for funding capital projects? Am I correct in saying that it was private finance initiatives—millions spent but not a brick laid?

[Greg Clark]

It is not clear to me whether the hon. Gentleman is criticising PFI. If PFI was initiated by the previous Conservative Government, the champion of it—the party that relied on it and put it off balance sheet, and that misused it and mortgaged the future of our country—was clearly the Labour party.

After 13 years of the Labour Government our roads were more congested, our railways were creaking, house building was at its lowest level since the 1920s and electricity customers were facing black-outs for the first time since before the war. Our great cities were as poorly connected as they had been a century earlier, while across Europe and the world, new roads and railways brought cities together in 21st-century networks of prosperity. As the excellent report published recently by the London School of Economics states,

“infrastructure has been neglected, particularly in the areas of transport and energy. For example, more than a fifth of the UK’s electricity-generating capacity will go out of commission over the next decade and Ofgem…has warned of power shortages by 2015.”

That is the reflection after 13 years of neglect of Britain’s infrastructure.

[Mr Clive Betts (Sheffield South East) (Lab)]

Will the Minister give way?

[Greg Clark]

Of course I will give way to my friend the Chairman of the Communities and Local Government Committee.

[Mr Betts]

I hope to find a bit of common ground with the Minister. He knows that local authority borrowing is covered by prudential guidelines, apart from borrowing for house building, which is covered by a separate cap imposed by the Treasury. Given that housing finance accounts are now separate, if a local authority were allowed to borrow up to the prudential limits for house building, it could potentially borrow to build another 60,000 homes without any cost to the Treasury. In other countries, that would not even count as Government borrowing. Is the Minister prepared to look at that as one way of kick-starting house building and creating more jobs in the construction industry?

[Greg Clark]

The hon. Gentleman knows that it does count as Government borrowing in this country, which constrains this Government as it did the previous Government. Being a fair man he will be the first to acknowledge that the work I have been doing with our eight core cities has found innovative ways through tax increment financing and other schemes to invest in infrastructure in anticipation of some of the revenues associated with that. We are doing everything we can and have had some success in being creative in that regard.

As Europe and the developing world streaked ahead, the gulf in this country between London and the north widened under Labour. Only one of the eight largest cities outside London has an income per head that is above the country’s national average, which is in marked contrast to the norm on the continent of Europe. Seven out of the eight biggest German cities outside Berlin, and six out of the eight biggest cities in Italy, have an income per head that is above the national average. In France, that is true for half the largest cities, and for the others the figure is close to the national average. In other countries around Europe and the world, great cities outside the capital are motors of growth and drive the local economy. In this country, the legacy of 13 years of Labour is that the gulf with the north and in our cities across the country has widened and is a source of shame.

[Helen Goodman]

I am sorry to correct the Minister for the second time, but the rate of growth in the north-east went from being the lowest of the regions during the 1990s to the second highest during the last decade. Only two English regions grew faster than the national average under the Labour Government—London and the north-east.

[Greg Clark]

I do not quite understand the basis of the hon. Lady’s intervention, because the point I was making was precisely about the gulf between the capital and our provincial cities, and she has pointed out that London streaked ahead. By contrast, in other countries the performance of the regional economy kept pace with the capital, and that is something I want to champion; I want to encourage our provincial cities to be the equal of the capital on growth. I know she will recognise that in the past two years, at least, the performance of my native north-east, the place she represents, has indeed outstripped the rest of the country on creating jobs.

[Geraint Davies]

On the basis of what the Minister has said, does he agree that Wales should get its fair share of the High Speed 2 investment? It will run from the south to the north of England at a cost of £33 billion, and our fair share would be about £1.9 billion. On the basis of what he has just said, does he not agree that Wales needs a fair deal and that extra £2 billion?

[Greg Clark]

The hon. Gentleman is a fair man. He will know that the plans to electrify the Great Western railway and the railways in the valleys represent an important investment—I am sure he would acknowledge that—and a big contribution to the economic revival of Wales. It is very important that they should do that.

The divergence between London and the south-east, and the rest of the country is not a record of which to be proud. In the most difficult of circumstances, this Government are having to find the money to build the infrastructure that should already have been put in place during these years of plenty, speeding Britain to recovery. By failing to control current spending in the good times, the legacy of the previous Labour Government was not just a record deficit, but an infrastructure backlog and reduced capital budgets to pay for it. We need to invest more in infrastructure. Nick Pearce, of Labour’s favourite think-tank, the Institute for Public Policy Research, has said that the

“cut…was a decision of the last Labour government which the Coalition inherited”.

We need to remember that successful infrastructure investment does not begin with the allocation of budgets, but with clear-sighted, strategic decision making.

Let me give just two examples of the way in which Labour, over 13 years, failed to address the strategic need for leadership on infrastructure, the first of which relates to roads. When Labour was first elected, John Prescott was appointed as Secretary of State and soon took charge of transport. One of his first actions was to cancel almost all approved road schemes, all across the country, including the dualling of the A21 in my constituency. The reason was not that the Government did not have the cash. I am pleased to say that my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke) had left the economy in rude health and so they were in a good position. These road schemes were cancelled, along with many others, because John Prescott had fallen under the spell of a doctrine that said, “If you build more roads, they will only attract more traffic, so you should not build them in the first place.”

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

As I have told the Minister before, Corby, in east Northamptonshire, is the most difficult place in the country for a young person to find work. The level of youth unemployment in my constituency has rocketed. Does he recognise how completely out of touch he looks to those young people when he talks about policy 15 years ago, whatever its rights and wrongs, rather than addressing the here and now? He talks about having the political will to take forward infrastructure projects. Was John Longworth wrong—I think he was right—when he said recently, speaking for the CBI, that this Government lack the political will to drive through infrastructure projects?

[Greg Clark]

The hon. Gentleman will know that infrastructure is particularly important to Corby, and the link road that is to be built there is very important to that. He will also know that the increase in youth unemployment of 17% that happened under the Government he supported has contributed to the situation he describes.

Let me address the point of strategic leadership. How can we have long-term leadership and long-term vision for the future of our country, when important economic contributions to success, such as road schemes, are cancelled? That lunacy persisted for years, as our roads became more congested, to the detriment of the environment as well as the economy. It was not until years had passed that that nonsense was recanted by Lord Prescott, the then Deputy Prime Minister, and we decided that, after all, more traffic required more and better roads.

[Mrs Main]

Did the Minister note that the list of needs for strategic infrastructure put forward by the hon. Member for Leeds West (Rachel Reeves) did not include the requirements of the location? There is no point in our having strategic infrastructure just where there happens to be a need for jobs if it is not where we strategically need to place the infrastructure. That should be crucial to our decision making.

[Greg Clark]

My hon. Friend is right, and what she says makes the point I am making: a long-term strategic view of where we need to invest is crucial. Unfortunately, by the time the then Deputy Prime Minister had decided that we did need to have new roads after all, he had fallen prey to a new fad, regional assemblies—remember them? Having created those unnecessary and unwanted bureaucracies, they needed to be given something to do. What were they given to do? They were given the task of reviewing and prioritising every proposed regional road scheme that had previously been about to proceed. Projects that had been about to commence were delayed for years as regional bureaucrats invented methodologies to reprioritise them. The result was that, 13 years after Labour took office, the A21 road scheme in my constituency and countless other projects around the country languished undelivered.

The Opposition motion talks about dither and delay, which is pretty ripe stuff considering the sorry saga of their roads policy and, for that matter, their stewardship of British energy policy. In July 2009, after 12 years in office, the then Government announced that they expected to have to resort to power cuts in the years ahead. They even published a chart in their strategy for energy predicting an annual shortfall of 3,000 MWh by 2017—a truly shameful and damaging admission for the Government of a developed nation after 12 years in power.

How did things reach that point? As on the economy, when it came to infrastructure, the previous Administration took a typically ostrich-like pose to the challenges of the future. They knew for 12 years that, for example, most of our nuclear power stations and most of our polluting coal-fired power stations would have to close in the decade ahead—indeed, they signed the agreement to close down those power plants—but, unbelievably, by the time they finally made up their mind about nuclear new build, it was already too late to have the new stations up and running before the old ones closed down. How is that for dither and delay? They did not even get around to the long overdue reform of energy markets on which investment in new capacity depends. That surely is something that marks the record of Labour’s first and last Secretary of State for Energy and Climate Change, whose name escapes me just now.

This Government have recognised the importance of infrastructure to the long-term prosperity of the British economy in a way that Labour never understood. We have published for the first time a national infrastructure plan, comprising £310 billion of investment in the most strategically important projects—keeping in mind the point my hon. Friend the Member for St Albans (Mrs Main) made about the importance of looking ahead and looking at where those investments are needed—in sectors such as transport, energy and communications in the period to 2015 and beyond. The man who delivered the Olympics in east London with such spectacular success, Lord Deighton, is the Minister in charge of implementing that plan.

Despite inheriting the most disastrous set of public finances that any Government have bequeathed to their successors outside wartime, we are not only investing in infrastructure, but increasing that investment. Public sector infrastructure investment from 2010 to 2012 was £33 billion a year, which is £4 billion more than during the previous Parliament, and as the National Audit Office states in its report, “Planning for economic infrastructure”:

“Future investment is expected to exceed recent levels.”

Last year’s autumn statement included a further £5.5 billion of investment, including £1.5 billion for the strategic road network. That includes upgrades to the M1, the M3, the M6 and the A60 at Immingham; £378 million to upgrade the A1 between Leeming and Barton, as part of a much-needed drive to bring the A1 up to motorway standard between Newcastle and the M25; a new link between the A5 and M1; and dualling of the A30. On 27 of the road and rail schemes announced in the 2011 autumn statement either construction has already started or work is due to begin this year, including on the A453 widening, the A11 Fiveways to Thetford improvement, and the A43 Corby link road, which will be of interest to the hon. Member for Corby (Andy Sawford).

