Financial Services and Markets Bill

Lord Carrington of Fulham Excerpts

Report stage
Thursday 8th June 2023 Lords Chamber

[Lord Carrington of Fulham (Con)]

My Lords, I will add my two cents’ worth to encourage the establishment of a Joint Committee. I cannot believe that having a committee in each House of this Parliament would work effectively, for all the reasons that the noble Lord, Lord Eatwell, has suggested. The committees of this House and the other place are grossly underresourced in any case. We need a committee looking at something as detailed and complex as this which operates in the way that the Public Accounts Committee in the other place is set up, is dedicated to look at regulation and has the resourcing to double-guess not only the regulators but the advisers who advise them, so that it can stand up and come to its own opinion. In the small time that the members of those committees are able to dedicate to the committee, with all the other duties they have as parliamentarians, it should be able to analyse the evidence and come up with sensible, and inevitably highly technical, solutions.

I have some experience of the committees of both Houses. I chaired the Treasury Select Committee, donkey’s years ago, and I served on the Economic Affairs Committee here for some time. Neither of those committees has the resources to be able to undertake this kind of task. It needs a completely new structure. Possibly the only model we can look at is the PAC, which has the National Audit Office advising it very closely. I am not suggesting we should set up a national audit office for regulation, although I know my noble friend Lord Bridges has suggested such a thing. We need to make sure that whatever is set up is properly resourced. I recognise that it is a matter for both Houses to decide how they do that, but we have to be absolutely clear that both Houses can do that only if the financial resources are made available by His Majesty’s Treasury and the Government to enable them to do so. It will be a decision to be taken by His Majesty’s Government and my noble friend the Minister to ensure that the resourcing is available.

It is a necessary step. However, it is a step and almost certainly not the conclusion. Once we have experience of regulating the regulators, we will be able to judge what other changes are needed to make sure that the regulation is effective and that financial markets in London are regulated in a way that is effective and convincing for participants in those markets on a global basis.

[Baroness Kramer (LD)]

I congratulate the noble Lord, Lord Forsyth, on being so persuasive. The Government have listened carefully to his advice and have come forward with amendments that are identical in their outcome, even if perhaps they have found a more effective or legally acceptable way to set out the wording. I am sure that that is a step forward, but I want to join the chorus.

I had the privilege of being on the Parliamentary Commission on Banking Standards, which in effect was a Joint Committee of both Houses. It was very much driven by the Government, who set it up in the first place, and it was properly resourced. From the work we did over the two years, there are two lessons to be drawn. One is that, with that resource, you can genuinely produce the evidence and go into the detailed questioning that is necessary to expose what may not have been obvious from a superficial or limited inspection; in-depth was possible because of the resource that was made available. The second lesson is that as a Joint Committee—I am very attracted to Joint Committees, as they avoid the duplication that others have talked of—that commission received a degree of respect and significance that is probably not available to a committee that is the creature of one House but not the other. The joining together of the forces of both Houses was meaningful.

Financial Services and Markets Bill

Lord Carrington of Fulham Excerpts

Committee stage
Monday 13th March 2023 Grand Committee

[Baroness Bennett of Manor Castle (GP)]

My Lords, it is a pleasure to follow the noble Baroness, Lady Sheehan, who has highlighted the gender aspects of this debate, and the noble Lord, Lord Sharkey, who has been a consistent champion on this issue in your Lordships’ House. I wish to make a couple of comments additional to what has already been said, while offering support for this amendment to push the Government to take action.

It was Green Party conference at the weekend, and I found myself discussing again and again how the public, who once thought that when the Government announced something that meant it would happen, are increasingly aware of the legislative process, and even the role of your Lordships’ House, because it is taking so long between government announcements and something actually happening. That is true of the announcement of a bottle deposit scheme for England, but there has been an even longer stretch between the promise of sharia-compliant finance, particularly for student loans, and the delivery.

The last figures that I saw showed that 9% of higher education students in the UK were Muslim. Extending loans for lifelong learning into further education makes it very likely that the percentage of students affected by the lack of sharia-compliant loans will increase. It is not as though the Government have not been reminded of this again and again. I note, again, that it was in July 2021, during the passage of what became the Skills and Post-16 Education Act, that we debated this. We were promised, “Yes, it’s going to happen; it’ll come”, but, yet again, we have just had a report from the Government which shows that there has been no progress. That is simply not good enough.

