Financial Services Bill
Lord De Mauley Excerpts(12 years, 4 months ago)
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Baroness Hayter of Kentish Town
My Lords, I rise to give particular support to the second amendment to which the noble Baroness has spoken. I shall not repeat the very strong arguments that she made about the need for this to be pre rather than post-appointment. I would just add a few comments about the importance of the role of the chief executive of the FCA to consumers—as may be a bit expected of me now. After all, consumers are the people on whose savings, or need to borrow, this industry depends.
The Financial Conduct Authority has been called the consumer champion, albeit the word “consumer” no longer appears in the title. That is how, I am delighted to say, the newly appointed chair described it to me. I know that that is what consumers will want it to be. We need this new architecture to have the confidence of the public—some of whom undoubtedly hold financial products at the moment, while some may have done so in the past, and some might do so in the future. Without the confidence that this sector will behave and conduct itself in their interests—with integrity, professionalism and high standards of behaviour—what chance is there that those individuals will save for their homes or pensions, or that small businesses will borrow to produce growth and jobs?
The people who can hold the FCA to account and to scrutiny on behalf of all those millions of small savers, borrowers and those with simply a bank account are, of course, our Members of Parliament. They should, therefore, through their Treasury Select Committee, hold a pre-appointment hearing of the chief executive. This will establish in successful candidates’ minds that they are responsible to the people for the performance of their organisations. Chief executives will know that they will return to the Treasury Select Committee from time to time to account for their record and explain their decisions. That will be a healthy relationship. It does not give the Treasury Select Committee a veto, but it makes clear that the candidate needs to establish the confidence of that committee before taking up the post, and that before appointment she or he has the capability and the vision to stand in the shoes of clients and safeguard their interests. That is not too much to ask.
Lord De Mauley
My Lords, my noble friend’s Amendment 128BC would require the FCA to conduct reviews of its policy and performance if requested to do so by the Treasury Select Committee, and to report to it on that review. It is clear that, under the current system, the regulator is not sufficiently accountable when things have gone wrong, so the regulator itself needs to take primary responsibility for initiating reviews. The Bill provides a much clearer framework for when the FCA should initiate a review into regulatory failure. It includes a number of measures intended to rectify this.
In future the FCA will be required to conduct an investigation and report on possible regulatory failure with the triggers set out in statute. This is supplemented by the power of the Treasury to order an investigation when it considers that an investigation would be in the public interest. The Treasury must, subject to limited exceptions, then lay such a report before Parliament. There are also the value-for-money and NAO audit powers to which my noble friend referred in the previous group. This is an extensive framework that should significantly enhance the ability of Parliament to hold the regulators to account in future.
I understand that the Treasury Select Committee has recommended that the Bill should go further, and clearly Parliament has an important role in calling for reviews. However, it does not need additional powers to do so. If the Treasury Select Committee believed that a review under Clauses 69 to 76 was required but was not being conducted, it could request such a review. The FCA will in any but the most unusual circumstances comply, as is the convention. Of course, the FCA would be available to report back to the Treasury Select Committee. This is, in fact, what happened in the case of the FCA’s report on the failure of RBS. Additional wording in the Bill is not necessary.
Amendment 143B seeks to create a statutory requirement for pre-appointment scrutiny of the FCA chief executive. This is something that the TSC recommended in its report on the FCA. The Government believe that it is more appropriate that the appointment should be subject to a pre-commencement hearing. Let me explain why. This is the same approach that has been taken for the appointment of the chair of the FSA, and appointments to the MPC. Pre-appointment Select Committee hearings are not convened for all public appointments and, indeed, have seldom been held for chief executive posts. They are not held for the appointment of chief executives at other sectoral regulators such as Ofcom and the Office of Rail Regulation. They are generally used for appointments where the post plays a key role in regulating government itself, or in protecting public rights, or where independence from Ministers is particularly vital to the credibility of the post.
Although this process is appropriate for some offices and non-executive appointments, it introduces scope for delay and public disagreement over whether a candidate is fit for an appointment, which risks damaging confidence and undermining the effective operation of the ultimate appointee. It would not be appropriate for appointments to a regulator of financial markets and services, which is, additionally, a market-sensitive appointment. Pre-commencement hearings will provide the right balance between allowing for TSC scrutiny and protecting markets from undue uncertainty.
I therefore hope that noble Lords can accept that the Government’s proposal will significantly enhance the Parliament’s ability to hold the regulators to account, and that I have explained why I do not believe that it is necessary or appropriate to go further in the way that the amendments suggest. I therefore hope that my noble friend will feel able to withdraw her amendment.
Lord De Mauley
“2DA Strategy
(1) The PRA must—
(a) determine its strategy in relation to its objectives, and(b) from time to time review, and if necessary revise, the strategy.(2) Before determining or revising its strategy, the PRA must consult the Bank of England about a draft of the strategy or of the revisions.
(3) The PRA must determine its strategy within 12 months of the coming into force of this section.
(4) The PRA must carry out and complete a review of its strategy before the end of each relevant period.
(5) The relevant period is 12 months beginning with the date on which the previous review was completed, except that in the case of the first review the relevant period is the period of 12 months beginning with the date on which the strategy was determined under subsection (3).
(6) The PRA must publish its strategy.
(7) If the strategy is revised the PRA must publish the revised strategy.
(8) Publication under subsection (6) or (7) is to be in such manner as the PRA thinks fit.”
Lord De Mauley
My Lords, I will speak to the government amendments in this group. Amendment 128BJ specifies that the PRA board must set and publish the strategy in relation to its objectives, having consulted the Bank of England. It must review the strategy annually. The Government have come to the view that it would be helpful to define more clearly in the legislation how the relationship between the PRA and the rest of the Bank group will work in practice.
The amendment makes it clear that the PRA board will set the PRA’s strategy and will be accountable for the success or failure of that strategy. It also requires the PRA board to consult the Bank about the strategy. That will help to ensure that the PRA’s supervisory approach is co-ordinated with the wider financial stability strategy of the Bank. The PRA must publish its strategy. That will help to ensure that Parliament, the financial services industry and the wider public are clear about the PRA’s direction of travel and priorities. That will assist with calling the PRA to account for the way that it carries out its regulatory and supervisory responsibilities.
Government Amendment 147A makes it clear that the PRA may not delegate responsibility for setting the strategy, which is clearly appropriate. Government Amendment 147B makes express that the Bank should approve the PRA’s budget. In practice, the PRA board will draw up the budget, looking at the strategic priorities for the year ahead, and propose this to the Bank. If variations to the budget are required during the course of the year, that will also require the approval of the Bank. This arrangement will ensure that the PRA must account fully for any budgetary increases. Of course, its expenditure will also be audited by the National Audit Office under the provisions already in the Bill. This will provide strong accountability for costs incurred—costs which, as noble Lords have pointed out during previous debates, are ultimately borne by industry.
It would be appropriate if I respond to the other amendments in this group when the noble Lords who tabled them have spoken to them, so, for the moment, I beg to move.
Lord Flight
My Lords, I rise to speak to Amendment 144K, which is intended to ensure that the non-executive members of the PRA board have relevant experience and expertise. In particular, the board should have the benefit of members who have expertise in the sectors regulated by the PRA.
As others have already said, the insurance industry has been something of an orphaned relative. Indeed, I think that the Governor of the Bank of England is on record as saying that the arrangements do not entirely match his wishes. I believe that the Government’s intention is that this should be the case. It is clearly desirable, however, that the PRA should have appropriate representatives from that industry with the right experience, and, indeed, they should be equipped to contribute if the life industry balance sheets get into a position where there needs to be a temporary suspension of the rules, should equity markets plunge dangerously.