This Government are ushering in the largest programme of investment in the railways since Victorian times, with £9.5 billion of capital investment allocated from 2014 to 2019. That includes £1 billion to electrify the Great Western line between London and south Wales, as the hon. Member for Swansea West (Geraint Davies) will recognise; £500 million for the north-west and trans-Pennine electrification scheme, for which work is already under way; £800 million to electrify the midland main line and increase its speed, which I would have thought the hon. Member for Corby would welcome; and £500 million for the northern hub, which is of benefit to all the cross-Pennine services.

This Government are committed to investing in Britain’s infrastructure for the long term. The first phase of High Speed 1 will be followed by phase 2, which will revolutionise rail travel in Britain, with 211 miles of new track. I am surprised that the Opposition spokesperson, a Leeds MP, did not mention in her speech a project that will link Birmingham to Leeds and Manchester, create five new stations, and cut journey times from Birmingham to Leeds, for example, from two hours to one hour. I should have thought that the hon. Member for Leeds West would mention that. I should have thought that northern MPs would mention the cut in journey times from London to Manchester from two hours eight minutes to one hour eight minutes. The hon. Lady talks about the time it takes to build the track. If we had commenced in 1997, when Labour took power, we could be looking forward to buying our tickets for that railway now.

[Mr Rob Wilson]

My right hon. Friend is delivering a powerful response. In his list of major infrastructure projects, he forgot to mention Reading station, an £800 million investment, and Heathrow rail at £600 million. He mentioned the £1 billion electrification project to south Wales. Will he join me in asking the hon. Member for Leeds West (Rachel Reeves) to apologise for her comments about Reading UTC? It was disappointing to see her laughing at such an investment in skills when I raised it earlier.

[Greg Clark]

It is disappointing when the Opposition treat these things as matters of levity rather than of seriousness that should be pursued. I neglected to mention the improvements to Reading station only because if I were to list all the investments that are taking place, I would detain the House for longer than I have done already.

Had Labour in government taken a greater interest in the long-term future of our railways and of our cities and begun action immediately when it took office, we could have been looking at a high-speed line to Birmingham and beyond opening before the end of this Parliament. High-speed rail is a long-term project. It takes a long time to execute, but even in the two and a half years that this Government have been in office, we have increased the pace of delivery on the ground. As well as six national road schemes funded since October 2010, 17 local transport schemes approved by the Government are already under construction, including the Mansfield interchange, the Kingskerswell bypass and the Portsmouth northern road bridge, and by May 2015, 36 of these vital new schemes will be open.

We are changing the way that decisions are made in funding infrastructure investment. Why should it be the case, as it has been for the past 13 years, that our great cities should have to come cap in hand to London to beg for the investment that they need? Our programme of city deals has given the right of initiative back to the civic and business leaders of the cities themselves. Greater Manchester is, as a result, investing over £2 billion of its own resources in transport infrastructure, and it is able to do so because it has negotiated a city deal that allows it to share directly in the increased prosperity of the area that would otherwise flow to the Treasury. City deals have been struck with each of the eight biggest English cities outside London, and I am currently examining expressions of interest from 20 more cities, from Plymouth to Sunderland, from Preston to Portsmouth.

[Geraint Davies]

I thank the Minister for his generosity in giving way. He mentions the city deals, where the cities invest and get a share of the economic added value. Is that something the Government might consider for Wales so that with investment in economic development, we could get a share back and reinvest?

[Greg Clark]

There is a Government of the Welsh Assembly led by the hon. Gentleman’s party. I commend the example that we have put forward in this country. Our close working with each of the leaders of the eight cities has achieved very encouraging results to date. I dare say the hon. Gentleman can go back to Wales and commend that to his colleagues.

The way that investments can be financed has also been transformed for the better. Labour saddled future generations with PFI debts of £279 billion, of which less than £40 billion has been paid off, and which cost at least five times and often more than the original project cost of the underlying investment.

[Sheila Gilmore]

Will the Minister give way?

[Greg Clark]

I have given way to the hon. Lady.

Our programme of infrastructure guarantees has made available £40 billion to underpin important projects, of which £10 billion of investments have already been pre-qualified only months after the initiative was begun. This will unlock vital investment, such as the £1 billion extension to the Northern line in Battersea. On energy policy, our reforms are driving investment in new capacity, not only in generation, but in energy efficiency and extraction. Our energy industry is now alive again—a new start after years of neglect under Labour.

All Governments are stewards of the country that elects them. The test of their stewardship is whether they leave their country better equipped and better prepared to prosper in the future through having taken the long-term decisions on which major infrastructure investment depends. In two short years, Britain’s reputation for infrastructure has been transformed. Having plummeted down the international league table of countries rated by their infrastructure, we are now climbing it again. The rest of the world has seen this country shaking off the torpor of the past. After more than a decade of inaction, we are once more laying the foundations of the future.

[Several hon. Members]

rose—

--- Later in debate ---

[Mr Raynsford]

I put it to the hon. Lady that when she reads Hansard tomorrow, she will see some pretty clear references to going slowly and not following the advice of her Front-Bench colleague, who wants to accelerate development. He has not been very successful in doing that, but at least his heart is in the right place, and I am with him on that.

The Minister chose to present a case that was, frankly, absurdly partisan—perhaps to divert attention away from his difficulties with his own party, which does not always share his enthusiasm for speeding up the development of infrastructure. The implication that there was no worthwhile infrastructure investment under the previous Government and that the arrival of the current Government has unleashed a cornucopia of new infrastructure schemes is, frankly, risible.

Let us look at the record. I tried in my intervention to point out to the Minister that it was completely unfair to say that there had been no worthwhile investment, particularly in rail, under the previous Government. Let us look at the history of High Speed 1, the link between the channel tunnel and London. That link was not constructed when the channel tunnel was built, because the then Government, headed by Baroness Thatcher, did not believe in rail investment. The French did, and there was a high-speed link between the tunnel and Paris. The Belgians did, and there was a high-speed link between the tunnel and Brussels. But there was no high-speed link between the tunnel and London because the then Conservative Government did not believe in it. Eventually, the Major Government had a last-minute change of heart and began to recognise the importance of such a link, but they could not get it together and the scheme was in a state of financial uncertainty when the Labour Government came to power. The Minister is a fair-minded man, and I hope that he will recognise that High Speed 1, an important piece of infrastructure investment, was the achievement of the last Labour Government.

I would also like to remind the Minister about Crossrail. The scheme had been talked about for a very long time, since the mists of antiquity, but it was the Major Government who introduced a Bill to enable it to be built. However, rather characteristically of them, their political management in this place was so poor that they entrusted the project to a hybrid Bill Committee, which rejected it. So the Bill never progressed, the infrastructure was not built and, once again, it was left to the Labour Government to introduce the Crossrail scheme, to take the Bill through Parliament and to begin the work.

I give credit to the current Government, because they have sustained the investment in the Crossrail scheme. I am glad that they have done so, but it is risible to argue that everything being done today is wonderful and that nothing good was done before. As the Minister must recognise, the Crossrail scheme was developed by the previous Government and is being carried forward by the current Government. Making a reality of such long-term investment schemes depends on that degree of cross-party consensus.

[Greg Clark]

The right hon. Gentleman will recall that I made no criticism of Labour in that regard. In fact, I said that these were long-term decisions, and that the proposals that he has mentioned enjoyed cross- party support. My particular criticism of the previous Government was the decision of the Minister for whom he worked, now Lord Prescott, to cancel 103 out of 140 road schemes. In the spirit of bipartisanship, will he now reflect on that point and accept that that was the wrong thing to do?

[Mr Raynsford]

Perhaps the Minister will reflect on the point ably made by my hon. Friend the Member for Corby (Andy Sawford) about Lord Prescott’s part in the creation of High Speed 1 and the praise that was given to him by Michael Heseltine, whom I am sure the Minister would accept as a colleague.

[Greg Clark]

rose—

[Mr Raynsford]

Unlike the Minister’s, my speech is time-limited, and I have now given way twice. I cannot do so again, so I hope he will bear with me.

I want to take the Minister to task once more—I might give way to him again at that point, as this is a new subject—over the national infrastructure plan. The Government’s amendment to the motion is based on the absurd proposition that the national infrastructure plan is entirely the product of the current Government and that no such plan existed under the previous Government. He will know very well that Infrastructure UK was set up by the previous Government, and that all the preparatory work for the national infrastructure plan was done under that Government. That is why his Government were able to publish the national infrastructure plan in October 2010. If he thinks about it, he will realise that it would have been completely impossible to put together and publish the plan within four months or so of his party coming into government.

The national infrastructure plan was a bipartisan achievement, and I hope that we can continue this debate in a more mature spirit, and recognise that cross-party agreement is essential if we are to get the real infrastructure investment that we need and if we are to do this properly without the kind of problems that we have encountered too often in the past as a result of the failings of all Governments of all complexions.

I should also like to focus on the ambivalence that exists in relation to whether housing constitutes infrastructure. The national infrastructure plan does not define housing as infrastructure, but the Government have made provision in their Infrastructure (Financial Assistance) Act 2012 for £10 billion of support for investment in housing schemes. I would be interested to hear the Minister’s view on whether infrastructure should be defined so as to embrace housing and, if so, how quickly he thinks housing might benefit from that Act.

Last summer, Lord Sassoon, who was then the responsible Minister, talked about £40 billion-worth of schemes that were shovel ready—all ready to go—in the autumn. We are now well past the autumn and to the best of my knowledge not a single housing scheme has been given the go-ahead. Indeed, we have got to the point only of defining the criteria by which schemes may be assessed. This does not look like speedy progress. I would welcome some clarity from the Minister on when he expects that financial support mechanism to have any impact in the housing sector, which is facing a terrible problem of undersupply.

