Financial Services Bill

Lord Barnett Excerpts

Tuesday 10th July 2012 Lords Chamber

[Lord Barnett]

Apart from the slight slip, I agree with everything my noble friend said. Indeed, I would say that it is not the only major mistake in this Bill. There are lots of major mistakes; indeed, there is total confusion. My noble friend has referred to only part of it. The plain fact is that when he talked about the FCA or the FPC, I was not quite sure which one we were talking about. There is also the PRA, which I forgot to mention. The macroprudential is also very important. I do not know where it fits into all this and where the responsibility will lie. To say that it is confusing is to put it mildly. As I have said before, this Bill is a dog’s breakfast—I think that is the phrase. This Joint Committee that is being set up—perhaps the noble Lord can tell us when—was supposed to deal with everything very quickly. However, we are rising in a couple of weeks’ time, and if the Joint Committee is not set up soon it will be October before it is. Perhaps the noble Lord knows, because he knows everything about this Bill.

The plain fact is that responsibility ultimately rests with the Treasury. On the previous group of amendments, we were told that the Treasury will issue another document. The one thing we are not short of on this Bill is documents. We have two huge volumes, one with the schedules and one with the clauses, plus Treasury amendments and all kinds of working papers. Frankly, if my noble friend is confused, anyone involved with this Bill is bound to be confused because it is totally confusing. I hope that the Minister will be able to reply comprehensively about how the whole thing will work and where the responsibility lies. I assume that ultimately it will lie with the Treasury, not with the FCA or the PRA or whoever. Who else will be responsible for financial stability? It must be the Treasury. No doubt, the Minister will be able to tell us. I strongly support my noble friend.

[Lord Peston]

My Lords, first, I support my noble friend Lord Barnett in his remarks about this Joint Committee of both Houses, about which we had a great row last week and were even divided on. We would certainly like to know when it will be set up and when it will appear in detail in the business statement. Having said that, I have two or three questions.

My noble friend is quite right to use the word “experiment”, but I hope he will agree that the whole Bill is an experiment. We have not had anything like this placed before us in this form, certainly in my quarter of a century here. That does not mean that it is an experiment that should not take place, but it does mean that we must be immensely careful when it comes to implementation. In particular, the one thing that we do not want to do is what I am afraid all Governments do: look at the past and then repeat the errors of the past willy-nilly. This is not a party political point; it is part of the nature of our political system. We need to make absolutely certain that we do not repeat the errors of the past.

One slight point which my noble friend knows I will disagree on is the phrase,

“subject to scrutiny by the Treasury Select Committee”.

I would always want to add “and the Economic Affairs Committee of your Lordships’ House”, but again we have had that argument before, and the cliché “flogging dead horses” is not my stock in trade.

What troubles me much more is that I cannot see how what is said in the Bill does not lead to clashes with the MPC and what it seeks to do. There is an enormous blurred area of who is responsible for what. After all, if one knows any monetary economics, one knows that the MPC’s role is certainly to produce financial stability. That is the whole point of a correct monetary framework, yet there are these other bodies doing the same thing. I know that we went through this again last week and were told that the governor of the Bank—I add the now mandatory remark, “whoever he or she may be”—will be chairing both committees, but it is still a Herculean task for the governor to ensure that two different committees do not have a decision-making process that leads to conflict.

My last question is due to my ignorance of parliamentary procedure. Could the Minister say a bit more about what the phrase “by order” means? Does it mean putting an order before both Houses that is not amendable by us, or not? Apart from that, as I say, my support is strong.

--- Later in debate ---

[Lord Barnett]

I was confused before we started and my noble friend and the Minister have confused me even more. They talk about teams; apparently there is a Treasury team and a team from the PRA, MPC or FCA—I am not sure which it is. There are various teams who will be meeting to solve a crisis if it arises. The Chancellor of the Exchequer, of course, would know nothing about all of this. The people who know something about it might be here with us, including the noble Lord, Lord Sassoon, who is a member of the team, apparently. Maybe he will take the penalty kicks.