Lord De Mauley
I thank noble Lords for introducing their amendments. Let me go through them. Amendment 139B would make explicit that both the PRA and the FCA should have specific regard to the UK Corporate Governance Code. That is an important point. The code is the benchmark for good governance. The Bill makes clear that both the PRA and the FCA will be required to have regard to such principles of good corporate governance as it is reasonable to apply to them. That includes principles from the UK Corporate Governance Code. The Government fully expect the regulators to comply with the relevant principles of that code.
However, generally accepted principles change over time—it is worth noting that just two years ago the UK Corporate Governance Code was called the combined code. I hope that noble Lords will accept that it would not be appropriate to put an explicit reference in the Bill to a specific document which may change from time to time, or the name of which may change completely.
Amendment 144K would require that the Bank must be satisfied that the non-executive members of the PRA board have relevant experience in the sectors that the PRA will regulate, including banking and insurance. Amendment 144L would require that the Bank must be satisfied that the PRA board must include members with insurance expertise. I thank my noble friends for raising this issue, which is also important. The Bank and the FSA have been clear that they understand that the nature of insurers’ business models exposes them to a different set of risks than banks, and that therefore the regulation of insurance requires a different approach.
I can categorically confirm to the Committee that the Government and the Bank are clear that the PRA board will have members with the necessary expertise in each of the sectors that the PRA regulates, including insurance. It will also be important for the PRA board to have expertise in investment banking, building societies and credit unions, for example.
My noble friend Lord Sharkey said that insurance expertise on boards should not be left to the discretion of the Bank. He is right; it will not be; the Treasury will approve the appointment of PRA non-executives. I hope that noble Lords will therefore accept that it is unnecessary to make such detailed provision in the Bill.
Amendment 144M would make explicit that appointments to the PRA board must take place in accordance with the principles of merit, fairness and openness. Of course the Government agree with the intention behind the amendment. Paragraph 10 of Schedule 1ZB already requires that the appointments to the PRA board should take place in line with,
“generally accepted principles of good practice relating to the making of public appointments”.
The clearest articulation of those principles is the Code of Practice for Ministerial Appointments to Public Bodies, published by the Commissioner for Public Appointments. The aim of that code is,
“to ensure that public appointments processes are fair, open and transparent, command public confidence and result in appointments which are made on merit”.
Although some of the principles in the code are relevant only to ministerial appointments, some have wider application. Merit, fairness and openness clearly fall into that category.
Amendment 146A would require that the Treasury approve remuneration of the PRA board. Let me respond to this amendment in the context of the Government’s approach to the FCA and the various policy committees of the Bank. The Treasury has no role in relation to the setting of remuneration for the FSA board, nor will it have any such role in relation to the FCA board. This is as it should be. The FSA is, and the FCA and the PRA will be, independent of government. The Treasury has no role in the setting of the remuneration of external members of the MPC because the Bank is separate from government. The Bank determines how much it needs to pay to get the right people, while still ensuring value for money.
Similar considerations apply to the PRA board. The Bank will need to assure the quality of the leadership of the PRA, so it must be able to determine the remuneration of the PRA externals in the same way as it determines the remuneration of other parts of the Bank group. The Bank and the PRA operate separately from the Treasury and they account separately to Parliament. Parliament has a key interest in whether the PRA is delivering value for money, which is why the PRA falls within the remit of the National Audit Office.
I hope that I have persuaded noble Lords to accept the government amendments and not to press their own in this group.
Baroness Noakes
My Lords, could I clarify with the Minister what he said about the composition of the PRA board? I think he said that the Government were clear that there would be a member with insurance expertise. Did he mean any member, or a non-executive member? There only has to be a majority of non-executive members. I think that my noble friend said that, under that formulation, he believes that that could be met by having an executive member with insurance expertise. The drive of the amendments that we have been discussing was that there should be a non-executive member in an oversight role on the PRA board, bringing in insurance expertise.
Lord De Mauley
My Lords, I categorically confirmed to the Committee that the Government and the Bank are clear that the PRA board will have members with the necessary expertise in each of the sectors that the PRA regulates, including insurance. I did not specify, in answer to my noble friend’s question, but I will write to her if I may.
Baroness Noakes
My Lords, the noble Lord, Lord Tunnicliffe, reminded me that this morning I carried out my annual clearing out of documents to be binned or not to be retained. One of those that I reviewed was the document to which he has just referred, the Bank’s announcement in relation to how it would manage the PRA. That document did not go into the bin; it was saved for another day. However, it reminded me of the importance of the issue.
My noble friend Lord Hodgson referred to the number of staff who have left the FSA over the past year and a half. It is a very significant number of people at many levels, and often very senior people. The organisation is trying to live up to this new judgment-led supervisory approach and to cope with major organisational change, as the FSA is split into two organisations. My question to my noble friend on the Front Bench is: what confidence do the Government have that new regulatory organisations will have the staff? I am sure he will say, as the noble Lord, Lord Tunnicliffe, anticipated, that this amendment is not necessary. That may be so, but it is important to know from the Minister whether the Government believe that these organisations are ready for the responsibilities that they are to take on.
Lord De Mauley
My Lords, my noble friend’s Amendment 138C would make the FCA and the PRA consider whether their staff are appropriately experienced and endowed with the requisite level of expertise and knowledge to carry out their general functions. That would be inserted into the list of principles of regulation to which both regulators will be required to have regard. Of course, we agree that it is absolutely critical that the new regulators employ the right staff—staff who have the necessary skills and experience to use their informed judgment will be the defining factor in the success of the new regulatory system. Likewise, we agree with the Joint Committee’s assertion that the PRA and FCA will need to attract staff with the appropriate approach and experience. As my noble friend suggests, it is important that staffing decisions are made by the regulators themselves. Specifically, they should be empowered to consider whether they are appropriately staffed in order to meet their statutory objectives.
In that regard, the FSA paper setting out its vision for the FCA’s approach to regulation, published in June 2011, highlighted the importance that the FCA will place on such matters. It says that,
“the FCA will need to retain and attract professional and dedicated staff, equipped with the skills and knowledge to tackle the difficult issues ahead. It will need to be a dynamic and learning organisation, committed to developing individuals within a career that includes management and specialist paths. It will put a premium on flexibility and team-working where resources are allocated flexibly across the organisation”.
There is a similar commitment in the PRA approach to the banking document:
“The PRA will maintain its own in-house specialists including staff with particular expertise in risk management and risk modelling”.
I also understand my noble friend’s concerns about the requisite experience of the European policy-making process. Indeed, engagement with international regulatory bodies will be crucial for the regulators. I confirm, therefore, that I would absolutely expect the regulators both to employ staff with the requisite knowledge of European policy-making and to provide comprehensive training for staff who work in areas where knowledge of this is desirable. However, again, these will rightly be operational matters for the regulators.
My noble friend Lady Noakes asked whether the Government have confidence in the ability of the regulators to find the necessary staff. Yes, we do: we will draw on the best of the staff of the FSA and of the bank cadres and I am confident that, with focused objectives, they will quickly develop deeper expertise in their areas.
Baroness Noakes
Could I have a follow-up to that one? Has the FSA managed to recruit for all the staff it has lost, particularly those it has lost at senior levels over the last 18 months?
Lord De Mauley
My Lords, I cannot answer that here and now, but I will write to my noble friend on that point.
Meanwhile, I assure my noble friend Lord Hodgson that while staffing is not a matter for the Bill—as the noble Lord, Lord Tunnicliffe, suggested—we regard it as absolutely key for the regulators themselves to consider. On this understanding, I ask him to withdraw his amendment.