I personally believe that it is impossible to consider infrastructure without including housing, because accommodation is needed for people just as much they need the roads or rail for access, the power supply and all the other things essential for economic development. I would therefore include provision for housing within infrastructure development. I would do so particularly at the moment because the output of housing is appalling. In the last 12 months, only 98,000 housing starts were made. I put it to the Minister, who was critical of the previous Government’s failure in this respect, that if he goes back to 2007—the last year before the recession hit—we started 185,000 homes. If his Government get anywhere near the level of output of the previous Government, they will be doing very well. They are not there at the moment; they need to go very much further and rather faster than they have. I hope they will think about how this scheme can be used to stimulate housing development.

The one other area I want to touch on is aviation. The Minister was interestingly coy about aviation. We know perfectly well—we are constantly reminded of it, not least by the Mayor of London, who I believe is of the same party as the right hon. Gentleman—that there is a chronic problem of undercapacity for aviation in London and the south-east, and an urgent need for new investment. There are and will be differences about where we believe this increase in capacity should be located. I believe that the Thames estuary is the right location and I have advocated that for a long time—I am with the Mayor on that. Other people believe that Heathrow should be expanded, while others believe Stansted is the right location. But no one who has looked at this seriously believes that we do not need to expand capacity. What have the Government done? Kicked it into touch until after the next general election. That is simply not an adequate response. I put it to the Minister that the Government will have to be more serious and should approach this issue on a more cross-party basis if we really are to get progress in infrastructure investment, which is essential to us.

Financial Services

Greg Clark Excerpts

Wednesday 6th February 2013 Commons Chamber

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

I would like, Mr Speaker, to update the House on the investigations of the Financial Services Authority, the US Department of Justice and the US Commodity Futures Trading Commission into the attempted manipulation of the setting of the London interbank offered rate, or LIBOR, interest rates. As Members will be aware, LIBOR is a major benchmark reference rate that is fundamental to the workings of the UK and international financial markets. Barclays and UBS have previously been fined by the authorities for attempted rate manipulation. Other financial institutions are under investigation, but today’s reports relate specifically to RBS.

Findings published today by the FSA show that certain individuals in RBS sought to manipulate LIBOR submissions. This is an extremely serious matter, motivated by greed. The FSA found that RBS breached two of its principles for businesses. First, between October 2006 and November 2010 it repeatedly breached the proper standards of market conduct required by the FSA’s principle 5. It made LIBOR submissions that took into account its own derivatives trading positions or took into account the profit and loss of its money market trading books; and it sought to manipulate the submissions of others by colluding with panel banks and broker firms. The breaches of principle 5 relate to LIBOR rates in three currencies: Japanese yen, Swiss francs and US dollars.

Secondly, from 2006 to as recently as March 2012, RBS failed to have the necessary risk management systems and controls required by the FSA’s principle 3. There was a failure to identify and manage the risks of inappropriate submission, an absence of any submissions-related systems and controls until March 2011, and inadequate transaction monitoring systems throughout. Furthermore, in response to a specific request by the FSA as a result of its inquiries into LIBOR, RBS attested to the FSA in March 2011 that its LIBOR-related systems and controls were adequate. It transpires that RBS’s systems and controls were inadequate, and so RBS’s statement to the FSA was incorrect.

These findings are grave. At least 219 requests for inappropriate submissions were documented, and at least 21 individuals, including at least one manager, were involved in the inappropriate conduct. In the light of these findings, the FSA has rightly imposed a fine of £125 million on RBS, reduced to £87.5 million for early payment. This figure is less than the £160 million fine imposed on UBS but greater than the £59.5 million fine imposed on Barclays, in proportion to the scale of the offences committed.

Also today, the US Commodity Futures Trading Commission has announced that it has found RBS guilty of similar offences in the US and has imposed a fine of $325 million. The US Department of Justice has announced a fine of a further $150 million and, in addition, has reached a deferred prosecution agreement with RBS plc; and RBS has accepted one criminal charge for wire fraud relating to its Japanese securities subsidiary.

The Government are clear that any organisation or individuals found guilty of this sort of wrongdoing must take full responsibility and should be punished, if appropriate, by both the civil and the criminal law. The FSA’s report identifies that at least 21 individuals were actively involved in the misconduct, including derivatives traders, RBS’s primary LIBOR submitters and one manager. Of these, eight have resigned, six have been dismissed, and all the remainder are facing disciplinary proceedings.

In the light of the findings at Barclays last year, the Serious Fraud Office has launched a criminal investigation into attempted LIBOR manipulation across a number of financial institutions, to which it is rightly committing a large amount of resource, including a 40-strong team. As the Chancellor has previously said, where laws have been broken in this country, the Government and the relevant authorities will continue to make sure that the authorities have all the resources they need to make sure that those who are guilty are brought to justice.

But this action against the perpetrators is clearly not sufficient. It is right that in the face of misconduct of this scale, responsibility is taken at senior levels. That is why, although the report clears senior management of any involvement in, or knowledge of, the misconduct, it is right that John Hourican, the leader of the investment bank since 2008, will leave RBS after handing over his responsibilities. He will receive his minimal contractual entitlement of 12 months’ notice and other contractual entitlements. He will forfeit 100% of his unvested bonus and his long-term incentive plan awards that are subject to clawback, totalling some £5 million, as well as, of course, forfeiting any bonus that he would have received in 2012.

This still leaves the question of the very substantial fines that RBS will have to pay. While it is right that RBS faces the full force of regulatory action in the light of its misconduct, the Government believe that it would clearly be wrong for the taxpayer to foot the bill. In the case of the FSA fines, the Government have changed the system so that all revenue from fines will be used to the benefit of taxpayers. In the Financial Services Act 2012, which received Royal Assent just before Christmas, we have made provision for all such fines, net of enforcement costs, to go to the Exchequer. So when RBS pays the FSA £87.5 million in fines, everything after enforcement costs will flow directly back to the taxpayer. Thanks to this reform, the Government have been able to announce previously that £35 million of fines imposed during 2012 will be used to support Britain’s armed forces community, with an additional £5 million going to the Imperial War Museum.

Money raised by British authorities from banks for their misdemeanours and recklessness in financial markets will be used as a force for good and go to people and causes that demonstrate the best of British values. This will include military good causes, which provide lasting support to servicemen and women, who provide invaluable service to this country, as well as their families and veterans. We will announce specific details of further disbursements in due course.

In the case of the US authorities’ fines, I am insistent that the taxpayer should not foot the bill. That is why these fines must be met in full from past, present and future reductions in the bonuses and pay of RBS. The Government support the action that Stephen Hester and the RBS board have rightly taken in response to the very serious issues that have been identified. The House should know that this has been a complex, meticulous and co-ordinated investigation between the international regulatory authorities. I wish to thank all three parties for their diligence and co-operation in identifying and punishing those responsible.

The Government have made it clear that the Royal Bank of Scotland must take every step necessary to ensure that this scandal never happens again. The structure and culture that allowed these events to take place must be changed fundamentally. This also requires ensuring that RBS is focused on the right priorities. That is why the Government support RBS’s statement that it will continue to shrink its investment banking operations and focus on serving its core business customers. This smaller, more efficient markets business will be good for RBS customers, particularly UK businesses.

Today’s findings are a further demonstration of the importance of the tough and swift action that this Government took in response to the first findings of attempted LIBOR manipulation concerning Barclays in June 2012. LIBOR manipulation happened in many countries, but no country has responded as quickly or as decisively as Britain has now done. The Chancellor commissioned Martin Wheatley, the chief executive-designate of the Financial Conduct Authority, to review LIBOR and the corresponding criminal sanctions regime. His review was published 13 weeks later and the Government accepted his recommendations in full last October.

The Government and the House proceeded immediately to implement those reforms through the Financial Services Act, which received Royal Assent in December. As colleagues will know, secondary legislation has been published in draft and will be debated in this House in the coming weeks, introducing the new regulatory and criminal sanctions regime underlying LIBOR and other benchmarks.

LIBOR activities will be within the scope of statutory regulation, including the submission and administration of LIBOR. Where people have broken the law, the Government will ensure that the authorities have all the resources they need to make sure that they are pursued and punished. The British Bankers Association is being replaced as the operational LIBOR administrator. Baroness Hogg is chairing an expert panel that will identify an appropriate successor.

The Government strongly support the various international initiatives taking place on wider benchmark reform. To restore trust, it is essential that any reform proposals are co-ordinated at a global level to ensure consistency in how benchmarks are governed and regulated. More broadly, this case reinforces the need for the changes already put in train by the Government to rebuild confidence in our banking system overall, and to ensure that such events cannot be repeated.

The previous regulatory regime failed. No institution was clearly enough focused on financial stability or conduct issues. The Financial Services Act establishes a new system of focused financial service regulation, including the Financial Policy Committee to oversee macro-prudential regulation, the Prudential Regulatory Authority to ensure the stability of individual banks, and the Financial Conduct Authority, a new, independent and specialist conduct regulator capable of focusing on exactly the types of issues that we will be discussing today.

There are also broader issues to be tackled in relation to the culture and professional standards of the banking system. The commission on banking standards, comprised of expert representatives from this House and the House of Lords, has been established to do precisely that—to identify ways not only of raising professional standards, but of protecting the consumer from the inherently more risky world of investment banking. I thank members of the commission for the important work that they are carrying out.

In conclusion, this is another day of shame for Britain’s banks and it is vital that we recognise it as such, not because Britain stands alone in this and similar scandals—which, as we know, is very far from being the case—but because Britain must stand out in the way that we put things right.