We often debate in your Lordships’ House how to get trust in government and the system. One way is to deliver on your promises in a reasonable and timely manner, particularly the things that really should not be that difficult, of which sharia-compliant loans is a case in point.

[Lord Carrington of Fulham (Con)]

My Lords, I support the noble Lord, Lord Sharkey, in this. There is no question that there are a large number of Muslims, both students and others, who have the very strong belief that their religion forbids them from engaging in normal financial practices as recognised in the West. It is about time we did something about it; it has taken far too long to get to where we are now, and we need to find a solution, particularly for student finance, where it is urgently indeed.

I can entirely understand why there is a problem. I understand why His Majesty’s Treasury is finding it difficult to find a solution. I spent a considerable part of my banking career devising means of meeting the religious requirements of Muslim communities to access financial services, often in conjunction with the Islamic Development Bank. It is an extraordinarily complex business. There are many different ways of doing it, but one of the problems is that there is no universal agreement as to what is an acceptable form of finance under the sharia. That is partly because of the difficulties between the various types of Islam—Sunni or Shia—and the various interpretations within the various branches of Islam itself, which also impact the nature of the financial products that are capable of being used. Indeed, Islamic scholars, particularly in the Sunni version of Islam, cannot agree among themselves what is acceptable and what is not. All this leads to considerable problems in devising a universally acceptable product.

Of course, the additional problem that the Treasury will have is that there is considerable scepticism among the conventional financial markets, particularly the western ones, about the credibility of Islamic finance altogether. To put it bluntly, there is scepticism about whether it is not just a con. In some cases, it is: the market is full of rogues, charlatans and crooks who will try to put up products that do not, in fact, meet the sharia requirements. So there is no great agreement on what should be done.

Financial Services and Markets Bill

Lord Carrington of Fulham Excerpts

Committee stage
Wednesday 1st February 2023 Grand Committee

In addition, the Government are supporting Sir Mark Hendrick’s Private Member’s Bill, which would allow co-operatives, mutual insurers and friendly societies further flexibility in determining for themselves the best strategies for their business relating to their surplus capital and restrictions on the use of these assets. Furthermore, we are in active discussions with the Law Commission on options to proceed with a review of both the Co-operative and Community Benefit Societies Act 2014 and the Friendly Societies Act 1992, with a view to launching these reviews in the next financial year. I hope that has reassured the noble Lord, Lord Tunnicliffe, and my noble friend Lord Naseby, among others, that the Government remain committed to this agenda and have a further programme of work to look at what more we can do to support mutuals in future.

[Lord Carrington of Fulham (Con)]

On a point of clarification, my noble friend talks about mutual societies, which are very important. Mutual firms have many characteristics that are similar to those of so-called Islamic banks—banks that are sharia-compliant. Do her comments also refer to that slowly growing part of the economy?

[Baroness Penn (Con)]

They refer to organisations that were formed under the legislation to which I referred. We are taking forward work to look at amending the Building Societies Act, the Co-operative and Community Benefit Societies Act and the Friendly Societies Act. The definition of who I am talking about is driven by those Acts.

Amendments 157 and 158 are on transparency over who has responded to the regulators’ consultations. While promoting transparency is important, confidentiality must be respected. If a respondent has not consented to the publication of their name, they may be deterred from responding by the knowledge that a category description will be published, which risks making them identifiable. This is particularly the case in areas where only a small number of firms are affected. It could therefore reduce the number and scope of responses, which would weaken the effectiveness of the consultation process as a way for the regulators to receive challenge and feedback on their proposals. This would be contrary to the Government’s aims and, I believe, to the intentions of noble Lords, including the noble Baroness, Lady Bowles.

This brings me to the conclusion of my remarks—

Financial Services and Markets Bill

Lord Carrington of Fulham Excerpts

2nd reading
Tuesday 10th January 2023 Lords Chamber

[Lord Carrington of Fulham (Con)]

My Lords, it is a great pleasure to follow my noble friend Lord Randall, but I am not planning to follow him into the woods and forests and deforestation. I find myself in a situation which many noble Lords in this Chamber will have been in at various times of their career, where you have prepared a speech which is, frankly, brilliant, and you have all the points laid out with wonderful clarity, only to find that the second speaker makes your points, and the fourth speaker makes your points—I lost count after that. Everybody has talked about regulation, which is what I was planning to talk about. So, noble Lords will be extremely relieved to hear that my speech is going to be quite short, because nearly everything that can be said about regulation has been said—but, I have to say, not quite everything.

