Financial Services Bill

Debate between Lord Blackwell and Lord Sharkey

Committee stage & Committee: 2nd sitting (Hansard) & Committee: 2nd sitting (Hansard): House of Lords
Wednesday 24th February 2021 Grand Committee

[Lord Sharkey (LD) [V]]

My Lords, many of the amendments in this group share the aim of increasing or providing for the first time proper parliamentary scrutiny of some financial services regulatory regimes and of those who enforce them. Some amendments deal with the problem of absent or insufficient scrutiny on a grand scale and I strongly support their intent. This Government often seem to think that parliamentary scrutiny is best avoided or diluted. Our DPRRC, SLSC and Constitution Committee have regularly warned the Government against using skeleton Bills, against behaving as though consultation is a substitute for real parliamentary scrutiny and against using rule-making as camouflage legislation.

This Bill contains a particularly alarming example of the evasion of scrutiny in allowing the Treasury to revoke rules by SI by giving the regulator the power to make legally binding rules without any parliamentary involvement. That is completely unacceptable, as the Government must know. I strongly support Amendments 10 and 26, tabled by the noble Baroness, Lady Noakes, as a means of restoring some proper scrutiny. As the noble Baroness clearly explained, these amendments are not prescriptive as to the form of parliamentary scrutiny needed; they simply set out the principles that must guide construction of the scrutiny mechanisms. This is the equivalent of making an invitation to the Government that they should not refuse. It is an invitation to serious and substantive discussion about the way forward and it rightly, given the serious and far-reaching consequences, gives an appropriate incentive to resolve the issue quickly and collectively. I urge the Government to begin immediate cross-party talks on the issue.

By contrast with some of the amendments in this group, our Amendment 22 has modest and narrowly defined ambitions. As the Bill stands, Clause 3 lists the provisions of the CRR that the Treasury may revoke by regulation. There are 42 of these categories of provisions, all of them significant. Clause 3(4) makes these revocations conditional on their being or having been adequately replaced by general rules made, or to be made, by the PRA, or to be replaced by nothing at all if the Treasury thinks that that is okay. The Treasury appears to be the sole judge of what may or may not be an adequate replacement. In any event, Parliament is completely bypassed in this system. But all this means is that the Treasury can revoke provisions by SI before it has published the replacement rules or even decided what they will be. This sounds like a perfect recipe for disorderliness and uncertainty and it means that Parliament will have no opportunity to consider these new rules in a legislative setting. We get to see what has been dropped, but not necessarily what the replacement rules may be. This is another example of making law by making rules that Parliament has not been able to scrutinise.

Our amendment proposes a simple way round this. It would require any revoking SI to carry not only full details of what was being revoked but the full text of the replacing rules, except, of course, where no replacement was envisaged. These new rules can and will reshape important parts of our financial services regulatory regimes, and it is quite wrong that Parliament should be unable to scrutinise them.

I hope the Minister will be able to accept our amendment or to give us an assurance that revoking SIs will contain the full text of any replacement rules.

[Lord Blackwell (Con) [V]]

My Lords, in addressing this group of amendments, I want to speak also to Amendment 85 in my name. As I set out at Second Reading, I should draw attention to the fact that I was chairman of a regulated bank until the beginning of the year, although my interests now are solely as a shareholder.

I agree with other speakers that parliamentary accountability for the regulators is important now that the UK has its own regulatory agenda outside the European Union, and it is missing from this Bill. However, the regulators have been established by Parliament to enable independent expert bodies to exercise delegated powers, and we need to be careful that in providing for the necessary parliamentary oversight we do not create structures that impinge on the political independence of the regulators and their ability to take a considered, apolitical view, undermine their expertise or turn Parliament effectively into the day-to-day regulatory body if it is required to approve every rule in advance. That would make the regulators simply a working body for Parliament rather than independent regulators in their own right.

A number of speakers have talked about regulatory capture. From my experience over many years, it has not felt like the regulators have been captured by the industry, but neither have they always been right, so scrutiny is important. My amendment seeks to strike the right balance of delegation and oversight by suggesting parliamentary scrutiny of rules after the event—ex post—rather than it trying to second-guess the regulator ex ante by approving rules in advance. I therefore take a different view from my noble friend Lady Noakes on Amendment 10 and some of the other amendments. If Parliament sought to approve every rule in advance, the regulators would lose their independence, and we would lose the benefits of speed and expertise. We need to recognise that, often, rules need to be made to fix a problem, and if that problem needs fixing, the regulators need to act rapidly. They obviously need to consult as far as is possible, but to set in process a whole session of approvals by Parliament would handicap them in taking action when they needed to, and it would jeopardise their political independence.