Let there be no excuses. Instead, let us have enduring, fundamental reform—and yes, let us have justice, too. Any organisation or individuals found guilty of a crime must take full responsibility and should be punished by the law, while the ordinary taxpayer must not and will not pay the price of their misdeeds. If, in the process, we hold our financial sector to higher standards than elsewhere in the world, that is nothing to shrink away from. Indeed, it is something that we must not only welcome, but actively pursue. That is why we have put in place a vastly stronger system of regulation so that misconduct can be prevented, not just punished. It is also why we look forward to the further recommendations of the parliamentary commission.

“My word is my bond” is the motto on which the City was built, and we must rebuild that bastion of confidence here in Britain—the best place in the world to do business, but the worst place in which to abuse the trust on which free enterprise depends.

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

This is a very serious setback for RBS on its road to recovery, and another stain on the reputation of UK banking. It is not just a case of excessive risk-taking by investment bankers; it is about the corrupt manipulation, until quite recently, of what should have been a trustworthy and independent index determining the inter-bank interest rate.

How much more evidence does the Chancellor need before he can agree to truly radical reforms for our banking system? Yet again, we have seen an appalling saga of interest rate fixing—not confined to one bank, but across the whole industry—but the Government still refuse to take a back-stop power for full separation in case ring-fencing does not work. Just what will it take for the penny to drop? Why will the Financial Secretary not accept fully what we have been saying since last year, namely that the Government must implement both the letter and the spirit of the Vickers recommendations and that we must see fundamental culture change? If that does not happen, the banks will need to be fully split up.

Those doing business with the banks will be astonished by these revelations. Will the Financial Secretary explain in simple terms how ordinary companies and customers with mortgages or savings linked to LIBOR will ever find out if they have been fleeced as a result of this fraudulent activity? If those customers have lost out because of LIBOR rate rigging, how and when will they get their money back?

Despite the Financial Secretary’s claim that the Government reacted swiftly, does he regret not getting ahead of the scandal as it emerged last year? On LIBOR, I asked his predecessor, the hon. Member for Fareham (Mr Hoban), during a Financial Services Bill Committee sitting last March whether the Government had a view about whether there was manipulation and whether changes needed to be made to the regulatory arrangements. He stood up and answered with the single word: no. The Treasury has, of course, come to regret that stance and, several months later, this tremendous scandal began to leak out.

Will the Financial Secretary update the House on the process for extricating the LIBOR setting process from the British Bankers Association and when an independent and more transparent arrangement will be secured? Was not the 2012 Act a missed opportunity, not just because it failed to widen the regulatory perimeter to cover LIBOR, but because it left doubt over whether regulators can prevent benchmark rigging in other trades, such as the gas and electricity markets, commodities, metals and oil? Rather than wait for Europe to legislate, the UK Government need to wake up and take preventive steps now. We will table amendments to the Financial Services (Banking Reform) Bill in the coming weeks.

Does the Financial Secretary agree that we also need new rules to protect whistleblowers who highlight failures inside the banks, and that we must ensure that offences created to punish misleading statements also properly cover the foreign operations of our UK banks? The Financial Secretary has said that the large fines for RBS will be clawed back in part from the bank’s bonus pots, but is it not now clear that fundamental changes are needed to the pay and bonus culture across the banking sector, including a repeat of the banker bonus tax to pay for opportunities for young people across the country? The Business Secretary said this morning that he has a plan for the RBS shares owned by the taxpayer. Does the Financial Secretary agree or disagree with that? What exactly is the Government’s policy on the future plans for the RBS shareholding?

Taxpayers and bank customers are growing sick and tired of being let down by the banks day after day. Does this not all boil down to a question of trust—a question not only of whether British customers can trust their banks, but of whether investors across the world continue to trust their money with the City of London more than with other financial centres? Britain’s financial services reputation is on the line. Our economy needs a healthy and sustainable banking sector, so we must rapidly clean up the system and put UK financial services on the path towards respectability, integrity and professionalism.

[Greg Clark]

It is, of course, right that we do that. I have been very clear that we are taking the steps that we are taking to restore the international reputation of the City and to make it pre-eminent in the world as a place in which people have confidence.

I would have thought that the hon. Gentleman would have taken this opportunity to reflect on the contribution that the previous Government made to the decline in the reputation of the City. It is not as if the chaotic regulatory regime was not foreseen. In November 1997, during the passage of the legislation that set up the flawed Financial Services Authority, my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley) said:

“The coverage of the FSA will be huge; its objectives will be many, and potentially in conflict with one another. The range of its activities will be so diverse that no one person in it will understand them all.”

He went on to say that the Government of the day

“may, almost casually, have bitten off more than they can chew. The process of setting up the FSA may cause regulators to take their eye off the ball, while spivs and crooks have a field day.”—[Official Report, 11 November 1997; Vol. 300, c. 732.]

That was the warning that the Conservative party gave the Government at that time, but it was ignored comprehensively for their 13 years in office.

We have moved quickly, as most reasonable people would concede. We already have a Financial Services Act on the statute book and we have set up an eminent commission chaired by Sir John Vickers to recommend far-reaching changes to the financial services system. The previous Government’s contribution to the eminence of the City was to knight Fred Goodwin, for heaven’s sake. The Opposition spokesman brags about the reforms to the regulatory system that he recommended in a Public Bill Committee, but it was the shadow Chancellor, when he had my job, who said that

“nothing should be done to put at risk a light touch, risk-based regulatory regime.”

We are making the reforms that it falls to us to make.

I will answer some of the specific points that the hon. Gentleman made. We will have discussions about the Financial Services (Banking Reform) Bill. Most reasonable people would conclude that the reforms that we are making, with the advice of the Vickers commission and the Parliamentary Commission on Banking Standards, lead the world in this area. The Liikanen report, which is being recommended at a European level, explicitly refers to the reforms that we are contemplating. It is right that we should be ahead on this.

The hon. Gentleman is right that the Financial Services Authority must investigate whether any individuals or firms lost out as a result of the attempted manipulation. I call it attempted manipulation because we are talking about the rates that were submitted and it is not necessarily the case that the LIBOR reference rate changed in response. However, it is right that the FSA should make that assessment.

The process that Martin Wheatley recommended to replace the BBA is under way. It will become a regulated activity as soon as the statutory instruments are passed. Baroness Hogg and her committee are setting up a process to invite tenders, which will not include the BBA, to administer that process. As Martin Wheatley said, it is necessary that that is done in a way that does not undermine confidence in the rate-setting process during the transition, because it is fundamental to many contracts, as the hon. Gentleman implied, including people’s mortgages.

The hon. Gentleman mentioned other benchmarks. The powers that we took in the amendments that we made to the Financial Services Act 2012 before Christmas allow us quickly to specify any other benchmarks that might be subject to such abuse. Our response has been co-ordinated with the international authorities and nobody regards the powers that we have as inadequate to the task of dealing with other abuses.

On whistleblowers, the hon. Gentleman is right that it is important that people within banks and financial services should have the confidence to report abuse. A very small number of people are responsible for something that is besmirching the reputation of many millions of people up and down the country who work hard, day and night, for banks. Those people have had reason, over the years, to be proud of their career. It is important, not least for those people, that the institutions for which they work recover their reputations.

On the shareholding in RBS, it is of course the Government’s intention to return it, at the appropriate time, to private ownership. It is not right that we should own such a significant stake of a high street bank. It was necessary for us to do so because of the crisis that the hon. Gentleman and his colleagues know all about. As soon as it can be returned to independence, the better.

[Mr Andrew Tyrie (Chichester) (Con)]

I am sure that the whole House welcomes the fact that the US fines will be clawed back from bonuses. LIBOR, serious though it is, is just the tip of a large iceberg of banking malpractice that is now being exposed to view. The Minister ended his statement by pointing out that we should not shrink from imposing higher standards than other countries. Does he agree that if we impose high-quality regulation, it will not only be morally right, but may attract good business to the UK and be in the UK’s economic interests overall?

[Greg Clark]

I do agree with that. The work that my hon. Friend’s commission is continuing to do on the culture of banking is important and will inform the further reforms that we need to make. I do not think that we should be shy of setting high standards in this country; in fact, it is necessary to do so. At a time when trust is in flight across the world, there is an opportunity for the City of London to establish itself as a haven of probity and safety in a volatile world. High standards, far from being a threat or a danger to our financial institutions, are necessary for their continued prosperity, which I and the whole House want to see flourish.

[Mr George Mudie (Leeds East) (Lab)]

The Minister has referred to a need for cultural change. One culture that it is necessary to change is the banks’ unwillingness to lend to small businesses. The Secretary of State for Business, Innovation and Skills has spoken today about RBS and the lack of lending to small businesses, even with the recent initiatives. Have the Government given any thought to using the 350 RBS branches that they have to dispose of for the business bank, thereby giving it a regional and local presence so that small businesses can go to it, discuss loans and hopefully agree them?

[Greg Clark]

I very much agree with the hon. Gentleman that we should have more local, business-focused banks in this country. I hope that we can recover the personal knowledge, service and understanding of the needs of business that branches used to have in abundance. RBS is not nationalised, so we cannot direct it in the way that he suggests. However, the reforms that we are making, particularly in the Financial Services (Banking Reform) Bill, emphasise the importance of increasing competition and of having new entrants. As he knows, some of the divestments that have been required recently have brought entrants into the market that have concentrated on lending to small and medium-sized businesses. That is a force for good, but we need—and I want to see—much more of it.

[Mark Field (Cities of London and Westminster) (Con)]

May I, too, welcome the Minister’s statement? I also associate myself with the words of the Treasury Committee Chairman, my hon. Friend the Member for Chichester (Mr Tyrie).