I do not have any interests to declare; I used to have interests to declare in financial services. I used to be a regulated authorised person by the PRA and the FCA, and I used to be the chairman of a very small bank, so I have had some experience of being regulated and recognise the importance of regulation. I recognise the very important role that the regulators play in keeping London as a premier financial centre. One of the principal reasons we are still a major financial centre in the world and manage to fight off the competition, which now comes from Europe as well as from New York and Singapore—China may well become competition again, but Hong Kong has largely disappeared —is our honesty and probity through regulation. That is very important, and we need to preserve it. For that reason, I also very much support the part of the Bill which gives the regulator further duties, particularly the duty in relation to international competition and growth, and to the green agenda. All this is very important, but it raises quite serious issues about what we want the regulator to do.

Perhaps I could digress for a moment and say a little bit about what I think regulators ought to be doing. This follows on a bit from what the noble and learned Lord, Lord Thomas, who sadly is not in his place at the moment, said earlier about large and detailed rulebooks being a disincentive to effective regulation. In fact, I would say—only he is a lawyer—that the great danger is getting the lawyers involved in regulation at all.

The point about regulation is that it is there to stop the villains and to stop people doing things that they should not do, but it is trying to do that in markets that are extremely fast-moving and highly inventive and innovative. A regulator that has rules that were set in stone 20 years ago and stretch from here to eternity will never catch those people. Indeed, there is a very strong argument, which I have seen written up by people who know much more about it than I do, that the great crash of 2007-08 was caused largely by regulators being hidebound by what they had seen in the past, rather than understanding what was happening and developing for the future—not just in this country, I have to say, but principally in the United States as well.

Regulators have to be very close to their markets and understand what is going on in them. They have to see the trades being done, know the participants and hear the gossip. In all markets, whether traded or over-the-counter, the participants know who is good, who is stupid and who is bad. They may not get it 100% right but they get it pretty nearly right, which means that we have to get the regulation of the regulators right. That is desperately important.

I do not believe the Treasury can do it, because it is too close to the regulators. The Bank of England clearly is a regulator and cannot do it. The Treasury Select Committee, of which I have some experience, having been a chairman many years ago, cannot do it. We have to find a way of doing it which is effective. It may involve parliamentary committees, but my guess is that it will involve another regulator, to regulate the regulator. We need little fleas on the backs of big fleas to bite them. I am afraid that that is what we will have to do. We need to find a solution, because the regulators are becoming too powerful and too important, and they need to change.

Budget Statement

Lord Carrington of Fulham Excerpts

Tuesday 14th March 2017 Lords Chamber

[Lord Carrington of Fulham (Con)]

My Lords, I refer noble Lords to my interests in the register. I like boring Budgets—they tend to do less harm to the economy—and this one had all the makings of a very boring Budget. With Brexit, this is not the time to be making big changes; those will undoubtedly have to come when we see the shape of our economic future outside the EU. It was a boring Budget until some minor changes blew up and swamped the good news on the economy overall. Our economy is doing quite nicely so far; we just cannot know whether the economic cycle will get boosted or blown off course by Brexit.

There are a number of warning signs that may or may not prove serious, but one that certainly looks serious and needs addressing is our poor savings ratio. So I am concerned by the reduction, even if for understandable reasons, of the dividend allowance. It is bound to hit the willingness to save. If that tax increase has to come at all, it would perhaps be better at a time of rising interest rates in order to offset the negative impact on investment.

Interest rates need to rise; the depreciation of sterling, particularly against the US dollar, is certain to lead to inflation in the next 12 months. Rising inflation will be tough for everyone but the sooner that interest rates start on an upward path, the better. A very gradual increase would allow homeowners with mortgages to adjust and allow the Treasury itself to cope with higher interest payments to fund our overweening debt burden. On the plus side, a rise in interest rates would encourage more people to save and invest. I realise that the Bank of England and the Treasury have got so badly burnt in the past that they have an almost religious belief in not worrying about the exchange rate, but businesses would greatly value a more stable sterling than our present policy seems to allow. Volatility in the exchange markets is very good for bankers but not for anyone else.

