Financial Services Bill

Lord Archbishop of Canterbury Excerpts

Monday 12th November 2012 Lords Chamber

[The Lord Bishop of Durham]

My Lords, my name is down on the amendment. I thank the noble Lord, Lord Newby, for that most helpful intervention, which essentially satisfies what I hoped for with the amendment. I also thank the Minister and other noble Lords for their kind remarks earlier.

It is particularly important that this information is available not only for this House and the public but also for the FCA itself in view of the very welcome earlier amendment about the access to finance in areas of social deprivation. For that to be effective, the FCA itself will require these kinds of data. Having them available is not only useful to us but ensures that the FCA’s regulatory obligation can be fulfilled and that it will feel an obligation to make sure it is fulfilled. It prevents regulatory comfort, which is often as much a danger as regulatory capture. The noble Baroness, Lady Hayter, spoke in those terms on an earlier amendment.

I am particularly conscious of this in the area where I live—in the smaller towns of the north-east, the ex-pit towns and pit villages and de-industrialised areas—where access to finance for SMEs, especially the very small SMEs, is almost non-existent. This will reveal that kind of problem extremely clearly. Recently, through a social enterprise, we were able to support someone who had been seeking £200 for 18 months in order to start his own painting and decorating business. Such a small amount has enabled him to become self-sufficient, with an order book full until next May. It is that kind of thing that can make a significant difference in the small economies of the more rural areas of my diocese and other places like it. I thank the noble Lord again for the assurance that he has given the House and we look forward to seeing the results.

[Lord Flight]

My Lords, perhaps I may just add a brief comment. I had a conversation this morning with the entrepreneur Luke Johnson. He made a point to me that resonated strongly. Would it not be a good idea if we could organise key entrepreneurs to take up the challenge of different towns around the country to give a lead in entrepreneurial rejuvenation? I can certainly think of examples, particularly Swindon in the past, where that sort of principle has worked extremely well. Then the SME lending makes more sense.

Financial Services Bill

Lord Archbishop of Canterbury Excerpts

Wednesday 18th July 2012 Lords Chamber

[The Lord Bishop of Durham]

My Lords, my name is on this amendment and the noble Lords, Lord Lucas and Lord Sharkey, have said virtually everything I want to say. I will simply add that in the areas where the access to finance is most wanting, the creation of safe space—through regulation of the kind that the noble Lords described—is what will enable competition to start to break the stranglehold of some of our larger lenders, who neither lend in these areas themselves nor are willing to make space for others to lend in them. That is a fundamental reason why there is still a shortage of finance.

The Bank of England’s north-east agent in her report, which was published this morning, talked about inadequate supplies of finance to the SME sector in the north-east of England despite the valiant and determined efforts of the Government, through guarantee schemes, to make that possible—and those schemes are not providing finance at anything under 10%. The banks are simply layering charge upon charge upon charge. We need regulation to permit competition. It will not stop competition. I hope the Minister will see the advantage of this as it has been so eloquently put by previous speakers.

[Lord Tunnicliffe]

My Lords, these Benches do not have a particular view on Amendment 114. If the noble Lord, Lord Sharkey, is to press this further at a later stage in light of the response from the Minister, we will have to think through whether we will support it. It clearly has consensus support in the Chamber tonight so we will look at it very carefully. In his response, can the Minister give a view on how wide or narrow he sees his amendments, particularly the extent to which they might have a general utility in, for want of a better term, future-proofing the legislation?

Turning to Amendment 117B, we all want to support innovation. Once again we do not have a view on this amendment, but if it is pressed at a further stage, what we always have to look at with innovation and competition is proportionality. Yes, innovation creates competition, new ideas and opportunities, but it may put the customer at risk. Proportionality has to be there to balance new opportunities with proper protection.

Financial Services Bill

Lord Archbishop of Canterbury Excerpts

Tuesday 3rd July 2012 Lords Chamber

[Lord O'Donnell]

My Lords, I rise to support Amendment 35A and in particular to speak in favour of the phrase “subject to that”. It is important that we understand why this was put there for the MPC. The basic economic principle was that low and stable inflation was the best prerequisite for long-term sustainable growth. Shocks to economies happen, which mean that inflation will move away either above or below. When that happens, the MPC has a choice. It has a choice of which path of its instruments—we thought at the time of just interest rates but obviously QE is part of it—it should choose. The legislation gives a very clear answer to that because it says “subject to that, look to the broad economic objectives”, so it should be choosing that path which best meets those economic objectives while hitting long-term stable inflation.