Under my amendment, if a parliamentary committee felt that the rules were inappropriate or not working properly, it could make its views known to the regulator, and I suspect that in many cases the regulator would sensibly take note of that. Ultimately, it would be up to the Secretary of State to propose changes to regulations if the regulator was not acting in accordance with the framework that Parliament set out and intended. The point was made that that might need primary legislation; my understanding is that, under this Bill, Her Majesty’s Treasury can enact a lot of changes in regulations through secondary legislation, which can be done much more rapidly.

As my noble friend Lady Noakes said, what the amendment cannot signify is exactly what the form of parliamentary scrutiny will be and therefore that cannot be written into the Bill, but, since we are having this debate, I would advocate that the scrutiny function when Parliament comes to that is best carried out by a Joint Committee of both Houses, with appropriate technical support.

Experience suggests that a Joint Committee is the best way to avoid politicising the debate. It can draw on the experience in this House while enabling the elected Members in the other place to have their legitimate role in parliamentary oversight. As and when it is appropriate to decide on the form of parliamentary scrutiny, I hope that this can be taken into account.

I know that these matters are still under consultation. I look forward to my noble friend the Minister’s response, but I support the weight of the speakers so far that this is a matter that needs to be dealt with, if at all possible, during the course of this Bill.

Financial Services Bill

Debate between Lord Blackwell and Lord Sharkey

Tuesday 3rd July 2012 Lords Chamber

[Lord Sharkey]

I shall speak briefly in support of Amendment 35, in particular the inclusion of the requirement to promote the Government’s objectives for growth and employment. I emphasise the importance of promoting a healthy and flourishing SME sector in achieving those objectives. The report of the noble Lord, Lord Young, last month, Make Business Your Business, noted that 50% of private turnover, excluding financial services, and 60% of private jobs are provided by SMEs, but SMEs still face great difficulty in finding funding.

The Breedon report of March this year estimates that by 2016, there will be a shortfall of between £26 billion and £59 billion in finance needed by SMEs for working capital and growth. The Government need to take direct action further to improve the supply of finance to the SME sector, in particular in our deprived communities. SMEs in those communities attract only 4% of all investment in SMEs and are in areas where unemployment, especially youth unemployment, is likely to be high.

There is another urgent reason for providing finance to the SME sector. That is to do directly with job creation. The Kauffmann Foundation, a highly respected United States think tank, published a study in July 2010 entitled, The Importance of Startups in Job Creation and Job Destruction. I will have more to say about the findings of the report later in the debate, but its most striking findings were that in the 28 years it surveyed, all net new jobs came from start-ups and that during recessionary years, job creation in start-ups remained stable while net job losses in existing firms were highly sensitive to the business cycle.

That surely has lessons for the UK. If the Government are to succeed in creating the right number of new jobs, they must strongly and actively promote not just SMEs but the start-up subsector of SMEs. To have the appropriate effect, they must do that particularly in our deprived communities. Without such strong and directed promotion, the growth and employment objective is in danger of remaining just that—an objective.

[Lord Blackwell]

My Lords, I apologise to the House that I was unable to contribute to the Second Reading debate. The fact that all these amendments recognise the interlinking of financial stability policy and the wider economic objectives is a major step forward. However, the amendment proposed by the noble Lord, Lord Eatwell, is mistaken in its wording. It is a fallacy to believe that monetary policy and financial policy can be conducted orthogonally, independently of general economic and fiscal policy. The two inevitably interact, and it is fallacious to believe that we can have a government Chancellor of the Exchequer in one corner deciding on a fiscal policy and an independent bank deciding on monetary policy in complete isolation—and, if necessary, disagreeing and conducting an alternative economic policy.

We are in this situation only because the previous Government separated monetary policy from the independence of the Bank of England in 1997. Until that point, the assumption was that the Chancellor of the Exchequer and the Government were accountable to Parliament and to the electorate for economic policy in the round. The Governor of the Bank of England certainly had a crucial role in advising the Prime Minister and the Chancellor of the Exchequer on monetary policy.

At the end of the day, however, a common policy was agreed that ensured that monetary policy and fiscal policy were aligned to the same objectives. They might be the right objectives, they might be the wrong objectives, but at the end of day the Government and the Chancellor of the Exchequer were accountable to Parliament and to the electorate for those decisions. The idea, as the noble Lord said, that at times you want a Bank of England or a financial policy committee to pursue a policy that is at odds with government policy is mistaken and misrepresents the way in which these functions ought to work together.

I therefore much prefer the wording of my noble friend’s amendment, Amendment 35A. Although I agree with much of what the noble Baroness, Lady Kramer, has said, my noble friend’s amendment has the great advantage of simplicity, and I support him in that.