The City of London should have nothing to fear from arbitrage, although it is sometimes said that it should. If we have a regulatory system that is robust and fair, it will pass the test of time and, in the medium to long term, will become a great attraction of the City of London.

Whether we like it or not, we need our banks more than ever, whether we are small businesses or individuals. There is a danger that with 20:20 hindsight, we are finding ever more scandals and examples of mis-selling, whether with LIBOR, interest rate swaps or payment protection insurance. Will the Minister make it clear to the banks that we need to draw a line under these scandals? There is a danger that we are falling further and further down a slope and that it will be extremely difficult for banks to regain the trust of the public at large. Without that trust, the broader economy will suffer

[Greg Clark]

My hon. Friend speaks with great expertise. He has worked in and represented with distinction the City of London over the years, and more than anyone he recognises the importance of it re-establishing its prestige. Part of doing that and of sending a signal to the current generation working in financial services is to say clearly that the misdeeds of the past need to be put right. Where people or small businesses up and down the country have suffered detriment, we should not turn a blind eye. We should be rigorous in holding people to account, and acknowledging the harm done to businesses that have suffered from past mis-selling, and when we do that we should look—as in this case—to recover the costs of such mis-selling from the perpetrators. The Chancellor has set out that principle and I expect the banks to follow it in the months and years ahead.

[Stewart Hosie (Dundee East) (SNP)]

I welcome the statement and particularly the fact that the fines will be paid by the banks and not the taxpayer. I also welcome the fact that the British Bankers Association will no longer have anything to do with LIBOR. However, this is not just about who calculates the LIBOR rate, but how it is calculated. Will the Minister update the House and say how we will have transparency and the confidence to know that rates submitted by the banks are those at which they can borrow money, rather than the acts of fiction, fixes and fiddles that we saw over many years with many banks?

--- Later in debate ---

[Greg Clark]

The hon. Gentleman makes an excellent point. One recommendation of the Wheatley review was that the setting of LIBOR benchmarks should include objectivity. That will require a reduction in the number of benchmarks because some do not have the volume of transactions to establish that, but the new regulated conduct of LIBOR setting will include a requirement to route the reporting of rates through transactions that are visible to the Financial Services Authority. The opportunity to parlay the commercial interest of particular banks into what is supposed to be an objective rate will therefore no longer be there.

[Stephen Williams (Bristol West) (LD)]

My right hon. Friend has delivered his statement in his usual calm and moderate way, but his constituents in Tonbridge and mine in Bristol West will be absolutely disgusted and furious when they discover that a lot of these abuses took place after the £45.5 billion taxpayer-funded bail-out of the Royal Bank of Scotland that saved those jobs. The Parliamentary Commission on Banking Standards is clearly still working, but surely one outcome of such abuses should be that any individual involved is struck off—whatever criminal and civil sanctions could be taken against them—and never allowed to work anywhere else in British financial services. If they were a doctor, lawyer or accountant, that is precisely what should happen. That is the real culture change that we need in banking.

[Greg Clark]

My hon. Friend is right. The constituents of my right hon. Friend the Member for Tonbridge and Malling (Sir John Stanley) might be concerned if I sought to represent them, but my constituents in Tunbridge Wells do, I think, share the fury that has been described. For a bank that has caused the taxpayer to bail it out to such an extent to then engage in practices that could—had we not taken action to require clawback—have resulted in further cost to the taxpayer, is outrageous. I agree with my hon. Friend the Member for Bristol West (Stephen Williams) that the individuals implicated in such practices should leave the financial services and find a better living, rather than working in an industry in which trust and confidence is required.

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

I hear what the Minister says about the highest standards of regulation for the City of London, but how does he explain the fact that once again, American regulators have imposed fines that are three times higher than those from the FSA, thereby appearing much more robust in their investigation of LIBOR and other issues? Now that we are having a “twin peaks” model, what discussions is the Minister having with the regulator to ensure that it imposes appropriate fines and undertakes proper investigations to ensure that we root out the difficulties of the past?

[Greg Clark]

The hon. Gentleman makes a good point. He will know that there is a long-established culture of very high fines in the US. Fines in this country have increased markedly in recent years, although none of the institutions subject to FSA fines in recent months would regard them as anything other than exacting. It is right for us to follow the practice of other jurisdictions, including the US, in having a more explicit criminal code. Our amendments to the Financial Services Act 2012 mean that criminal sanctions explicitly for the manipulation of benchmarks are available that were not there in the past. It is right to take what the hon. Gentleman says seriously and strengthen our enforcement powers, and we are doing that through the legislation that has been passed.

[John Howell (Henley) (Con)]

I thank my right hon. Friend for the tough and swift action that he has taken on this matter, but I have a more general question about the culture change that will be required. The extent of the culture change seems to be enormous. Why does he have confidence that it is achievable?

[Greg Clark]

There are a number of reasons why I think it is achievable. The first is the contribution that regulation can make. As Members have said, it is important to have a more exacting set of regulatory standards that are intolerant of the kinds of abuses that have taken place. Secondly, it is in the commercial and strategic interests of banks to restore the reputation that they used to have for trust. Financial services depend on trust. If people do not trust the banks, they will not do business with them. I think the penny has dropped across the City, and most of the new generation of chief executives understand the connection between their future profitability and performance, and the need to provide decent services to their customers.

The third reason is a matter being investigated by the Treasury Committee and concerns a failure or subversion of the culture of banking. Banking was always associated with high standards of probity; it was a vocation for people who were thought to be of a rather conservative disposition and inclined not to take excessive risks. That was subverted by exposure to some of the practices of recent years, and because that was inadequately regulated it distorted what should be the right culture in the industry. We need to make changes to all three of those areas, and that is precisely what we have done and what we have embarked on for the rest of the Parliament.

[John McDonnell (Hayes and Harlington) (Lab)]

Following the point made by the hon. Member for Cities of London and Westminster (Mark Field), let me urge the Minister that there can be no drawing a line in the sand and no amnesty given until corruption is rooted out. My constituents now look on the City of London as a fetid swamp of corruption. They see only people forgoing bonuses but no one being imprisoned for the swindles that have taken place. There can be no amnesties at all. Will there be any investigation into allegations—I have raised this point previously—of attempts to manipulate the auctions associated with the quantitative easing exercise undertaken by the previous and current Governments?

[Greg Clark]

I am not aware of those allegations but I will look into them. Any criminal activity in any part of the financial services industry ought to be prosecuted and pursued with the same degree of vigour as in any other walk of life. The hon. Gentleman overstates the case in his reflection of the City. Hundreds of thousands of people work in the City and do a decent job working hard for their clients and businesses up and down the country. They are as outraged as any of us in this House about the damage done to the City’s reputation. The future for us and for our interests is to see that reputation restored and root out the corrupt individuals—corrupt is the word in this case—who have done disproportionate damage to the reputation of a set of institutions that should be one of the prides of this country.

[Julian Smith (Skipton and Ripon) (Con)]

In the light of the report, I urge the Minister, and my hon. Friend the Member for Chichester (Mr Tyrie) and his commission, to look carefully at the Securities and Exchange Commission’s highly successful whistleblower incentive scheme, which gives whistleblowers a cut of fines, and at how we begin to replicate that model.

[Greg Clark]

The discount in fines given for co-operation is one reason for organisations to co-operate, but I will look at my hon. Friend’s point on individuals.

[Sammy Wilson (East Antrim) (DUP)]

The report indicates that, so arrogant were some bank workers, they treated themselves as masters of the universe to whom normal rules of fair play did not apply, which has impacted on banks and their reputations. The banks rather than the taxpayers will pay the fines, as they are required to do, but how will the Minister ensure they do not simply pass on additional charges to customers to recoup the costs?

[Greg Clark]

It is essential that the banks do not do that. They need to be transparent as to the source of the payment to meet the fines—that is essential. Far from those people being masters of the universe, they are culpable of doing a great disservice in falling way short of the standards of behaviour by which most decent people up and down the country would expect to live their lives.

[Neil Carmichael (Stroud) (Con)]

I welcome the statement and its robust and vigorous tone, which sets the scene for the appropriate direction of travel, but does the Minister agree that we need an influx of professionalism to the banking sector? That would be enhanced and made more likely by strong accountability mechanisms and more transparency. That is what I hear from small and medium-sized businesses who struggle to contact banks at all.

[Greg Clark]

I completely agree with my hon. Friend. The commission led by my hon. Friend the Member for Chichester (Mr Tyrie) is looking at how such professionalism, which can be found in financial services, can be bolstered and further recognised.

[Mr William Bain (Glasgow North East) (Lab)]

The public, who after all own more than four fifths of that bank, will be appalled at the duration and extent of the greed and corruption that has been exposed by the FSA today. Does the Financial Secretary agree that that strengthens the argument made by the Financial Services Consumer Panel that the banks ought to be subject to a fiduciary duty to their customers, as lawyers and company directors are, so that savers and investors have maximum protection?

[Greg Clark]

The hon. Gentleman makes an important point that will be considered by the commission, which is looking into the culture. It is important that banks recognise that they exist to serve their customers—that is their purpose and the reason why they operate. My recent experience of speaking to some bank boards leads me to believe that they recognise the commercial imperative for that, but he makes a suggestion that I am sure our colleagues will consider.

[Jim Shannon (Strangford) (DUP)]

I thank the Minister firmly for his statement. In particular, I thank him for the £35 million of fines imposed on the banks that will go directly to the armed forces community; £5 million will go to the Imperial War Museum. Will he confirm the criteria by which charity groups such as the Royal British Legion, the Army Benevolent Fund, SSAFA and Help the Heroes can qualify for financial assistance through the fines on the banks?