Lord Hodgson of Astley Abbotts
I am grateful to my noble friends Lord De Mauley and Lady Noakes and to the noble Lord, Lord Tunnicliffe, for their support. Inevitably, we get down a bit to motherhood and apple pie on these things. However, I say to my noble friend on the Front Bench that the reputation of the regulators will be made quite early on, because the firms will say, “Are these bodies with whom we can have a sensible, grown-up, informed, well judged set of discussions, or have they sent boys to do men’s jobs?”. If they send boys to do men’s jobs, the relationship will never recover, because the regulated firms will not feel that the regulators have the capacity, ability or knowledge to be able to make the informed judgments that this Bill expects of them. I will withdraw the amendment; however, my noble friend must emphasise to the regulators that this will be a once-in-a-lifetime opportunity. If they get it wrong, their reputation will be damaged from the start.
Baroness Cohen of Pimlico
I support the amendment in the name of the noble Baroness, Lady Kramer, and particularly her remarks about the importance of the status of the FCA in relationship to European negotiations. I remind the House that I am a non-executive director of the London Stock Exchange and that until 2010 I also chaired the sub-committee of the European Union Committee that is concerned entirely with difficult negotiations on wholesale finance. It is extremely difficult, particularly in the present climate of financial panic in Europe, to make progress—nay, even to hold our own—in negotiations with fellow European countries. The FCA must, as a very minimum, be seen to be of equal status to the PRA. I cannot emphasise how important this is. Over there in Europe, they have got used to having the FSA and they will be totally puzzled as to who is important unless it is made clear in the Bill.
Lord De Mauley
My Lords, these amendments have in common that they concern the relationship between the PRA and FCA and mechanisms for co-ordination between the two. Amendment 140A would insert a declarative provision that the PRA and FCA are considered equal in status. I agree with the sentiment. The PRA and FCA have very different remits: the PRA for prudential regulation and the FCA for conduct regulation. These are equally important. The Bill gives the PRA and FCA the necessary powers to deliver their objectives. Within their area of competence and expertise, each will have discretion as to how they exercise those powers to achieve their objectives.
Clearly there are differences between the regulators, in structure as well as in their objectives. Indeed, some of them could be construed as making the PRA appear to be the junior partner—for instance, it is the subsidiary of the Bank while the FCA is a wholly separate body. However, nothing in this arrangement should be taken to imply that one is superior to the other. My noble friend Lady Kramer, echoed by the noble Baroness, Lady Cohen, emphasised the importance of the FCA’s equality of status, particularly in the international context. The fact that the FCA will attend ESMA underlines that it will be the UK’s pre-eminent markets regulator.
Amendment 140 would require the PRA and FCA to co-ordinate their actions in relation to dual-regulated persons to ensure that they avoid duplicative requests and do not impose inconsistent requirements. Co-ordination is indeed a key point—one that has been emphasised by both industry and consumer representatives. The Government have considered this carefully. The general duty to co-ordinate is designed to address exactly the points that the amendment raises.
Subsection (1)(c) of new Section 3D specifies that one of the three purposes of co-ordination is to allow the regulators to use their resources in the most efficient and economic way, and to act in a proportionate manner. An efficient and proportionate approach will require the regulators to minimise duplicative requests wherever possible and avoid inconsistent requirements. This is supported by the new power for the Comptroller and Auditor-General to conduct value-for-money reviews of the financial services regulators and to report back to Parliament. The NAO will of course be able to look into co-ordination between the PRA and the FCA. I hope that noble Lords can agree with me that these mechanisms, already described in the Bill, are sufficient and that we do not need further provision to support them.
Amendment 140B would require the FCA and the PRA to publish guidance explaining the circumstances where the duty to co-ordinate does not apply. I agree that it is important to have clarity about this. The MoU will set out how the regulators will comply with the duty as a whole, including the limitations on the duty established in subsection (2).
Amendment 140AA would modify the general duty to co-ordinate to make it explicit that an objective of co-ordination is to minimise “unnecessary additional expenses” that might arise as a result of the separated administration of the PRA and the FCA, and to,
“maximise any common administrative savings”.
The Government agree that, where possible, costs arising from duplication of effort should be avoided. That is why the duty to co-ordinate requires the regulators to co-ordinate so as to act in a proportionate manner. This will include, for example, co-ordinating their information gathering in a way that will minimise costs. The regulators will be scrutinised by the NAO to ensure that they are delivering value for money. However, if the Bill were amended in the way suggested, I fear that it could be a distraction. There is a risk in requiring the PRA and the FCA to focus too much of their attention on co-ordinating at the expense of focusing on delivering their own separate regulatory objectives. The Government’s view is that this amendment goes too far in that direction.
Amendment 140DA would require that the co-ordination MoU between the PRA and the FCA contains an estimate of the additional annual costs when compared with the estimated costs of the administration of the FSA. I reiterate the point that the Financial Secretary to the Treasury made in another place: a core purpose of these reforms is to reduce the frequency and severity of future financial crises. This will require much tougher and more effective regulation. As we acknowledged in the impact assessment published alongside the draft Bill, there may be additional costs as a result of the separated administration of the PRA and the FCA. However, these costs pale into insignificance when compared with the cost to the economy of the recent financial crisis.
Amendment 140D would remove the provision stating that the MoU between the PRA and the FCA need not include technical or operational matters that do not affect the public. The MoU must set out enough detail to make clear the standards against which the regulators can be held to account, and to enable the public and regulated firms to see the principles and agreements that are driving the regulators’ approach to co-ordination. However, as I am sure noble Lords will accept, it is important that it does not become simply an impenetrable technical manual. The purpose of this is provision is to make clear that it need not include a great deal of detail that is of no interest to Parliament or the public. I think that is a suitable test of the kind of material that need not be set out in the MoU.
Amendment 140BA would require the regulators to include in their MoU provisions about how they would co-ordinate their activities,
“in relation to the promotion of high standards of stewardship by institutional investors”.
The FCA will be the regulator of the conduct of all asset managers, including their conduct in looking after institutional investments. The PRA will take a regulatory interest in asset managers if they also have permission to carry on PRA-regulated activities; but even in those cases the PRA will not be responsible for regulating their conduct as asset managers. It is not clear what activities in relation to stewardship the PRA and the FCA would need to co-ordinate or why they should be specifically required to provide for that co-ordination in the MoU. The MoU will, of course, already cover any necessary co-ordination in relation to PRA-regulated firms that also happen to be asset managers.
Amendment 140C would require the PRA and the FCA to consult publicly on any proposed changes after their annual review of the MoU. It is essential that industry has the opportunity to make representations about the contents of the MoU and the way in which the regulators comply with it. The draft MoU has been published, and the Bank and the FSA have invited comments. The Bill makes provision to ensure that industry and others can make further representations. The FCA and the PRA are required to include an account of how they have complied with the duty to co-ordinate in their annual reports. After publication, they are required to consult publicly on the effectiveness of their strategy. The FCA will do this by holding an annual public meeting, while the PRA will use a written consultation arrangement. Respondents to those consultations will have ample opportunity to comment not just on the content of the MoU itself, but also on the way in which the regulators have put it into practice.
Lord De Mauley
Lord De Mauley
“(a) a local weights and measures authority in England, Wales or Scotland, or(b) the Department of Enterprise, Trade and Investment in Northern Ireland,for the provision by the authority or department to the FCA of services which relate to activities to which this subsection applies.(5A) Subsection (5) applies to activities”
Baroness Kramer
My Lords, I want to comment on Amendment 143ZE. I have great respect for the CCCS and the work that it does, but there is also at least one commercial player—I am thinking of Payplan—which, I understand, provides free debt advice on a basis very similar to that of the CCCS, and in fact Citizens Advice frequently refers people to it to deal with debt management. Like the CCCS, it gets its funding from the creditor and not by turning to the individual who is in debt.