I do not want to get into the sad tale of the NIC increase other than to say that breaking what most people think was a manifesto pledge is storing up credibility problems for the future. The real problem is not the NIC rate change—after all, the financial impact of that will be small—but the NIC system itself. It is a fantasy to suggest that NIC pays directly for state pensions or welfare benefits, let alone the NHS. It does not and has not done so since the 1930s. It is another form of direct taxation, partly on employers and partly on workers, whether employed or self-employed. In other words, NIC is what we all know it is: another form of income tax coupled with an employment tax. We should take the opportunity of this time of change to merge NIC with income tax. Such a change will be full of potential pratfalls but, as this row has shown, not changing the system is now surrounded with heffalump traps.

While the Chancellor is about it, a simplification of our tax legislation is long overdue. Our tax is overcomplex and full of avoidance loopholes created intentionally or unintentionally by Governments of all persuasions.

I do, however, welcome the transitional support for business rates. This may be predominantly a London issue. Business rates in central London are now very high: a small shop in a high street with a good footfall will be paying large amounts in rates relative to its turnover. It can of course be argued that, as business rates are calculated from the rents the shops pay, they would not pay them unless they had the profits to justify it. But that, of course, masks a much bigger problem. What has happened in London is that small independent retailers and artisanal workshops have been and are being forced to close or relocate out of town. I am a Londoner born and bred with no great wish to live anywhere else. I have seen the small specialist shops which used to abound in our high streets close, to be replaced with the chain stores which often remain on the high street for only a short time while they make a quick profit, often to be replaced with charity shops, which do not pay business rates at all. Many of your Lordships will be familiar with cities such as Paris or Rome, where small artisanal shops still survive. Indeed, New York is better off than London for small independent retailers.

This is a complex problem, much broader than business rates. The planning system and zoning for planning are crucial, as are the rents that landlords can reasonably expect in a free market. And I think we have to be very careful before limiting the right of landlords to manage their properties in the way they think is in their best interests. But I do think we need to look at the problem of small retailers and artisans in our inner cities. Since nothing tried in the past has worked, perhaps now is the time to look at all the factors causing this decline and to seek a cross-departmental solution.

Autumn Statement

Lord Carrington of Fulham Excerpts

Thursday 3rd December 2015 Lords Chamber

Moved by

[Lord Carrington of Fulham]

That this House takes note of the economy in the light of the Autumn Statement.

[Lord Carrington of Fulham (Con)]

My Lords, I am delighted to have the opportunity to introduce this debate on the economy, because there is now every sign that we are coming out of the economic black hole after the events of 2007 and 2008. As we know—and to paraphrase Napoleon Bonaparte—it is not enough to be a good Chancellor of the Exchequer, it is important to be a lucky one—although Chancellors on the whole create their own luck. I think it was a golfer who once said, “It is funny how the harder I work, the luckier I get”.

The economy is doing well, especially when compared with the other economies of the European Union. This is not to downplay the problems we face and will continue to face in the future. Now, our GDP growth rate is at 2.4% and coming back to the long-term trend growth rate. Unemployment is at 5.3%. The figure is possibly still too high, but very encouraging—particularly when coupled with the number of people in employment being at the highest-ever level of 31 million. We can at last say that we are now well on the way out of the economic mess caused by the last Labour Government’s belief that the good times would roll for ever.

It has been a long struggle and we are not out of the woods yet. We will not be until our main trading partners follow us on the road to recovery and—in deference to my noble friend the Minister—until the BRIC countries sort out their very real problems. But growth in the economy goes a long way towards solving our economic problems. It is from that growth that everything else flows.

However, our debt levels are still too high at 84% of GDP, after adjusting for housing association debt, and need to be urgently brought down. My right honourable friend the Chancellor of the Exchequer’s commitment to get the Government’s budget into surplus by the end of this Parliament is a noble one that looks like being achieved—just about. This is important because when the next recession comes, as surely it will, we will have to have the room to borrow to see us through the bad times. Fantasy claims to end boom and bust and the economic cycle always were a mirage.

The turnaround in our economy has come about not just by luck but by hard work and very tough decisions. Everyone likes spending money, especially other people’s money, and cutting government expenditure is a ghastly business. Everyone who has experienced poverty, or, indeed, seen poverty at close hand—possibly in their constituency advice surgery if they have spent time in the other place—will know that cutting the welfare budget is harrowing. So I was pleased that the tax credits have not been reduced. But there is a reason why the Government’s spending has to be reduced. As my right honourable friend John Redwood never ceases to point out, it has not been reduced in either money or real terms; it has just gone up by less than it might otherwise have done.