It works for the symmetry with the FPC because we would all say that financial stability is a necessary and sufficient condition of sustainable economic growth. When you get shocks to financial stability—and boy have we had a shock—you then have choices about how you get back from those shocks. I strongly agree with the noble Lord, Lord Eatwell, that in these circumstances you do not want to have pro-cyclical regulation, which could make matters worse. It is really important that the “subject to that” is there and that that builds in the economic policy.

For those who want to explain economic policy in a lot more detail and put subsectors in, I would say that could be a very long list, so I think you have to rely on economic policy. The amendment is very clear. It refers to the Government’s,

“economic policy … including its objectives for growth and employment”.

I, for one, would ask “What is the economic policy of the Government?”. The Prime Minister made that clear when he said that we do not live by GDP growth alone and that what really matters is maximising well- being. Therefore, I think we have an overall strong objective which allows us to get to the right policies. It is not about a simple mechanistic formula.

[The Lord Bishop of Durham]

My Lords, I would hesitate to disagree with the strong voices who have accused me of coercion. It is some time since I was last accused of coercion—not since the Church Commissioners sold off my palace with its dungeons. Coercion is much less of an opportunity than it used to be.

The amendment is not coercive and I disagree with the views that have suggested that it is intended to be. It is part of a series of amendments which are meant to open up the market and make it easier to have more stable and sustainable supplies of finance across the market. It refers to a stable and sustainable supply of finance; not to creating it but to enabling it—making it possible. One of the characteristics of many areas of economic stress, such as those in my diocese, is the creation of microeconomies, which may be much weaker or stronger than the national averages may indicate. Many contributions from noble Lords have tended to look at the macro and national picture and have forgotten some of the local and smaller problems that happen but which nevertheless affect many people. Adequacy of finance varies significantly even within one size or sort of company, as I remember from my days in the oil industry during a collapse in the oil price. SMEs in the south of England may find a very different position from what they will find in the north-east. The noble Viscount, Lord Trenchard, called it an amendment for a planned economy, but the word used is not “planned”; rather the intention is reflected in the word “promoting”.

The speeches of many noble Lords seem to assume that the present situation is working. In many parts of the country, it is not. Some areas are virtually demonetised, apart from cash, and this is a significant problem. The reports of the Bank of England agent in the north-east indicate the irregularity of finance. Anyone who has managed the finances of a company and a social enterprise, as I have, will know that that is a more serious problem than a continual supply or even a shortage of supply. You need to know what you are planning for. Moreover, a lack of attention to regulatory barriers to access to finance is likely to result, without attention, in a less competitive and open market that in turn will see a continuation of these inequalities across the country.

It may well be that the language of the amendment to which I have added my name is a little too forceful and coercive—I am rather attracted by coercion—and that seems to be a common view which I would probably be hard put to resist. I hope that the Minister will take note of the issues of closed and inadequately liquid markets in certain areas of our economy and of access to finance being more difficult in less fashionable areas where the need for employment creation is severe.

[Lord Barnett]

My Lords, I am delighted to follow the right reverend Prelate. I was in his cathedral on Friday and it was a very happy occasion. It is as beautiful as people say.

As my noble friend Lord Peston said, the two amendments are reasonably innocuous. I can certainly accept both of them with the exception of those three little words, and this is the first time that I have heard a real defence of them. Indeed, the noble Lord probably printed them himself. Last week I said that the noble Lord, Lord Sassoon, does not need to reply to most of these debates because we have three noble Lords here in the House who would be even better able to do so. However, as I say, I have not previously heard a proper defence of the words “subject to that”. The noble Lord is the first to do so, and I am sorry to have to disagree with a potential Governor of the Bank of England, if he still thinks that after all our debates.

The words “subject to that” have always seemed to be totally unnecessary because the Government of the day will certainly want to deal with inflation and, not subject to that but always on top of that, to look at economic objectives. I cannot see why that should not be so, and if I may say so, I have still not heard a good defence of it. But the amendments seem harmless enough, subject to the removal of those three words.