Although I entirely agree with all the statements that have been made about those—perhaps not all but certainly many—who advertise and often provide a very unsatisfactory and highly questionable service to individuals who are in debt, leaving them in a worse situation than when they started, I am slightly cautious about the suggestion that only the charitable sector can provide free debt advice. We need all the players we can get in this business and, provided they do it in the appropriate way, we should surely encourage all of them.
I question why the companies that seek to have the debts repaid to them should not be more influential in this process. My understanding is that they would far rather work with those who provide free debt advice than those who muddy the waters by essentially taking the fee-paying attitude and offering and delivering a less satisfactory solution for everybody involved.
Lord De Mauley
My Lords, this group of amendments relates to the Money Advice Service and to charities involved in the provision of debt services. Amendments 143ZC, 143ZD, 143ZE all relate to the role of the MAS in the provision and co-ordination of debt advice.
Before I address the amendments, it may be helpful if I explain the MAS’s role in this area, which is to offer free and impartial information and advice on money matters to help people to manage their money better and to plan ahead. Through taking charge of their finances, fewer consumers should fall into unmanageable levels of debt. However, those consumers who do find themselves with high levels of debt will continue to need specialist debt advice.
The MAS, with its consumer financial education remit and national reach, is well placed to take a role in the co-ordination and provision of debt advice as part of its existing service. The Bill therefore includes provision to clarify that the MAS consumer education function extends to assisting members of the public with the management of debt and to working with other organisations to improve the availability, quality and consistency of debt services. However, the MAS does not directly deliver debt advice services itself, as the noble Lord, Lord Stevenson, said; rather, it delivers funding to providers of debt advice services, such as Citizens Advice, and it helps members of the public to access high-quality debt advice services.
Amendment 143ZC seeks to replace the existing requirement at new Section 3R(4)(f) under Clause 5 for the MAS’s consumer financial education function to include,
“assisting members of the public with the management of debt”,
with a requirement to include,
“providing high quality information about, and promoting awareness of, registered charities which provide debt services”.
I reassure the noble Lord, Lord Stevenson, that the Government are committed to the continued existence of the MAS and that there is no intention that the MAS should displace existing funding streams or existing services. The MAS intends to work with a large cross-section of the advice and creditor sectors to keep them up to date with its plans. I also reassure noble Lords that the MAS already signposts to other organisations which provide debt advice services and it will continue to be able to do this.
There are a number of amendments in this group and I have copious notes which address all of them. From the speech that the noble Lord made, I sense that I have dealt with his key points. If he wants me to go on, I shall be very happy to do so. However, if he is happy with that assurance, I hope that I can ask him to withdraw his amendment.
Financial Services Bill
Lord De Mauley Excerpts(12 years, 5 months ago)
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Lord De Mauley
My Lords, Amendment 104B, as my noble friend Lord Flight has explained, would require the FCA to work with the Department for Education to secure the teaching of financial literacy in primary and secondary schools. I am sure, as the voices around the House have confirmed, that we all agree on the importance of financial education for young people and indeed for adults. The Government share this view.
As the noble Lord, Lord Stevenson, said, finance education is currently taught as part of non-statutory personal, social, health and economic education. I think that was how the previous Government set it up. The Department for Education is reviewing PSHE education, including whether any aspects of it should become statutory as part of the basic curriculum, and will be carefully considering the position of finance education. The Money Advice Service is feeding into this review.
However, the FCA is being set up as a focused conduct of business regulator. The Money Advice Service is the appropriate body to work with the Department for Education at an operational level on matters of financial literacy. MAS was established by the FSA, and its objectives are set out in new Section 3R of FiSMA, as inserted by Clause 5 of the Bill currently before your Lordships. They include an objective,
“to enhance—
(a) the understanding and knowledge of members of the public of financial matters”.
I cannot see how MAS could discharge this function without working closely with the Department for Education.
MAS was established by the FSA as an independent body with similar oversight arrangements to the FOS and FSCS. It has a statutory function to enhance the understanding and knowledge of members of the public of financial matters and their ability to manage their own financial affairs. The FSA must take such steps as are necessary to ensure that MAS is, at all times, capable of exercising its consumer financial education function.
The FCA will take on the FSA’s responsibility for consumer protection and conduct regulation, and will oversee MAS in the same way as the FSA does now. MAS will continue to have operational independence. To give the FCA responsibilities in the area of financial education would not only risk diluting its focus but would duplicate the role of MAS. So, in short, I do not believe that this amendment is necessary. I ask my noble friend to withdraw it.
Lord Stevenson of Balmacara
I wonder whether the Minister can answer my point about the Private Member’s Bill which is going through the other place. It seems to me to offer a way forward on this issue. If he cannot give me a reply today because he has not been briefed on this matter, perhaps he could write to me.
Lord De Mauley
My Lords, I think I addressed it, although I did not express it in those terms. I said that the department is reviewing PSHE education, including whether any aspect of it should become statutory. That was intended to be my response. The noble Lord knows the Government’s approach to Private Member’s Bills.
Lord Flight
My Lords, as I said, this was intended, largely, as a probing amendment. I am glad that MAS is continuing with its role. I am strongly of the view that financial literacy should be part of the core curriculum. The teaching of it at present is mixed and, in general, I do not think it is adequate. We have had a useful discussion of the subject and I beg leave to withdraw the amendment.
Lord Flight
My Lords, my Amendment 173D covers essentially the same point, but is in that part of the Bill that deals with the practical operation of the competition objective for the FCA. There is clearly a risk of duplication or lack of co-ordination between the OFT and the FCA, so Amendment 173D proposes a legally binding MoU setting out how the two bodies will co-operate together and who will do what. It should be made clear that the FCA would normally take the lead on competition matters in financial services and the OFT would undertake market studies in exceptional circumstances. The competition objective for the FSA is very well worded, very clear and extremely appropriate. Consumers need a healthily competitive market. I am still of the view that the PRA should have a competition objective. It is the lack of competition that led to a cartel in banking. Whenever you get a cartel you get bad habits, so, in my book, a major aspect of having a much healthier banking system is having more competition.
Lord De Mauley
My Lords, Amendments 104BA and 173D both relate to co-ordination between the FCA and the OFT. Amendment 104BA would require the FCA to co-ordinate with the OFT and to prepare and maintain a memorandum of understanding to be laid before Parliament and published as it sees fit. Amendment 173D, in my noble friend’s name, is similar, but the duty to co-ordinate, and to establish an MoU, relates solely to the promotion of competition. Amendment 173D would also require the MoU to make it clear that the OFT will conduct a market study into a financial services market within the regulatory remit of the FCA only in exceptional circumstances.
Before turning to the question of the need for statutory provision for co-ordination between the FCA and the OFT, it might help if I explain the approach taken elsewhere in the Bill. The Bill provides for a properly focused regulatory system in which the individual regulators have clear roles and responsibilities and the right tools to deliver them. It is right, therefore, for the Bill to provide explicitly for co-ordination and MoUs between the key players in the system for regulating financial services—the Bank of England, the FCA, the PRA, the Financial Ombudsman Service, the Financial Services Compensation Scheme and the Treasury—so that they can work together effectively without the boundaries between their roles and responsibilities getting blurred, and of course the legislation sets out a procedure for laying these documents before Parliament.
Clearly, the FCA will need to work closely with the OFT and, in due course, the Competition and Markets Authority. In fact, the FSA already has an MoU with the OFT on a non-statutory basis and the FSA is already working with the OFT on putting in place a memorandum with the FCA.