The reason it needs to be reduced is straightforward: real growth in our economy does not come from government expenditure but from businesses being able to thrive, earn profits, employ people and then pay taxes. Incidentally, the crackdown on large multinational corporations not paying tax is something we can all applaud, although making them pay their proper share will be more difficult than perhaps it is sometimes suggested.

In creating our luck with the economy, my right honourable friend the Chancellor of the Exchequer worked hard to create a business-friendly environment. Our corporation tax rate is one of the most attractive in the major economies and our incentives to entrepreneurs to invest and take risks are as good as or better than those of our competitors. It is for this reason, if no other, that I applaud the determination of the Government to reduce the proportion of GDP taken up by the state to about 35%—I think that 36.5% is the figure in the Blue Book—a level which a Labour Government under Clement Attlee also achieved. While 35% is better than 40% or 45%, in my view it is still too high. We should be aiming for 30%—a level where government expenditure will not crowd out private investment and initiative and will enable more of those seeking work to find it. We must never forget that we can help those in need only if our manufacturing and service industries are making profits and paying taxes.

However, the fact remains that the UK is, and will remain, a high-cost economy. Our wage rates will always be higher—and quite rightly so—than those of the latest emerging economies. Our costs of production will always be higher than those of countries with lower health and safety standards. Our energy costs will always be higher than those of countries that do not seem to care about either pollution or greenhouse gases. The problems of our steel industry are just the latest example of this fundamental reality.

However, what we do have in our workforce are some of the best, cleverest and hardest-working people. All they need is an excellent education, superb skills training and a society which looks after them and theirs when in need, with healthcare and care for the elderly being top priorities, to enable them to work and give of their best. That is why, even though I think increasing taxes on business is regrettable, I support the apprentice training levy on large companies.

Some 10 years ago I ran a company with the second-largest apprentice training scheme in the UK. The scheme took on young people from all backgrounds. Even those whom the education system had let down during their 11 or 12 years in school could be taught to read, write and do basic arithmetic, and then to read technical manuals, after some three months of remedial work. Why this should be so is an interesting question. Perhaps it was because we were better at teaching them than the schools; more likely, it was because there was a purpose to their learning and they were more eager to learn in a work environment with a defined goal.

Apprenticeships do work, and it was a tragedy that we lost them in the 1970s. I am old enough to remember that, when I first joined an engineering firm, large companies had extensive apprenticeship programmes of very high quality. It was the only way for those companies to bring forward the skilled technicians they desperately needed even then. One major reason that companies abandoned their apprentice training was that they found that their competitor companies, instead of training their own apprentices, poached the newly qualified technicians finishing their training. So for the levy to work we will need to set up the scheme so that the large firms paying for apprenticeships get a lot of the benefit from the trained young people, and ensure that the scheme is not seen as a way for large firms to pay so that smaller companies can get a highly trained workforce on the cheap.

So much of what we do on the economy is futurology. Many highly rated economists make a very good living by predicting the future and getting it wrong. Some of them are advising the Labour shadow Chancellor of the Exchequer as we speak. There is always uncertainty about how the economy will perform in the future. Of course, all predictions are statistically based. We are dealing with probabilities. So when the Office for Budget Responsibility finds £27 billion for Her Majesty’s Government to spend—or, indeed, to save—it is obviously a median of a statistical spread. It could be half as much or it could be one and a half times as much. However, as nice as an upward revision of the tax receipts is, it is not as important as the growth rate in the economy. I am glad, therefore, that my right honourable friend the Chancellor of the Exchequer has decided to spend this lucky windfall amount. Using it to make the pain of transforming our country into a high-wage, low-welfare economy less severe is the moral as well as the right choice.

There is one area where I was disappointed not to see progress in the Autumn Statement. We have a very complex tax system, both personal and corporate. The tax statutes expand and expand as Chancellor after Chancellor adds more complexity to encourage this and to stop that. I suggest that it is time for my right honourable friend the Chancellor to become the tax lawyers’ worst nightmare and, following in the footsteps of my noble friend Lord Lawson all those years ago, to make a concerted effort on simplifying the tax system. I realise that that would mean taking on the legal profession, the accountants and possibly the Treasury, not to mention HMRC, and so may not be possible. But he would make even more friends among small business people and the poor benighted personal taxpayer struggling with a complex and often incomprehensible series of forms.