The question of QE has been mentioned in this brief debate. I do not wish to extend it, but it so happens—probably luckily for the Government rather than as a result of their policies—that inflation has remained relatively low. My noble friend Lord Peston, who is my professional adviser on these matters, may be right to say that that has nothing to do with the Government. However, what concerns me about both of the amendments is that I am not sure where the objectives of the Government lie on growth. I wish they could explain them, but perhaps on another occasion rather than today. Perhaps the noble Lord, Lord Sassoon, or one of the other defenders of the Government’s policy could also tell us what their policy is on economic growth and employment, because it is not succeeding. However, I will not pursue it any further except to say that I hope that the Government will be able to accept the removal of those three words.

Financial Services Bill

Lord Archbishop of Canterbury Excerpts

Tuesday 26th June 2012 Lords Chamber

[Lord O'Donnell]

Perhaps I may respond to the noble Lord’s comments about the Monetary Policy Committee and the Treasury person on it, having been that Treasury person at a very large number of MPC meetings. That person is referred to as the Treasury representative. In the early stages of the meetings, they would explain what was going on in fiscal policy to allow fiscal monetary co-ordination to take place. However, the convention was that the Treasury representative did not get involved in the committee’s discussion about a decision on interest rates.

[The Lord Bishop of Durham]

I shall speak to the amendment in my name, which is in this group. The noble Lord, Lord Eatwell, and others, have commented that the governor’s powers under this Bill are extraordinary. In fact, in the internal running of the Bank the governor will become totally dominant and virtually unchallengeable, as it will the governor who sits on all the relevant key committees. By virtue not only of sitting on them but of chairing them, the governor will have power over the agendas and the conduct of business. That will enable the governor essentially to control the direction of the PRA, the MPC and the FPC completely.

The purpose of the amendment is to pick up some of the points that the noble Lord, Lord Barnett, made so well a few moments ago and which had been made earlier. It seeks to balance the powers in the committees so that the deputy governors have control of their own special areas and are capable of ensuring that the committees focus on the areas that they know well. Noble Lords are aware that in the crisis of 2008, part of the problem, which has been brought out in subsequent inquiries, was that the governor’s focus was inevitably on one area and that others were overlooked because they were not the governor’s principal concern at the time. It is therefore necessary to try to balance the internal powers to create a robust and demanding internal discussion within the Bank long before it comes to the oversight or review of what might have gone wrong in the past—in other words, to stop things happening before they happen rather than afterwards.

Government Amendment 13, which is a fascinating, interesting and useful amendment that will be discussed later, seems, with respect to the noble Lord, to be retrospective rather than prospective. There is quite a lot of closing the stable doors after the horses have left. We do not want another run on the banking system; we want people to stop one. It is the old pink elephant problem: how do you prove that the system has stopped pink elephants being around because you never see one? We will be looking backwards, not forwards, with Amendment 13. It is useful in helping us to understand what has gone wrong but not what happened at the time.

My other concern in trying to balance out these major three committees, two being chaired by a deputy governor, is to try to make the FCA slightly less of the runt of the litter. At the moment, with one person having so much control, the FCA, which is the only committee of the big four that the governor does not chair, ends up being overlooked, I fear. Will the Minister comment on whether he agrees with the point made forcefully earlier that the most rigorous models of governance today should be those that are modelled on the Bank, which include ways of ensuring that it is a learning organisation before rather than after disasters happen. What further action can he suggest to ensure that the FCA’s voice is heard clearly, given its widespread impact on consumer finance across the whole nation and not only in the major financial institutions in the City of London?

[Lord Sharkey]

My Lords, I support Amendment 9, to which the right reverend Prelate the Bishop of Durham spoke. On Second Reading, several noble Lords commented on the powers that the Bill gives to the Governor of the Bank of England. The noble Baroness, Lady Liddell, made the same point half an hour or so ago. It is clear that such a concentration of power calls for robust checks and balances. To an extent, the Bill recognises this, and some of the government amendments recognise it even more. Perhaps necessarily all the proposed checks and balances are formal and procedural, and many are backward-looking. This is necessary but not sufficient.