To address the need for particularly swift and effective co-ordination in cases where a large number of consumers have suffered detriment, such as the mis-selling of payment protection insurance, the FSA has put in place additional formal mechanisms for co-ordination such as the Coordination Committee of the FSA, the OFT, the FSCS and the FOS. Statutory duties to co-ordinate and maintain MoUs are not needed to underpin that co-operation. That already happens and is effective.
On the specific issue of competition, which Amendment 173D addresses, the FCA, as the lead regulator for financial services, clearly will need to work closely with the OFT, as the central competition authority. Of course, the regulators will have to co-ordinate their work so that their own resources are used effectively and duplication is avoided. Although they will need to take into account their respective regulatory objectives and priorities, powers, expertise and resources, I contend that we should allow the regulators, based on careful consideration, to develop an effective protocol for working with each other in order to promote competition.
Lord Peston
My Lords, I very much agree with my noble friend Lady Hayter and with the noble Lord, Lord Flight, that competition is the best means of consumer protection. There are occasional counterexamples, but overwhelmingly that is what matters. However, it occurred to me while listening to the noble Lord’s reply that I do not now know which is the primary body in dealing with competition in the financial intermediary sector. Is there a straightforward answer to that? If I had been asked to guess, I would have guessed that it must be the new Competition and Markets Authority, because its remit is about competition, whereas the FCA’s remit is not. Can we have an answer to that? If we do not know the answer, could we be told the next time we meet who is the prime mover in this?
Lord De Mauley
I am pretty sure that the noble Lord is correct in his analysis, but if there is any change to that, I will write to him.
Baroness Hayter of Kentish Town
My Lords, the fact that the Minister does not know the answer to that seems to me to make the case for why we need an MoU. In fact, in his answer he went through the sorts of things that the OFT and the FCA would need to look at—their objectives, their resources and their method of working. We are not setting out what those should be. We are simply saying that there should be an MoU that sets out those sorts of things, things such as when one will take the lead and when the other will.
I accept, sadly, that the specifics in the amendment of the noble Lord, Lord Flight, which we were attracted to, are probably more than we could hope for from the Government. However, as the Minister has admitted that there need to be MoUs for all the other key players—the Treasury, the Bank of England, the FOS, the compensation schemes and so on—it would be extraordinary not to have one for what he now accepts is the prime competition authority: the OFT currently, but the CMA eventually. I hope that the Government will think about this again. The lack of an MoU for the prime competition authority would seem to create a slightly opaque situation for the other market players that want to know who leads on certain items. In the hope that the Minister will think about that, although he did not promise to, I beg leave to withdraw the amendment.
Baroness Hayter of Kentish Town
My Lords, I was particularly grateful to hear the words of the noble Lord, Lord May of Oxford. We will shortly come to a specific amendment about a duty of care. I hope that he will be here to repeat his words in 20 minutes or whenever we reach the amendment. I also hope that the Minister can pick up a briefing note that says “support”. His face tells me possibly not.
At Second Reading, I talked about caveat emptor, not having realised that it is no longer the accepted term. I have concerns about it because it is rarely used as an excuse for ordinary consumers to say, “Oh, I lost money”; it is far more used by producers to say, “Well, we told you so”, even if it was, as the noble Lord, Lord Hodgson, said on an earlier amendment, on page 4 of small typed script of something that had been sent to them. I remain of the view that responsibility for ensuring that consumers know what they are buying rests with the provider by producing intelligible and appropriate information. We will turn to the issue of duty of care shortly.
The Joint Committee on the Bill wrote that, should it be essential for the FCA to have regard to the behaviour of consumers, the FCA duty should be amended as set out in Amendment 105, in my name and that of my noble friend Lord Eatwell. As the Joint Committee stated,
“provision of information alone will not significantly improve consumers’ ability to make well-informed decisions. The information needs to be easily understandable and accessible”.
There is widespread suspicion that many purveyors of financial products deliberately try to keep certain customers in the dark. That confusion can mean that some, blinded by graphs and numbers, sign up to a product and later down the track find themselves caught by certain clauses and conditions of which they had, sadly, been unaware.
An issue just as difficult, of course, is the ability to compare prices and thus to shop around—an essential element of the much-vaunted caveat emptor, or competition, on which the Government rely to improve services. Martin Wheatley, the chief executive-designate of the FCA, has described the difficulty for consumers in comparing products such as bank accounts, which are structured in a way that makes it really difficult to establish whether the product is good value. We all know of practitioners who talk in terms so remote from the common-sense understanding of contractual agreements that people are unaware of what they are signing up to. This was undoubtedly the case with the recent interest rate swaps.
Asked whether firms had a duty to go beyond their legal responsibility to consumers, Mark Hoban MP said in another place:
“It is in the interests of firms to ensure that consumers do understand the products that they are buying because it then minimises the risk of problems further down the track”.
Although I agree with those sentiments, that answer seems to be about not having to pay redress later, rather than trying to prevent the mischief in the first place. Unless we do something to reduce such occurrences—today we have already mentioned PPI, personal pensions and mortgage endowments—we will have learnt nothing from what has gone wrong.
However, as the amendment moved by my noble friend Lord Peston makes clear, it is not simply language—the “crystal mark” of plain English—that is important. This is about explaining the risk to which the consumer is signing up, or for which they are paying money so that someone else takes that risk in exchange for the payment. So they might buy a product that covers the risk of inflation but does not cover longevity, or vice versa. Or a product might cover their life expectancy but not that of their surviving spouse. The permutations are endless. What is key is that, in addition to the language being clear, the limits of the product should be clear so that—in the famous words—there are “no surprises”. If I buy a bottle of Coke I will know its size, volume, sell-by date and taste. Regulation has sorted out much of that. We need to give this regulator the ability to expect no less from the providers of services which they are selling to largely unsuspecting customers.
In the other place, the Minister said:
“The Government recognise that there can be significant information and capability asymmetries between firms and consumers”,
and that poor “provision of information” could be a key factor in,
“a consumer ending up with an unsuitable product”.
He therefore fully supported,
“the intention behind the amendments”—[Official Report, Commons, Financial Services Bill Committee, 1/3/12; col. 261]—
in the other place, and therefore the intention behind the amendment that is in my name in this group. I hope that the Minister will now go further than his colleague in the other place, who accepted only the intention behind the amendments, and that he will accept the amendments as they stand. If it would make him feel better, perhaps he could agree to the intention now and bring back a suitably worded amendment on Report.
Lord De Mauley
My Lords, this group of amendments is concerned with the information provided to consumers, so that they are able to make empowered choices and decisions. Amendment 104C seeks to add a new ‘have regard’ subsection to the list of matters that the FCA must consider in advancing its consumer protection objective—namely,
“the need to inform and educate consumers with special emphasis on the unavoidability of some risk”.
I agree with the noble Lord that consumers need to understand that there will necessarily always be an element of risk involved in engaging in a financial transaction, and that they must consider carefully their own risk appetite and the ability of their personal finances to absorb any loss, and enter in to any contract with full information. We cannot pursue a zero-failure regime in financial services, and consumers must understand this. The regulator cannot shoulder the responsibilities that consumers should take for their own decisions and actions, but it can take steps—as my noble friend Lord Hodgson said—to ensure that consumers have the best possible information when they make those choices.
Both financial education—which we spoke of earlier—and effective conduct of business regulation have a role to play in educating consumers about risk. The Money Advice Service will have a key role in improving financial literacy so that consumers understand the difference between available financial products and their uses, what information they should seek out before entering into a contract or transaction, and what rights they have when things do not go to plan. We covered the role of the MAS when we discussed Amendment 104.
Baroness Oppenheim-Barnes
On that point, the majority of those consumers who are more at risk than anyone else from misleading terms are those least likely to benefit from financial literacy tests. They will be properly informed only if this is done in a manner, and with the type of wording, that would be simple to understand, not complicated.