So while we are not yet out of the economic hole dug by the last Labour Government, we are at last within striking distance of getting back into the sunshine. We must be careful not to say, “Job done” and relax our determination to create a high-skill, high-wage, very competitive international economy. This task will continue to present many challenges, regardless of whether or not we stay in the EU. I beg to move.

--- Later in debate ---

[Lord Carrington of Fulham]

My Lords, in the few seconds remaining of this debate, it behoves me just to thank my noble friend the Minister and all other Peers who have participated in what has been an excellent debate that has highlighted the issues very effectively. I think that any outside observer will have been rather surprised by the degree of commonality and agreement across the Benches. Of course, there are big differences: the biggest difference, perhaps, is between those who wish to spend the money before we earn it and those who wish to earn it and then spend it. Nevertheless, the analysis was very similar from all participants, to whom I am most grateful.

I do not intend to mention any particular contributions but will just pick up on something said by one or two noble Lords: the quality of debate in our economic debates here is so much higher than it is in the other place that it is a shame that we do not have more of them. With that, I beg to move.

Motion agreed.

Insurance Bill [HL]

Lord Carrington of Fulham Excerpts

Tuesday 29th July 2014 Grand Committee

[Lord Carrington of Fulham (Con)]

My Lords, I do not intend to detain the Committee very long, but I just want to say how pleased I am that we have before us today this modest little Bill. I hope that we will find, as we get into the detail, that it is largely uncontroversial, simplifying and clarifying as it does the responsibilities of both the insured and the insurer in narrowly defined circumstances. Anything which brings clarity into the insurance market must be welcomed by everyone.

I have spent a lifetime in financial services—when I was not being a Member of Parliament—and, indeed, I still am closely involved as deputy chairman of a small bank, as in the Register of Lords’ Interests, but I should add that I was never in the insurance industry. I reckon that I am reasonably financially savvy, but I have never been able to work out how the insurance industry calculates its risks and arrives at the premiums that it demands from its clients. Obviously, statistical analysis of the probability of an event occurring plays a large part, but I suspect that some elements in the insurance industry have not been above exploiting the ignorance of the insured to refuse to pay out a valid claim and, equally, that some of the insured have not been above making questionable and at times fraudulent claims to the cost of all of us.

I remember that, years ago, I was asked to lend a large amount of money to an insurance syndicate. A senior underwriter took me through all the risks and the small probability that it would have to pay out to the insured under the policy. When I insisted that I still thought the risk was not, to use the jargon, “bankable”, he explained that the documentation was so confusingly written that he was sure that, even if a valid claim was made, it would be capable of being refused by the underwriters. Noble Lords will be glad to know that I did not make the loan. The claims that came in eventually, some of which were highly questionable, bankrupted the syndicate. However, this was a long time ago, and I am sure things have changed. By clarifying the relationship between the insured and the insurer, this Bill makes a start on bringing a welcome openness to the relationship.

In this Bill, I particularly like that the insured has to provide information to the insurer in a clear and accessible manner and that it specifies what information insurers can reasonably be expected to know. I hope that this will go a long way towards removing areas of misunderstanding between the insured and the insurer. Equally, the requirement is long overdue for the insurer to be transparent about disadvantageous terms in the policy.

This little Bill is stuffed with useful things and takes us further along the path of openness between the insured and the insurer. I look forward to its coming into force in due course.

Banking: Parliamentary Commission on Banking Standards

Lord Carrington of Fulham Excerpts

Thursday 5th December 2013 Lords Chamber

[Lord Carrington of Fulham (Con)]

My Lords, I rise with some trepidation to give my maiden speech, particularly in this debate introduced so ably by the most reverend Primate the Archbishop of Canterbury. First, I wish to declare my interest as a non-executive director and deputy chairman of a bank, as declared in the register of interests, but I shall return to that later. No, the reason for my trepidation is that it is a bit cheeky to intervene in a debate on a detailed and comprehensive report which I had no part in preparing. My only justification is that, when not being a politician, and indeed sometimes when trying unsuccessfully to be a politician, I earned my living as a banking practitioner.