Financial Services Bill

Lord Archbishop of Canterbury Excerpts

Monday 11th June 2012 Lords Chamber

[The Lord Bishop of Durham]

My Lords, the Bill emerged from the financial crisis of 2008. Therefore, a lot of the attention of the debate is likely to focus on the prudential issues that have already been mentioned at some length. We look forward to the speech of the noble Lord, Lord O’Donnell, whose great expertise and extraordinary experience over the past few years give us much to hope for.

However, in looking at the macroprudential issues, we should remember that the complexity of the Bill grew through an extensive period of consultation and debate so that it now covers the whole range of financial services, from things that happen on the streets of Sunderland in my diocese to international loans and bond issues, and the use of derivative instruments that have been behind much of the exacerbation of risk in the system since I first traded them 25 years ago, to the point today where their volume is many scores of times that of the underlying cash transactions. It is no wonder the Bill has become something of a complex monster.

Given the Bill’s complexity it is easy to overlook its impact on the consumer, and particularly the role of the FCA, which is warmly to be welcomed in many ways. At the retail level we are all aware that we have the most concentrated financial services sector in Europe, with decisions taken far from local communities, and that the lack of penetration of mutuals, credit unions and friendly societies—I was very glad to hear the noble Baroness, Lady Kramer, mention this—is unrivalled in the rest of Europe, where there is far greater and more extensive mutual work at local level than in this country. Our societies have diminished very significantly since the 1980s and the period of catastrophic demutualisation that we should all regret so much. The result is that access to financial services in many of the more deprived areas of our society is now very limited, and we come back to the old problem of loan sharking and payday loans. Payday loans, of course, are legal and proper. It is a great relief that they will move from being watched over by the OFT to being supervised by the FCA, with its responsibilities for integrity, consumer affairs and competition under its three main objectives. However, as has already been alluded to, the danger is that these regulatory organisations essentially operate in a negative and protective manner rather than having, as the FCA has, an obligation to introduce more competition.

The Bill does not seem to provide for accountability and for a measure of what more competition would look like. This must be a serious concern. Contrary to much of what has been said, for example, in Scotland recently by the General Assembly of the Church of Scotland, the answer to the payday lenders is not to limit interest rates as this will simply drive matters back into the hands of the illegal loan sharks. At the moment, if you go outside the Darlington Building Society when the benefit payments come in, you will find a queue of people who will withdraw from their accounts everything but one penny in order to pay it straight into the hands of the loan sharks who are standing by their doors threatening to break up their furniture. Payday lenders do not, of course, operate in this way, but I have numerous examples in my diocese of the serious impact that their high costs have had on people who find themselves caught up in an ever growing cycle of higher interest rates.

The answer to this is not in limiting interest rates but in providing effective competition from local savings at a mutual level and recreating the system that worked so well from the early 19th century until the 1980s. I fail to see this in the Bill and that gives me great concern. I hope the Minister will explain how the competition obligation will not only reduce the problems of access for banks and for other large organisations—as we have already seen with the co-operatives’ problems in taking on the branches of Lloyds Bank—but increase the opportunity for much smaller and more locally based organisations to contribute to their local communities. This will affect a large number of people on the most marginal points of society.

The other point I wish to raise concerns the governance of the Bank of England, which has already been mentioned. It is an old rule of organisations that robust checks and balances within them are much more effective than external legal constraint. A severe challenge to management from the court will be much quicker in enabling group-think to be destroyed and a creative approach to the problems to be seen than any kind of legalistic approach from a regulator subsequent to the event. I shall not waste the time of the House in expanding on this, save to say that I agree with the views that have been expressed already. I look forward to the Minister’s response in explaining how the governance can be strengthened and widened.

Queen’s Speech

Lord Archbishop of Canterbury Excerpts

Wednesday 16th May 2012 Lords Chamber

[The Lord Bishop of Durham]

My Lords, I am astonished to be here for two reasons. First, I am astonished that I am here at all. Secondly, I am astonished at the warm welcome that I have received, for which I very much thank your Lordships and all the staff and people who work in this place, who deal very adequately with Bishops wandering around, bleating miserably that they are lost—or, at least, this particular Bishop. It has been a great privilege to have found myself helped in so many ways. I am also grateful to the noble Baronesses, Lady Wilcox and Lady Royall, for their warm welcome today. I look forward to hearing the maiden speech of the noble Lord, Ashton of Hyde, a little later.