[Greg Clark]

As I said in my statement, we will make further announcements on the disbursement of the funds, but they have been earmarked and reserved for the military community.

Banking Reform

Greg Clark Excerpts

Monday 4th February 2013 Commons Chamber

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

Urgent Question: To ask the Chancellor of the Exchequer if he will make a statement on the Government’s approach to banking reform.

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

The Government have today laid before the House the Financial Services (Banking Reform) Bill and their response to the Parliamentary Commission on Banking Standards report, which was published on 21 December 2012 following the commission’s pre-legislative scrutiny of a draft Bill.

I thank and pay tribute to the members of both the Independent Commission on Banking and the Parliamentary Commission on Banking Standards. The two commissions, whose membership comprises some of the most distinguished policy makers and formidable intellects in the world, have between them shaped a set of reforms to British banking that will lead the world and set an example to other countries in the seriousness, radicalism and meticulousness of the changes that are proposed.

The Bill published today reflects their painstaking work and the Government have accepted almost all their recommendations. The reforms address what the Chancellor has called the British dilemma—how Britain can be a leading global financial centre with more than its fair share of international trade in financial services while at the same time not exposing ordinary working people in this country to the catastrophic risks of banks failing.

The reforms were and are necessary because the previous regime was tested and failed. UK taxpayers had to bail out the banks with £65 billion of the hard-earned money of ordinary working people, while those who had taken a one-way bet with that money slunk away, losing nothing more than their jobs, and sometimes not even that. The anger that the country feels about what happened must be channelled into change to reset Britain’s banking system. The objective of the Bill—proposed by Vickers and endorsed by the commission—is that any failure of any bank in future should not impose a cost on the taxpayer and not interrupt for a second vital banking services. That is a high ambition, but one that is appropriate for a country with the reputation for financial stability and confidence, which has for centuries been one of Britain’s chief assets in the world.

As is well known, the Bill will erect a ring fence around the core operations of banks headquartered and regulated in the UK. Within that ring fence, banks must be completely insulated from activities such as using depositors’ funds to speculate for the banks’ own benefit in capital markets.

As a result of the commission’s recommendations, the Government are making a number of further changes to the Bill. First, in the acute phrase of my hon. Friend the Member for Chichester (Mr Tyrie), which will permanently enter the lexicon of banking, the ring fence will be “electrified”. The regulator will be given the power to order the full separation of any bank that attempts to undermine the ring fence. Directors of the banks will be personally responsible for ensuring that their banks comply with the ring-fencing rules, and the Prudential Regulatory Authority will conduct an annual review of the operation and adequacy of the ring-fence rules.

Secondly, there are explicit provisions on the face of the Bill for the principal aspects of ring-fencing, including that there should be separate boards of directors, remuneration arrangements, treasury management operations, balance sheet management and human resource management of ring-fenced banks.

Thirdly, the Bill gives us an opportunity to make an historic change in the competitive environment in UK banking. Competition is essential to ensure that customers benefit from innovation and from demanding customer service and efficiency from their banks. That has not always been customers’ experience in the past. As well as bringing in a seven-day automatic account switching service from September this year, the Government will take steps to tackle the cosy arrangement whereby the banks determine how payment systems will be run. Why should it be necessary in 2013 for a cheque to take six days to clear, with the banks and not the customers scooping up the interest on the balances during the delay? Why should a new bank have to beg an incumbent bank for permission to use their payment system? We will therefore require access to payment services that are fair, reasonable and transparent. The commission has rightly emphasised the importance of competition, and I am grateful to it for propelling that drive further, as I am to my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) for what she has done on greater competition in banking, which has been a personal crusade of hers.

The fourth and final change is that more parliamentary scrutiny will be built into the secondary legislation that implements what is a high-level Bill. Drafts of the principal statutory instruments to be made will be made available to the House before Second Reading, and the Government accept the recommendations of the Delegated Powers and Regulatory Reform Committee on the type of scrutiny each should receive.

These are historic reforms, but it is appropriate that, in our country—directly and indirectly, 2 million people work in the industry, it is our biggest export earner, and contributes £1 in every £8 of our tax revenue—we take the steps necessary to restore confidence in, and to, an industry that has fallen so far. There is much scrutiny of the Bill before us, both here and in the House of Lords, and I look forward very much to our discussions during the weeks and months ahead.

[Chris Leslie]

If the Government believed this issue was important, would the Chancellor have not made a statement to the House of Commons today? It should not take an urgent question for Parliament to hear why the Government are taking such a half-hearted approach to banking reform.

In a week when our national banks are facing record-breaking fines for LIBOR manipulation, when the Financial Services Authority is struggling to get a fair deal on payment protection insurance mis-selling for small businesses, whose customers have been mis-sold interest rate hedging products, when we see the bumper bonus season continuing to roll on and on for banking executives as if nothing had happened, and in a week when all this suggests we should be getting serious about real reform, what has the Chancellor said in his seaside speech today? He has fudged the tough stance recommended by the Vickers report, and has stopped short on backstop powers and legislation for the leverage ratio envisaged by the Parliamentary Commission on Banking Standards, a commission that the Chancellor himself agreed to set up last summer.

I have to ask the Minister: why then does it feel as though the Chancellor has to be dragged kicking and screaming towards serious reform? Is it because, despite all the rhetoric and feigned concern, the Government know they face certain defeat in the House of Lords on the sensible recommendations of the parliamentary commission, and so think it best to try to salvage something from what is in reality a strategic retreat? Why will the Minister not legislate for a full reserve power for total separation of retail and investment banking if ring-fencing does not work, something that we called for last year and the commission specifically recommended? Surely it would be sensible to legislate now, not just if one or two individual banks misbehave, but in case ring-fencing fails the sector as a whole. He may think he has found a cunning ploy, but stopping short with only half the backstop powers just means that they are unlikely to be used. Corporate lawyers across the City will be rubbing their hands with glee at the prospect of taking on the regulator on a case-by-case basis. Worse still, why is he ducking the main conclusion of the Vickers report? Specifically, why is he refusing to adopt the commission’s recommendations on the leverage ratio and rein in the over-exposure of banks whose excessive risk-taking caused the problems in the first place?

Should there not be a clause in the Bill so that regulators can restrain such hazardous behaviour? Does the Minister agree that the implementation of the Bill needs a full parliamentary review on a regular basis, with genuine scrutiny of detailed secondary legislation on exactly how ring-fencing will work in practice? If the commission recommends a tougher code of conduct for bankers, proper professional qualifications and a fiduciary duty of care for customers, together with stronger controls on bonuses and remuneration, will he accept its judgment in the Bill?

With the economy flatlining and no plan for growth, why is there nothing in the Bill to improve the funding for lending scheme? We should not still be seeing lending to businesses falling further and further, month after month. The Minister has to realise that the public, the taxpayers and Parliament want to tackle this issue once and for all. The Bill needs further amendment, and if the Government do not have the courage to radically reform the banks, we will.

[Greg Clark]

I had rather hoped for a serious response to a serious matter. When the Bill has its Committee stage, I hope the hon. Gentleman, with whom I am happy to work on the details, will be able to make some more substantial reflections than those he has offered the House today. Frankly, the idea that the Opposition should have the brass neck to table an urgent question on banking reform is almost unbelievable. At no point in 13 years of power did they show a scintilla of urgency in facing up to, never mind solving, the catastrophic absence of banking reform that led to the financial crisis being particularly damaging to this country. The failure of the botched regulatory system they introduced in 1997 has played a large part in the burden that the ordinary working people of this country are still having to shoulder today to bail out the banks. They were in office after the crisis, too. Even then they did nothing urgent apart from hurriedly plunge their heads in the sand to hope that the nightmare would pass.

It has fallen to this Government—as it regularly does, I am afraid—urgently to clear up the chaos in which Labour left the country. It should not have taken so long, but since the Government have been elected—from the beginning of our tenure in 2010—we have set up the Independent Commission on Banking, which has done a superb job, and we have created a separate conduct regulator and a prudential regulator that are now on the statute book. Why did we need to wait for this Government to be elected to do that? Why did Labour not set up a parliamentary commission on banking standards? [Interruption.] Of course, I will answer the pitifully few points that the hon. Gentleman made.

The hon. Gentleman asked, perfectly reasonably, why we had not given the Bank of England the power to split up the whole banking system. One of the principal reasons for not doing so was that the Governor of the Bank of England, in evidence to the commission, said that he did not want that power. It would seem odd to foist on the Governor a power that he does not want. The hon. Gentleman also asked why we did not adopt the higher backstop ratio. One concern expressed was by building societies worried about being disadvantaged by that. That was a concern we had.

The hon. Gentleman asked about a full review. If he had read closely the statement we published in response to the commission’s report, he would have known that the PRA would conduct a full annual review of the ring-fencing rules, and we will obviously act on any recommendations that it makes. He also asked about further recommendations that might come from the commission, which is chaired by my hon. Friend the Member for Chichester. The hon. Gentleman seems surprised that, having set up the commission, we might be interested in taking seriously its recommendations. I hope it is apparent from our response today that we take its recommendations very seriously, and I look forward to its further recommendations, particularly on competition, which have a great deal to offer. I greatly respect the commission’s work and look forward to making time available when the next report is published to make the necessary changes to the Bill to accommodate the recommendations.

[Mr Andrew Tyrie (Chichester) (Con)]

The commission will look carefully at the detail that the Government have published today, but in the meantime I warmly welcome the Government’s acceptance of several of our key proposals, including on electrification of the ring fence.

Last night, journalists were briefed by the Treasury that the Government had also accepted our proposal that an external assessment should be made before the PRA could exercise its reserve power, but there is no mention of that in the Government’s response. Will the Minister confirm that such an assessment will be provided for in the Bill?