[Lord Peston]

The noble Lord was talking rugby and we are talking football.

[Lord Barnett]

We are talking about possible serious financial crises and stability. At the end of the day, the Chancellor will be held responsible if something goes wrong with financial stability. There could be as many teams as we liked, but the Chancellor would ultimately have to accept responsibility, even if he knew nothing about it. I am sure that any Chancellor—I am looking at one now—would know everything that was going on in his team.

I am confused about what the clause or the Bill will do to help us in this matter. My noble friend’s amendment might help, although we are told by the Minister that it could “excessively personalise”. I am blessed if I know what that is supposed to mean, but no doubt the Minister will tell us. At the moment, I am more confused than ever. I thought that I understood a few things about financial matters but, listening to the exchange between my noble friend and the Minister, I am confused more than ever.

[Lord Eatwell]

Perhaps before I sit down I can help my noble friend. We are discussing what is perceived to be an essential failure of the previous system. The failure was that the people responsible for working it did not take advantage of the tools that were provided. Here in the Bill, as the Minister pointed out, the Government have rightly insisted that the Treasury and the Bank convey information to each other, consult each other and act collectively when necessary. That is appropriate, and I commend the Government in that respect. I simply think that they have not gone far enough.

--- Later in debate ---

[Lord Peston]

My Lords, I remind the Committee by way of background that we are discussing adverse, exogenous shocks to the financial intermediation process. Those shocks are impossible to forecast and extremely hard to recognise even when they hit the system. My understanding of why we require macroprudential measures is that it improves the way in which the system works so as to be able to cope with those shocks. It is partly to protect the system of financial intermediation and partly to improve its effectiveness and efficiency—so we have no difficulty about that.

However, if we need these instruments, it follows that in a democracy—and I still include your Lordships’ House as part of our democracy—Parliament must be able to scrutinise them appropriately. As the noble Baroness, Lady Noakes, is well aware, I am not an expert on all the different kinds of orders, and she simply lost me on them, but I ask her whether the measures set out in her amendment give Parliament, including your Lordships' House, a full right to scrutinise the introduction of the macroprudential measures and—here I got a bit lost—to amend them in the sense of saying to the Government, “We think that what you are doing is right, but you can do it in a rather better way.”? If that is what the amendment says, and I see the noble Baroness nodding, the Minister has a duty to the House to say, at the very least, that he will take it away and think it through.

[Lord Barnett]

My Lords, I support the noble Baroness, Lady Noakes, in a way, although the amendment would add even more confusion to the Bill than is already there. My noble friend Lord Peston referred to the fact that it is about shocks. I hope it is not an urgent shock, because the amendment would give time for draft orders to be laid for a period of up to 60 days or before the end of a period of 12 weeks. Then there must be orders in both Houses. I assume that both Houses would also take advice from their Select Committees. All that will be going on while urgency is required. I find the whole thing as confusing as my noble friend does. We are told at the end of the amendment that if this shock arises when the House is not sitting, all kinds of other things happen. As my noble friend said, if the noble Lord, Lord Sassoon, cannot clarify the whole thing for us in asking for the amendment to be withdrawn, we should be glad if he would take it away to think about it further and let us know what he or someone else thinks about it.

[Baroness Kramer]

My Lords, I am very much in favour of scrutiny by this House. I cannot pretend to be an expert either on the different varieties of orders or on the different measurements and tools that the FPC might introduce, but I would be concerned about a mechanism in this House that enabled tools to be amended. Although we have some experts, the capacity to understand the internal workings of a tool with sufficient precision to be able to introduce an amendment to a ratio strikes me as not the particular skill of a legislature or this House. We can raise questions about it or require that it be dismissed because the Government have not sufficiently made their case, but to amend it is not a skill with which we are particularly equipped.

For that reason, and with great respect to the House, it seems to me that the capacity for amendment is inappropriate in this case. The capacity to force the Government to make their case and to judge on that case is entirely appropriate, but not the capacity to substitute; that worries me.