I am privileged to be the Bishop of Durham in the north-east of England, which has been one of the most formidable and remarkable parts of this country for more than 1,000 years. It is a source of spiritual and material regeneration and the home of the Industrial Revolution in a way that continues to this very day. We have just heard mention of the new investment by Nissan in car plants and about the SSI steelworks on Teesside and the train assembly by Hitachi within a couple of miles of where Stephenson manufactured the Rocket. These are all areas of intense international competition. These investments show the capacity of the north-east to face anything that comes and to be successful.

This morning I was speaking with the chief executive of the chamber of commerce about a company near Newcastle that makes remotely operated vehicles for subsea work. It has created 500 jobs in the past five years, which, again, is extraordinary. We were talking about how we can develop a trade mission to Nigeria—a country that I know well—in connection with that and with the oil industry, which I also know well.

All these successes mean that the north-east is not a problem to be solved but, rather, an asset to the country to be treasured and valued. At the same time, we face the gathering storms that have been there since 2008 and are getting worse today, threatening even more damage than they have done in the past few years. We see that there are resources and there are great arguments about the rate at which one decreases deficits. However, it is clear to everyone that the Government do not have as much money as perhaps they would like. There are also great arguments about personal indebtedness. Certainly I have recent experience in the north-east of the current level of loan-sharking, which, as someone in Sunderland said to me, is now finding its golden age. People are very stretched.

One area that remains extremely liquid is the corporate sector—an area that I am familiar with, having at one time been the treasurer of an oil company. The Ernst & Young ITEM Club spring report of 2012 said that financial surpluses in the corporate sector are now at 3% of GDP, expected to rise to 5% in 2016, and that last year the sector added £80 billion to its cash hoards. That £80 billion is hoarded in the Keynesian sense of money put away not because it is needed to pay imminent debts or to manage cash flow but, rather, because there is a sense of a lack of confidence. Those are the issues that are being faced.

Even though the north-east is the only part of the country to have a balance of trade surplus, what is making matters worse there is that engineering manufacturers are finding a shortage of skills. With youth unemployment at very high levels, they cannot hire people with the necessary skills for engineering. I have the privilege of being patron of the Northern Echo’s campaign for jobs, which aims to create 1,000 apprenticeships and internships over the next 12 months by asking companies to take on extra interns and apprentices. Skills in engineering and manufacturing are learnt not simply in the classroom but by being part of a working environment. One of the best things that can happen—it is seen in the Budget Red Book and is alluded to in the gracious Speech—is the creation of opportunities for new apprenticeships and new learning and skills. However, that needs targeted resources—mere widespread exhortation is not going to do it.

The second major area is confidence. As I said, £80 billion is being hoarded because of a lack of confidence. Once again, confidence does not come through exhortation but through action, so companies feel that if they do not get on they will fall behind. On 24 April, the noble Lord, Lord Davies of Oldham, made some passing remarks about the pressure on the construction industry, with the 14% fall in January. This morning, looking at the Bank of England agent’s report for the north-east, I read that 15% of all insolvencies in the past quarter were in the construction industry. Confidence comes from cranes and scaffolding: they build confidence as quickly as they erect buildings. Again, when resources are short, we need targeted use of money to bring about quick investment.

All over the country, particularly in the north-east, in schools and in the area of listed buildings—to the unschooled, I am dressed in a white nightie and a black dressing gown which means I have an interest in listed buildings as you might imagine—there is a large number of what President Obama refers to as “shovel-ready” projects. Those targeted investments saying, “You can have funds, grants, help and allowances provided you break ground within six months”, would immediately create large numbers of jobs at a much lower cost than we were hearing last week had been spent on some job creation exercise.

The whole object is not merely economic growth and human flourishing. With economic growth we are able to deal with some of the great issues of human flourishing, such as loan-sharking, the breakdown of families, the high levels of unemployment and the 1,100 people who have visited a food bank that I opened last week—a food bank in this country. Such things destroy human flourishing and diminish the human spirit. The need for confidence and investment in skills is not merely to have a bigger economy but to enable us to see a transformation of our society. These things will not happen merely through exhortation but they require action and leadership.