--- Later in debate ---

[Greg Clark]

Of course. I pay tribute to my hon. Friend and the other members of the commission. It might not be known just how many hours of the day they are working on it, but they are doing a service to the country in doing so. We accept his recommendation. This is a high-level Bill and we have said that we will introduce amendments to reflect the recommendations. When we do that, we will invite him to consider whether they appropriately address his recommendations.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

I welcome the change of heart announced by the Chancellor today. It is in contrast to the dismissive noises that came from the Government when our report was published just before Christmas. I am sure that that change of heart had nothing to do with the vision of amendments in the other place being supported by one of the Chancellor’s predecessors, Lord Lawson, a former Cabinet permanent secretary and the new Archbishop of Canterbury.

I would like to ask the Minister why today’s response was silent on the commission’s recommendation for a general reserve power for the sector as a whole. I must correct him: if adopted, such a decision should not be left to the Bank of England, but be taken by the Chancellor.

[Greg Clark]

I am grateful for the right hon. Gentleman’s question, to whom I extend my thanks for serving with distinction on the commission.

I said that the Bank of England did not want a general reserve power, but the right hon. Gentleman made the perfectly valid point that it might not necessarily be a choice for the Bank. It seems to me, however, that the power to break up any individual bank is a very strong one, and quite rightly, as the commission recommended, it would make the ring fence more impenetrable. Nevertheless, to provide for a reserve power in this Bill that would change the whole system would, in effect, be a different policy. I understand the reasons for wanting to do that, as many distinguished members of the commission do, but changing the whole policy would deserve the scrutiny of a Bill of its own—any future Government would be free to introduce such a Bill. To have it as a rider to a Bill designed to implement the Vickers report would be the wrong step forward.

Finally, as for accepting amendments, there are several Members of this House who have served on Bill Committees with me in the past. My demeanour, now and throughout the passage of the Bill, will be to listen to good and sensible suggestions from wherever they come—not to treat this as an exercise in partisanship, but to try to find consensus on the best system for financial regulation in this country.

[Mr Peter Lilley (Hitchin and Harpenden) (Con)]

Is my right hon. Friend confident that the very welcome proposals he has announced will not be swept away by the tsunami of regulations bearing down on us from Europe under the Single Market Act, even though none of those regulations creates a single new opportunity for financial services businesses to trade on the continent and all of them result in the transfer of power from this country to Europe to regulate our most important industry?

--- Later in debate ---

[Greg Clark]

My right hon. Friend is right when he talks about our most important industry—certainly in terms of exports and what it contributes to the taxes that pay for public services. It is significant that more euros are traded in this country than across the entire eurozone. For that reason, we need to continue to have access to the single market and to argue—as I and the Chancellor do in ECOFIN after ECOFIN—to ensure that we secure our interests there. That is a constant fight, but I know that I and my right hon. Friend the Chancellor will always take that view when we are in Brussels.

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

I am a member of the commission, and we will of course examine the detail included in the Bill. The right hon. Gentleman’s reasons for not including a reserve power require further explanation. The Chancellor said that our commission ought not to unpick the consensus. We have taken evidence from a wide range of people—academics, bankers and others—who have all supported our recommendations on electrifying the ring fence. Will the Minister again give serious consideration to the recommendations that we have made?

[Greg Clark]

I do take seriously those recommendations, but this is not a difference between just the Government and the commission. The shadow Chancellor himself said only a little while ago that

“there is no need to break up institutions but there has got to be clear separation.”

I think people across all parts of the House have come to the same view on this, but I am respectful of the conclusions that the hon. Gentleman has reached.

[Mr John Redwood (Wokingham) (Con)]

If break-up and segregation may be necessary for a bank in a future crisis, why do the Government not understand that they may need those techniques to deal with the inherited, still very serious banking crisis that we are living through, which is preventing the financing of a full recovery? Will the Government look at what they can learn from their studies to sort out the problem of RBS today, which is our biggest obstacle to recovery?

[Greg Clark]

My right hon. Friend makes a forceful point. The legislation is about the future. It is quite right that it should proceed with consideration and that we should not introduce things that might have unintended consequences without adequate consideration in this House. The Government are obviously the major shareholder in RBS. It is important that RBS should be returned as swiftly as possible to private hands. The current situation is far from ideal, and I know that my right hon. Friend shares our ambition on that.

[Stewart Hosie (Dundee East) (SNP)]

It is right that the taxpayer should never again be on the hook for the bad decisions taken by investment banks or the bad regulation that allowed them to be taken. I therefore welcome the ring-fencing and the provision to separate a given bank if necessary. However, I am not yet convinced of the need for the reserve power to separate any bank. Does the Minister envisage any circumstances under which the Government might include the reserve provision to separate a bank in this or future legislation?

--- Later in debate ---

[Greg Clark]

I confess that I did not quite understand whether the hon. Gentleman’s point was that he objects to the power to separate any particular bank or the general point, but we can talk about it afterwards. It is important that the regulator—the Bank of England—should have the ability to address a bank that breaches the rules and that does not respect the integrity of the ring fence with consequences, those consequences being full separation.

[Stephen Williams (Bristol West) (LD)]

Does my right hon. Friend agree that consumers and businesses want the existing banking sector to receive the hot blast of competition and that, in order for that competition and choice to exist, we need a regulatory regime that will allow in new entrants, especially those that specialise in community-based banking and in lending to small businesses and social enterprises? Might not one such new entrant emerge from the break-up of the state-controlled RBS?

[Greg Clark]

My hon. Friend and I completely agree about the need for more competition in the banking sector. It is one of the features of the banking crisis that it has resulted in a concentration in the number of banks. Frankly, there were never enough in the first place, and we need urgently to see more new entrant banks of all types coming in. We are working with the existing regulatory authorities and, through amendments to the Bill, we will transform the state of competition in the banking sector. I very much hope to see an infusion of new energy and talent into the banking system in this country.

[John Mann (Bassetlaw) (Lab)]

Given that we have the highest high street lending rates in the European Union, along with the lowest high street saving rates, why is not the Minister proposing the break-up of Lloyds TSB in addition to that of RBS? That would immediately create proper competition in the banking sector.

[Greg Clark]

As I am sure that the hon. Gentleman would acknowledge, the Government have promoted the sale of Northern Rock to Virgin, for example, to try to encourage new entrants, and he will see more of that in the future. On interest rates, those that are being paid on mortgages and small business loans at the moment are very much lower than they would have been had we not taken the necessary action on the economy to keep them competitive.

[Mark Garnier (Wyre Forest) (Con)]

The British Bankers Association has said this morning that the electrification of the ring fence might cause some uncertainty in the City. Does my right hon. Friend agree that the only banks that need to be worried about the future are those that game the ring fence and try to burrow underneath it?

[Greg Clark]

My hon. Friend is absolutely right. Any bank can have complete certainty that it will not be subject to being broken up if it respects the ring fence. Indeed, given the standing of the City of London, it is important that we all have confidence and trust in the British banking system, on which the credibility of that standing depends. The reforms recommended by Sir John Vickers and his commission will achieve precisely that.

[Kevin Brennan (Cardiff West) (Lab)]

Is not the truth that, by failing to take full reserve powers, the Chancellor has not so much electrified the ring fence as raised it by a mere millimetre? Why were the full recommendations of the commission not implemented?

[Greg Clark]

We have addressed that point. Obviously, it is the behaviour of any particular bank that will cause problems, and the sanctions against such behaviour are clear. If a bank breaches the ring fence that has been established, it will be split up. That is as clear as day to the directors of every bank, who, by the way, will now have a personal responsibility to respect the ring fence.

[James Duddridge (Rochford and Southend East) (Con)]

About 650 people work for Lloyds TSB in Southend, with a similar number working for RBS. In addition, there are about 20 branches, each employing 10 individuals. Does my right hon. Friend agree that this banking reform is just as much about helping the banking industry in the whole of the United Kingdom as it is about the square mile of the City or Canary Wharf?

[Greg Clark]

My hon. Friend is absolutely right. One of the real tragedies, and one of the things that makes me most angry about the declining reputation of banking in recent years, is that the reputations of many hundreds of thousands of people who work in banks up and down the country and who have chosen banking as a career because of its associations with probity and respect in the community have been besmirched by the actions of a very small number of people. Our purpose in restoring the reputation of financial services in this country is also to allow those people to go to the pub without being teased and ribbed because they work in a bank, which is something that should never have happened to them.

[Alison McGovern (Wirral South) (Lab)]

My constituents want banks to serve industry and our community, not themselves. May I try the Minister yet again on the question of full reserve powers? Why should the evidence of one institution hold sway over that expert commission?

[Greg Clark]

It is the hon. Lady’s objective that banks should serve businesses and their customers, and that is precisely what Sir John Vickers has in mind. That is the purpose of the exercise, and it is exactly what I want to achieve. Any ring-fenced bank that strays from that purpose and neglects its core customers—its retail depositors and the other people who bank with it—by taking their money and playing with it in the casino will be broken up.

[Mr Brooks Newmark (Braintree) (Con)]

I welcome the points the Chancellor made this morning on facilitating account switching, which I think will be most welcome to all our constituents. Will the Minister outline in a little more detail how this will work?

[Greg Clark]

I will certainly pass on my hon. Friend’s comments to my right hon. Friend the Chancellor. What we are saying when it comes to the regulation of payment systems is that, through the Bill, we will set up a regulatory responsibility to promote competition on the part of the regulator of payment systems. One thing regulators will want to look at is how they can quickly make accounts portable between customers. That, however, is only one of the innovations that could be made. I mentioned in my response to the urgent question the requirement to speed up the clearing of cheques. My hon. Friend will recall that the Payments Council once introduced a statement—almost ex cathedra—to the effect that cheques would be abolished in future. What kind of contempt for the consumer does that show? It should not happen again, and it will not happen again.