Lord De Mauley
That is right, my Lords. In fact, when we debated the previous group of amendments I spoke about the deliberations that the Department for Education is going through on that exact point, so I thank my noble friend for that.
The FCA will set the conduct-of-business regime within which firms will operate and the requirements with which they will have to comply. Just as the FSA does today, placing firms under detailed obligations to assess the suitability of products for individual clients, as well as specifying that warnings must be given to consumers who express an interest in buying a product that does not appear appropriate for their needs or their tolerance of risk. In addition, these requirements specify which risk factors must be highlighted in the case of specific products—for example, income withdrawals or the purchase of short-term annuities.
However, none of this means that it is the FCA that should be required to have regard to the need to educate consumers about the unavoidability of risk. The FCA is not a consumer education body—that is the role of the Money Advice Service—and neither is it an interlocutor between firms or advisers and consumers. So I cannot agree with that amendment.
The noble Lord, Lord Barnett, asked what an appropriate degree of protection would be. “Appropriate” is used to allow the FCA to differentiate between the different needs that consumers may have. The detail is set out in the FSA’s rules and will be transferred into the new FCA’s rules. I will not offer to send the noble Lord a copy of them because I suspect they might be quite voluminous, but if he would find it helpful I am sure I could send a reference to that particular point in them.
Lord Peston
Before the Minister goes on to the next amendment, my noble friend Lord Barnett’s and my amendment, if I may draw his attention to it, appears in a clause that is headed “The consumer protection objective” and refers to the FCA. How can the Minister make the illogical leap of saying that that does not concern the FCA? It says categorically in the clause that it concerns the FCA; its acronym appears under the consumer protection objective, in the words,
“the FCA must have regard to”.
It therefore seems entirely reasonable that the FCA should have regard to what my noble friend and I have suggested. You cannot possibly say that someone else should have regard to it, when the FCA is clearly a body that must do so.
Lord De Mauley
My Lords, I hope I have explained that the FCA is doing that through its conduct-of-business regulations and that the issue of education is dealt with in the ways that I have explained.
Lord Peston
As a matter of elementary logic, though, the Minister cannot wriggle away and say that the FCA is doing it some other way. This amendment is about consumer protection and the FCA must have regard to that. I would like an answer to why the Minister will not accept an amendment that says that the FCA must have regard to it in this specific way.
Lord De Mauley
My Lords, I think that I have said that the FCA has regard to it, but I cannot go much further than I have.
Lord McFall of Alcluith
Is this not just part of the muddled thinking that took place at the beginning of this whole process when the word “consumer” was changed and the name became the FCA? Consumer protection lies with the FCA, whether the Minister sees it or not. Given the muddled thinking, and given that the Money Advice Service—which, by the way, was lacerated a few months ago when it went to the Treasury Select Committee—is not a consumer protection body, we need a little rethink. The Minister should take the pills and come back, and then we can get some clarity.
Lord De Mauley
I am sorry that the noble Lord is confused. I do not see the confusion that he does. Perhaps I may move on to Amendments 105A and 106.
Lord Peston
I would still like a rational answer to what I have put to the Minister. The least he can do is to say that he would like to think about it and come up with the right answer. Apart from anything else, it would do him a world of good.
Lord De Mauley
My Lords, I think that I have given the right answer but I am happy to write to the noble Lord, Lord Peston, if I can express it in a way that he might find more acceptable.
On Amendments 105A and 106, it is important to note that if we are to create the conditions in which consumers can make better choices for themselves, we need to address some of the asymmetries of information between consumers and providers that still prevail in financial services. I think that that is a point that noble Lords are making. That is why the Government added new subsection (2)(c) to new Section 1C, which will be inserted by Clause 5, before the Bill’s introduction to the parliamentary process. This provision requires the regulator to consider,
“the needs that consumers may have for the timely provision of information and advice that is accurate and fit for purpose”.
This provision complements the FCA’s new power to require firms to withdraw a financial promotion and disclose the fact that it has done so, as well as a new power to disclose at an early stage to the public that disciplinary enforcement action has commenced against a firm or individual. The FSA will carry out a root-and-branch review of transparency and disclosure on the part of firms and the regulator to be completed ahead of commencement of the Bill.
I agree with many of the points made by the Committee in terms of the improvements that we want to see, but I do not agree that Amendments 105A and 106 are necessary. I argue, for example, that referring to information being “fit for purpose” is, in modern idiom, a better way of achieving the aims that we all share. “Fit for purpose” is an umbrella term that includes, for example, information being legible, intelligible and appropriately presented. Information could not be fit for purpose if it was not also those things.
“Fit for purpose” is also broader and allows the regulator to differentiate between the needs of different consumers, to adapt its approach and perhaps to place additional requirements on firms where it considers this necessary. There may be requirements that we cannot anticipate at this point. Using a broad term such as this therefore gives flexibility and allows the regulator to be responsive to changing circumstances and market conditions. Being too exhaustive in the Bill could be unhelpful. However, it is also not appropriate, as the detailed requirements will be set out by the FCA in its rulebook.
I therefore argue that Amendment 105A is unnecessary, as fit for purpose already captures information being intelligible and appropriately presented. Amendment 106 could restrict the FCA’s ability to design a regime on the provision of information to consumers, as “intelligible” is a narrower term than “fit for purpose”.
Baroness Hayter of Kentish Town
Before the noble Lord moves off that particular amendment, perhaps I may point out that the provision also uses the word “advice”. He has covered only the information that has to be clear, but not the point about access to advice.
Lord De Mauley
My Lords, I apologise if my argument covered only one aspect, but it should be taken to cover both.
The noble Lord, Lord May of Oxford, to whom I am grateful for his intervention, asked about a duty of care. Subsection (2)(e) of new Section 1C, which is headed “The consumer protection objective”, states that providers should,
“provide consumers with a level of care that is appropriate … to the … risk … [of] the investment … and the capabilities of the consumers”.
I hope that that is helpful.
I hope that I have made it clear that the Government are fully committed to improving the provision of information to consumers, and that I have succeeded in convincing the noble Lord to withdraw his amendment.
Lord Barnett
My Lords, I do not think that the Minister has convinced anyone. I think he said that my noble friend Lord McFall was confused, but he was not confused. None of us is confused except about the way that the Bill is drafted. The whole of this section refers to consumer protection objectives. We also have new Section 1G, on the “Meaning of ‘consumer’”, and new Section 1H. The whole lot should be removed, because we are now told that the MAS will have to deal with it. The Minister has not convinced me, and I hope that we will come back to this at a later stage. For the moment, I beg leave to withdraw the amendment.
Lord De Mauley
My Lords, the noble Lord, Lord Patel, has withdrawn his name from the following debate. I therefore suggest that there is now time for speakers other than my noble friends Lady Jolly and the Minister to speak for up to five minutes each.
Financial Services Bill
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Lord Peston
My Lords, I support my noble friend’s amendments. I was particularly struck by her parting remark, which concerns a point that has bothered me a great deal during our deliberations up to now. The voices of the financial institutions are being heard loudly and at great length in your Lordships’ House on this matter. I do not criticise them for that—they have interests that they wish to see served—but we have interests of a different kind; namely, that we must be dispassionate. In particular, therefore, if the voices of consumers—which means ordinary people—are not heard at all, then something has seriously gone wrong with why we are bothering to try to reform the financial system anyway. If I were asked why we would take the Adam Smith view of everything, I would say that, ultimately, the whole economy exists for the sake of the consumer, and not for the sake of businesses. Businesses exist for the sake of the consumer. To have any doubt of the absolute necessity that the consumer’s voice is heard is to be mistaken. I therefore rise strongly to say that that voice should be heard mandatorily, and not if it just suits the body that takes the decisions.