First, I would like to thank my sponsors, my noble friends Lord Trefgarne and Lord Patten, each of whom has been hugely kind to me both now and over many years. Since I took my place in your Lordships’ House, they have given me invaluable advice, some of which I have taken. My mistakes and blunders, however, are my own, although I am delighted to give them the credit for anything I might have got right.

I would also like to thank the staff who look after your Lordships’ House so well. Black Rod and his staff and the Clerk of the Parliaments and his staff have been hugely friendly and willing to answer even the silliest of questions with good humour and patience.

As some of your Lordships may know, I spent some years in the other place. As has been said many times before, the contrast between the Chamber down the Corridor and here could not be greater and is almost universally in your Lordships’ favour. Noble Lords on all sides of your Lordships’ House, who I knew as sparring partners and controversialists before they came to the Elysian fields, have been mellowed by the transformation and have treated me with friendship and kindness. Your Lordships will understand that I found this at first a confusing contrast with past attitudes but a huge and welcome relief.

One of the other joys in this place is the Chamber itself. Although the Chamber in the other place is a delight, the Luftwaffe removed much of its history. Your Lordships are fortunate to have a Chamber where it is still possible to see the ghosts of our great predecessors—perhaps Lord Beaconsfield sitting impassively, watching events cynically through his monocle, or the great third Marquis of Salisbury making one of his many speeches in favour of social reform with his back turned firmly towards the Woolsack, the better to address the Press Gallery.

As I mentioned earlier, I am deputy chairman of Gatehouse Bank. It is a small and very specialised institution. It is a Sharia-compliant bank, providing services that are often called Islamic banking. Its client base is Muslims who wish to live their lives and conduct their business affairs in accordance with the precepts of their religion. We expect our staff, a mix of Muslims and non-Muslims, to act in a highly ethical way. We are also forbidden by the Sharia from entering into some of the more complex hedging instruments which caused such devastation to conventional banks.

Banking has gone through traumas. One of the puzzles is what went wrong and why. We understand the trajectory that has brought us where we are. We will be able to see how we get back on to a better path. The excellent report of the Parliamentary Commission on Banking Standards highlights many problems and provides many remedies. I want to look at only two.

The first is the role that regulation played in the banking crisis. The regulators did not, of course, cause the banking crisis but neither did they prevent it. I am a regulated person and have some first-hand experience of the excellence, as well as the limitations, of the old FSA. Part of the problem is that they took the understandable approach of developing a detailed rule book, which led to what my honourable friend Andrew Tyrie, the Member of Parliament for Chichester, has referred to as the box-ticking culture.

The problem with a rule book is that, if an action is not specifically forbidden by the rules, it is assumed to be allowed. Banks employ very clever people, often recruited from the regulator itself, who did and do ensure that the banks’ unacceptable risk-taking rarely breaks the rules. So I am delighted that the new regulator, the PRA, is taking the view that it has rules but that it also has opinions and will rely on what it calls a “judgement-based, forward-looking supervision”—which I think and hope means that if, in the opinion of the PRA, something a bank is doing is unacceptable, even though it is not forbidden, it must stop. This is the way the old Bank of England banking supervision regime used to work when I first started my career in the City. It may be the only way to regulate banks, which are ever changing and innovating. Unless a regulator can say, “What you are doing may not be illegal, but I will not allow you to do it”, another banking disaster will sooner or later occur.

The second issue I want to comment on is the culture of the banks. The culture of payment by results and of large bonuses dependent on doing deals leads to all sorts of unintended consequences such as short-termism and disguised risk-taking. Other than for staff who took short-term risks, such as money market and foreign exchange traders, it was only in the late 1980s that bonuses in banks became substantial multiples of base salary. I accept that deferring bonuses is a way of curbing these disasters in waiting, but in reality the motivation of employees to take unacceptable risks will be removed only if the long-term risk-takers are paid through salary rather than bonus.

This is an excellent report, but we are on a long path to resolve the issues in banking. Ultimately, it will require international agreement, which will be hard to achieve. My last thought is that, whatever we do here in the UK, we must ensure that London—and the UK generally—retains its place as one of the three global banking centres. Our country’s tax receipts and hundreds of thousands of jobs depend upon it, so whatever changes we propose in the future must make London the centre most trusted in the financial sector and not give less scrupulous financial centres an opportunity to take away jobs from the UK.