[Mr Ronnie Campbell (Blyth Valley) (Lab)]

Why are we pussyfooting with these banks? Why not just nationalise them and make them into a good public service? After all, we own half of them.

[Greg Clark]

As a result of the chaos of the previous Government, we almost ended up nationalising the banks. I want to see our banks back in the private sector; I want to see them competitive; I want to see them making money, providing jobs and getting credit to businesses and consumers.

[Nadhim Zahawi (Stratford-on-Avon) (Con)]

The Financial Services Authority says that one reason why RBS failed was the political pressure put on the regulator to ignore the risks banks were taking. It named the shadow Chancellor as one of the three politicians responsible for that. What checks and balances are in place now to ensure that that does not happen again, and has my right hon. Friend had an apology from the shadow Chancellor?

[Greg Clark]

One of the principal innovations was to get rid of the shadow Chancellor who was then in a position to interfere. The reason we are setting up the system and giving powers to the Bank of England and the regulator is to make it very clear that any bank that breaches the rules can forget about lobbying Ministers. The banks will be responsible to the Bank of England, which will enforce the law that I hope this House will see fit to pass.

[Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)]

Let me take the Minister back to the question posed by my right hon. Friend the Member for Wolverhampton South East (Mr McFadden), who is a member of the banking commission. In simple language, what possible reason do the Government have for not accepting the commission’s recommendation to take that reserve power? After all, only banks that do not conform with the Government’s wishes would have anything to fear from the reserve power. Why not go on and take that power?

[Greg Clark]

I have explained on a number of occasions why we have not done so. One reason is that the regulator does not want that power, and a second reason is that it seems to us more appropriate that individual banks feel the consequences of their breach. The system itself does not have a mind to breach the rules; it is individual banks that do so. It is thus appropriate for the sanctions to apply to individual banks.

[Charlie Elphicke (Dover) (Con)]

In addition to the electrification of the ring fence, has the Minister considered adding a bit of barbed wire on top? We should look at depositor preference, so that deposits rank above the bondholders to give extra security. What are the Government’s thoughts on that at the moment?

[Greg Clark]

We agree with my hon. Friend, and that will form part of the Bill.

[Toby Perkins (Chesterfield) (Lab)]

The Minister is absolutely right to say that the reputation of our banks has never been lower. We hope that we will start to see the important changes we need. One reason for that reputation is the experience that many small businesses had with interest rate swap agreements. While many welcome the FSA announcement on that, there are still some concerns about whether people will really consider that they have had justice at the end of the process. Will the Minister confirm what representations he has made to the FSA about what it should find during the deliberations, and will he give us any assurances that the interest rate swap problems we have had in the past will not reappear in future?

[Greg Clark]

The hon. Gentleman raises a very important point. I met the Federation of Small Businesses and the Bully-Banks organisation and I conveyed their concerns to the FSA, which the hon. Gentleman knows is set up to be the independent regulator. I think most people were relieved that the FSA proposals of last week will result in compensation for the affected businesses within a rapid time frame. What happened is totally unacceptable, and is another feature of the scandalous decline in reputation that the banks have suffered. Small businesses in particular have a right to regard their bank manager as someone who acts in their interests, rather than someone who flogs them dodgy products that they do not need in the first place. That is a breach of trust in banking. I am absolutely insistent that the FSA should conclude this process, giving full recompense to those who have been mis-sold products.

[Andrea Leadsom (South Northamptonshire) (Con)]

The retail ring fence is a good idea, but the real game-changer for banking will be the introduction of full bank account number portability, because it will break open the oligopoly banks. Does my right hon. Friend agree that it is also important for the Payments Council no longer to be controlled by the big banks? Breaking open competition and introducing new challenger banks is of key importance.

[Greg Clark]

I thank my hon. Friend for the effort that she has devoted to promoting this agenda. It seems to me that if there is to be genuine competition, people should have a choice of banks, and it should be easy, not difficult, for them to make changes. I hope that the work that my hon. Friend is doing will be reflected in the policies that we are enshrining in the Bill, and I look forward to detailed discussions with her about how that may be possible.

[Mr William Bain (Glasgow North East) (Lab)]

If the public are to have confidence in the new system, they need to know that lawyers or bankers will not be able to circumvent the ring-fencing regime. Can the Minister come up with a better justification for the Government’s not taking a full reserve power for full separation, in order to protect the public, than those that he has produced so far?

[Greg Clark]

The hon. Gentleman is right: we need to protect the ring fence from the ingenuity of the lawyers who are sometimes in the vicinity. The history of financial regulation shows that banks have been able to discover ways of circumventing the rules, which is why we have given the regulator robust powers to insist on the full separation into retail and investment of any bank that makes any attempt to breach those rules.

[Jason McCartney (Colne Valley) (Con)]

Can the Minister confirm that, under this Government, the taxpayer will never again be required to bail out the banks while a minority of bankers are picking up huge bonuses?

[Greg Clark]

I agree with both parts of my hon. Friend’s question.

[Mr Dave Watts (St Helens North) (Lab)]

The Minister says that he wants to establish new bodies to set bonuses and pay in banks. Can he guarantee that on those boards will be ordinary customers and businesses, and that they will not be stacked with bankers’ friends?

[Greg Clark]

I think it important for the responsibility exercised by remuneration committees in particular to have regard to the experience of ordinary working people up and down the country. I see no reason why the way in which bonuses are thought about in boardrooms in the City should be any different from the way in which they are thought about in any other industry.

[Alun Cairns (Vale of Glamorgan) (Con)]

I welcome the Minister’s statement, which confirmed the Government’s policy on ring-fencing the banks and its extension to electrification. Does the Minister agree that some of the products or derivatives of investment banks—particularly fixed-rate mortgages—can offer certainty and security to retail customers, and that we need an intelligent debate about the issue?

[Greg Clark]

My hon. Friend is right, but I think we have already had the intelligent debate. The Government asked the commission to look into that issue in particular and to make recommendations, and the commission expressed the interim view that it was reasonable—as my hon. Friend says—for simple derivatives to be provided from within a ring-fenced bank. However, it wants to reflect further on whether any of its inquiries into the culture of banking may have implications for that. We will await its conclusions.

[Diana Johnson (Kingston upon Hull North) (Lab)]

Following the bank mergers, many regional banks and building societies have gone, and we have lost the investments that they would have made at local level. Will the Minister explain how the Bill will enable areas such as Yorkshire to benefit, and can he assure us that it will not be just the south-east that benefits from the increase in the number of banks?

[Greg Clark]

The hon. Lady makes an excellent point. I should like very much to see banks in our great regional cities, as used to be the case: banks that can take deposits from local people and, knowing what local investment opportunities they have in the area, can establish a connection. So far it has been very difficult for new banks to obtain banking licences within a reasonable period, and to satisfy the regulatory requirements. We are doing all that we can to lower the barriers to entry, so that we can achieve exactly what the hon. Lady has described.

[Guy Opperman (Hexham) (Con)]

I welcome the proposal, as well as the fact that we are taking on the bully banks on interest rate swaps and clearing up the big banks, which have had grave deficiencies for a considerable time. Does the Minister agree that the Bill will also make it easier to create the local, regional banks that we need to provide the competition, access to finance and community trust we are trying to establish in places such as the north-east, where we are proposing a bank for that region?

[Greg Clark]

My hon. Friend is right about that, and it may interest the hon. Member for Kingston upon Hull North (Diana Johnson) to know of the example that he and I were discussing in Newcastle recently. We were looking at ways in which we can make it possible for there to be a north-eastern or Tyneside bank that can specialise in the north-eastern economy.

ECOFIN

Greg Clark Excerpts

Wednesday 30th January 2013 Written Statements

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

A meeting of the Economic and Financial Affairs Council was held in Brussels on 22 January 2013. Ministers discussed the following items:

Current legislative proposals

The presidency updated Ministers on the single supervisory mechanism (SSM), capital requirements directive IV (CRD IV) and economic governance—“Two Pack”.

Presentation of the Presidency work programme

The presidency presented its ECOFIN work programme for the first half of 2013. Priorities include: economic governance and policy co-ordination; strengthening financial regulation and supervision; progressing work on economic and monetary integration; and representing the EU in the G20.

Follow-up to the European Council meeting on 13/14 December 2012

The presidency provided a summary on issues related to deepening economic and monetary union as detailed in the December European Council conclusions. These issues are reflected in the priorities of the current presidency’s work programme.

Annual Growth Survey

The Council discussed the annual growth survey which was published last November and signalled the start of the European semester 2013. Council conclusions will come back to a future ECOFIN.

Communication: Action Plan to strengthen the fight against tax fraud and tax evasion

The Commission presented its action plan to strengthen the fight against tax fraud and tax evasion. The plan follows the mandate of the March 2012 European Council which called for concrete ways to fight tax fraud and tax evasion.

Financial Transaction Tax (FTT)

The Council adopted a proposal for a Council decision authorising enhanced co-operation for an FTT. The UK will not participate in an enhanced co-operation FTT. The UK was one of a number of member states who raised concerns that the European Commission has not provided any analysis of the impacts an enhanced co-operation FTT would have on individual member states, both participants and non-participants. The UK tabled a minute statement stating that the UK could not support the proposal as it was not possible to take the view that the conditions set out in the treaty on the functioning of the European Union and the treaty on European Union are fulfilled. These conditions include the following: any such co-operation shall not undermine the internal market or economic, social and territorial cohesion; such co-operation shall not constitute a barrier to or discrimination in trade between member states, nor distort competition between them; and any enhanced co-operation shall respect the competences, rights and obligations of those member states which do not participate in it.