Lord De Mauley
My Lords, this group of amendments, which go to the issue of consumer protection, deals with the Financial Policy Committee’s use of its powers of direction and recommendation in relation to the Financial Conduct Authority. These powers are the key means by which the FPC will seek to implement macroprudential policy. I should say at the outset that we wholeheartedly agree with the noble Baroness about the importance of consumer protection, which indeed is why we are creating a dedicated consumer protection regulator in the FCA.
In the case of directions, noble Lords will be aware that the scope of the FPC’s power will be determined by the Treasury. Under new Sections 9G and 9K of the Bank of England Act 1998, as set out in Clause 3 of this Bill, the FPC will be able to direct the PRA, the FCA, or both, to implement “macro-prudential measures” that have been prescribed by the Treasury by order, subject to parliamentary scrutiny.
Amendment 46 seeks to limit the FPC’s ability to make such a direction if it would conflict with the FCA’s consumer protection objective. I understand the general motivation behind this amendment. Indeed, it would not be appropriate for the FPC to issue directions to the regulators without regard for whether they conflict with the statutory objectives of those regulators.
However, let me assure noble Lords that safeguards are built into the Bill to prevent this. Specifically, new Section 9E, as set out in Clause 3 of this Bill, provides that the FPC must, in exercising its functions in relation to the FCA, seek to avoid doing so in a way that would prejudice the advancement of the FCA’s operational objectives, including consumer protection.
This provision is contingent on the FPC being able to achieve its own objective for financial stability. That is right, given that financial stability must necessarily take precedence if the new regulatory system is to address the flaws revealed by the crisis. However, this places a clear obligation on the FPC to take into consideration the FCA’s objectives before acting, and, in subsection (2), to find a way to minimise any possible conflict. In addition, of course, the presence of the chief executive of the FCA as a voting member of the FPC means that the views of the FCA—and therefore of consumers—will be represented and taken into account.
More generally, I suggest that such conflicts are unlikely to arise often. In practice, it is likely that most of the FPC’s directions will be directed at the PRA, so there will not be significant potential for conflict to arise between stability and consumer protection. It is also worth saying that what really is in the interest of consumers is financial stability. If the FPC were to be given a tool, implemented through the FCA, the Treasury would take care to design it in such a way as to minimise the potential for conflict between financial stability and consumer protection.
Amendments 49 and 52 deal with the role of the Financial Services Consumer Panel in relation to directions made by the FPC to the FCA. Amendment 49 would require the FPC to take account of representations from the panel before issuing a direction to the FCA. The FCA will already be required to consider representations from the consumer panel with regard to its general policies and their compliance with its objectives under new Section 1R of FiSMA in Clause 5 of this Bill. This duty will continue to apply when the FCA is acting under direction from the FPC, so the panel will have ample opportunity to make its views known.
Amendment 52, which would require FCA-specific directions to be reported to the consumer panel, is rendered unnecessary by the Bill’s general provisions for openness. For example, under new Section 9J, to be inserted in the Bank of England Act 1998 under Clause 3, directions must be reported to the Treasury and, where appropriate, laid before Parliament. Under new Section 9R, the record of FPC meetings must specify decisions taken, including the decision to give a direction or to make a recommendation.
Likewise, the inclusion of recommendations within new Section 9R means that Amendment 67 is not necessary either. The amendment would require recommendations made by the FPC to the FCA to be reported to the consumer panel, but the general reporting requirement is already in place under new Section 9R. Even without these provisions, we would expect the FCA to keep the consumer panel—indeed all the statutory panels—aware of relevant decisions made by the FPC. However, the provisions that are already in the Bill provide a guarantee of openness. I therefore hope that the noble Baroness will feel able to withdraw her amendment.
Lord Barnett
Before my noble friend replies, perhaps I may add my support. The Minister’s reply enhances my concern about the depth of work being given to the Bank of England under this Bill. The Minister referred to the FPC, the FCA, the PRA and the MPC. I suggest that the Government look at all the initials that they are using in these clauses. They are somewhat confusing and might even confuse the new governor. The Minister’s reply briefly exposes the extent and breadth of this Bill. The reply to one modest group of amendments is, to say the least, somewhat comprehensive. I am sure that it might not be easily understood by many Members, let alone by people outside this House.
We are told now that consumer protection is to be decided by the Treasury and not by the Bank of England, which is being given powers under all those initials. It will be decided by the Treasury. Has it nothing else to do? Will the Bank of England have nothing else to do? The whole Bill needs to be looked at afresh, and I would not be at all surprised if, before we get to the end of it, it is not all withdrawn and started again.
Lord Peston
Just to supplement my noble friend’s intervention, am I right that the Minister is trying to tell us in a nutshell that there is no problem whatever with consumer protection in connection with these amendments and that everything will be all right, as Dr Pangloss might put it?
Lord De Mauley
My Lords, I am saying that the concerns to which the noble Baroness’s amendments relate are addressed as the Bill stands.
Baroness Hayter of Kentish Town
My Lords, I thank my noble friends Lord Peston and Lord Barnett, who between them have been teaching me economics for 40 years. It is very nice to have their support now. I also thank the Minister for his response. Unfortunately, he does not answer the major question. He says that they will mitigate problems from any decisions. Under this amendment, we were trying to say that consumers should influence those decisions. We keep putting things right when they have gone wrong and we want a voice in those decisions. I do not think that those questions have been answered by the noble Lord; nor has he taken up the point that the chief executive of the FCA, who does not come from the consumer movement, does not have the feel of it. That is fine; it is a different job. I think that we will want to return to this matter, because clearly it is key to the Bill. For the moment, I beg leave to withdraw the amendment.
Financial Services Bill
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Lord De Mauley
“Explanation9QA Duty to prepare explanation
(1) In connection with the exercise of any of the specified powers, the Financial Policy Committee must prepare an explanation of—
(a) the reasons for the Committee’s decision to exercise the power, in the way in which it is being exercised, and(b) the Committee’s reasons for believing that the exercise of the power, in the way in which it is being exercised, is compatible with the duties of the Committee under the following provisions—(i) section 9C(1) (as read with section 9C(4)), and(ii) section 9E.(2) The specified powers are—
(a) the power to give a direction under section 9G;(b) the power to make recommendations under section 9N, so far as relating to the exercise of the Bank’s functions in relation to payment systems, settlement systems and clearing houses;(c) the power to make recommendations under section 9O, so far as relating to the exercise by the Treasury of their power to make orders under any of the provisions mentioned in subsection (2) of that section;(d) the power to make recommendations under section 9P.(3) The explanation required by subsection (1) in relation to the duty in section 9E(3)(a) must include an estimate of the costs and an estimate of the benefits that would arise from compliance with the direction or recommendation in question, unless in the opinion of the Committee it is not reasonably practicable to include such an estimate.”
Lord De Mauley
My Lords, this group of government Amendments 69A, 69B, 76A, 76B and 76D seeks to strengthen the transparency and openness of the decision-making procedures of the FPC. We have already debated the government amendments providing the FPC with a secondary objective for economic growth. The Government are making the changes to this group of amendments in response to those who have argued that the FPC should be required more explicitly to balance the demands of financial stability and economic growth.
Amendment 69A supplements this important addition by requiring the FPC to prepare an explanatory statement when exercising its powers of direction and recommendation in relation to the PRA, FCA, the Treasury or the Bank in relation to the Bank’s regulatory functions. Such statements must clearly explain how the FPC considers the exercise of its powers to be consistent with its objectives, including both its primary stability objective and its secondary objective for economic growth—the “brake” which prevents the FPC taking any action that would seriously damage long-term growth. The statement must also explain the FPC’s view of the compatibility of its actions with its duties under new Section 9E, which require it to have regard to the Bank’s financial stability strategy; to the need to avoid, as far as possible, requiring the PRA or FCA to act in a manner prejudicial to their own objectives; and to the important principles in regulation of proportionality, transparency and international co-operation and co-ordination. Amendment 76A requires the statement to be published in the next financial stability report.
The effect of these amendments will be to ensure that all interested parties—Parliament, the financial services industry and members of the public—will be able to examine, and indeed challenge, the balance that the FPC seeks to strike between stability and growth. I hope that noble Lords will agree that these are important additions to the FPC, increasing its transparency and accountability, and that they will therefore agree to them.
However, the Government are going further than this. Once the FPC has taken action, through its powers of direction and recommendation, Amendment 69B requires it to keep any open action under regular review. In the case of extant directions—that is, directions which have not been revoked—the FPC must review them at least annually. In the case of recommendations, the FPC must make arrangements to keep under review those recommendations it considers to be of continuing relevance. This will ensure that, once it has taken a specific action, the FPC will from time to time consider whether that action remains necessary and proportionate.
Amendment 76B requires the FPC to publish summaries of such reviews in the financial stability report, once again providing for improved openness and accountability. These are important procedural additions which underline the Government’s commitment to establishing the FPC as a balanced and proportionate macroprudential regulator. I beg to move.
Lord Eatwell
My Lords, we broadly welcome these amendments, in the sense that they are adding to the overall scrutiny and assessment of the activities of the FPC and thereby reinforcing, we believe, its general acceptability and strength of purpose. However, I want to raise a warning flag with respect to new Section 9QA(3), in which it is argued that the FPC will have to prepare,
“an estimate of the costs and an estimate of the benefits that would arise from … the direction or recommendation in question”.
These are macroeconomic measures. It is virtually impossible to provide a simple numerical estimate of the cost or benefit of a macro measure. There will be either a tendency to overestimate the costs, or a tendency to overestimate the benefit, in this particular case. Presenting an assessment in quantitative terms will give spurious precision and, indeed, spurious credibility to a particular measure. I assure the Minister that for any macro measure, I could write an entirely credible report saying that the costs exceeded the benefits and an equally credible report saying that the benefits exceeded the costs. This is simply extending the whole notion of cost-benefit analysis beyond the range in which it can effectively operate. It would be valuable to take account of an attempt to describe in broad qualitative terms the costs and benefits. However, please let us not have the spurious precision of numerical calculations of variables which, by their very nature, cannot be expressed in precise terms.
Lord De Mauley
My Lords, I am grateful to noble Lords for those questions. The noble Lord, Lord Myners, says that effectively there will always be a recommendation that is extant. He is probably right about that. The requirement is to review regularly any recommendations that have a continuing effect, and that includes any recommendations to set or maintain any particular level of leverage or capital, as the noble Lord suggests. I broadly agree with him, actually.
The noble Lord, Lord Eatwell, is right to say that a cost-benefit analysis is a difficult thing to do. That does not mean that the committee should not attempt it, so that at least interested parties have an opportunity to review it and make their comments.
Lord Liddle
My Lords, that was a very interesting exchange between my noble friends Lord Davies and Lord Myners on the crucial question of how these matters should operate. I would like to add a point in favour of my noble friend’s amendment on the basis of work I have done on how the new European system is operating. I had a conversation in Brussels recently with André Sapir, who is on the board of the European Systemic Risk Board, about the role of independent economic expertise in assessing systemic risk. On that board, the independent economists have made a decision that they will not rely on the internal expertise of the European Central Bank, precisely for the reason that the noble Lord, Lord Eatwell, said. We are operating in a very uncertain world and no one really knows what the right road map is. What we need is the maximum amount of well informed, independent expertise on these matters. I feel very strongly that this amendment should be supported.
Lord De Mauley
My Lords, before I start on the amendment, I shall say in response to the noble Lord, Lord Davies of Stamford, that the deputy governor for financial stability is a very fine and highly respected deputy governor. As the noble Lord, Lord Myners, said, it is for the Treasury Select Committee to assess what he said yesterday.
Turning to Amendment 89, it would create an advisory panel with a two-fold brief: first, to advise the FPC on systemic risks to financial stability; and, secondly, to assess and report upon the effectiveness of the FPC in assessing systemic risks to financial stability, the macroprudential tools provided by the Treasury to the FPC and the actions taken by the FPC. The membership of the panel would include the deputy governor for financial stability and a number of external members appointed by the Treasury, drawn from a range of relevant professions, including academia.
The Bill already creates, in the FPC, a committee on which the deputy governor for financial stability sits, together with external members, some of whom may indeed be academics. The noble Lord, Lord Eatwell, was good enough to compliment the external members of the interim FPC. Let me give some details of the specific expertise of the current external members to give a flavour. Alastair Clark has, in addition to extensive real-life experience, degrees from Cambridge and the LSE and is an honorary visiting professor at the Cass Business School. Robert Jenkins, who the noble Lord, Lord Myners, referred to, not only has extensive experience of trading and asset management but is also an adjunct professor at the London Business School. Donald Kohn, in addition to extensive experience in financial regulation in the US also has academic experience. Michael Cohrs has experience at senior level in the private sector in investment banking but is also a Harvard MBA and an adjunct professor at Beijing University. We want, and we have, multifaceted people. We agree with the noble Lord regarding the need for extensive broad experience, including academic experience, but we do not think this needs to be set down in legislation.
Lord Myners
The Minister used the word “independent” on several occasions relating to oversight. Noble Lords will remember that when the Monetary Policy Committee was established, there was quite a brouhaha about whether the independent members of that committee should have access to independent advice. The Bank resisted that so the independent members had to rely upon the Bank’s own economists. It was only after a threat of resignation by one of the independent members of the MPC that they were granted the ability to appoint, I believe, a single researcher.
The culture of the Bank does not foster independence. It is a very hierarchical organisation. The view of the Bank is the view of the governor. The court has recently announced three independent reviews into aspects of the Bank’s conduct. They are all quite interesting because they date from October 2008. None of them will actually look at the real errors that were made by the Bank, which were pre-2008. We really want to ask what the Bank was doing in 2006 and 2007. These reviews exclude any examination of Northern Rock, and I think one could argue that if it had been handled in a different way, it might have had some impact on how the UK was impacted by the global financial crisis.
I put down a Question on these independent reviews. The independent reviewers were appointed through a process led by the governor. The independent reviewers do not have their own secretariat. They are reliant upon the Bank’s staff for support, so I put it to the Minister that for this approach to operate, it is important that the FPC has access to truly independent advice. In my view, advice that comes from career employees of the Bank can never have that element of total independence that is necessary in order to achieve the objective that I believe the Government have for the FPC and which my noble friend has at heart when proposing this amendment.
Lord De Mauley
I will, if I may, respond on that point. The noble Lord, Lord Myners, is right, and my noble friend Lord Sassoon acknowledged earlier, that previously the Bank was slow to recognise the MPC external members’ need to have access to dedicated support. The Bank has learnt its lesson.
Lord Eatwell
Gosh, that is a bold statement. In replying to the comments made by the noble Lord, Lord De Mauley, I would point out that he has overlooked two crucial elements that underpin the logic of this amendment. First, there are indeed highly skilled and independent members of the Financial Policy Committee, but they are involved in making the decisions and the recommendations. They are the organised part of the organisation which will in due course be responsible for what happens. They are not in any sense an evaluative mechanism. They are adding grist to the mill of a decision-making mechanism; an evaluative mechanism is a different thing altogether.
Secondly, the noble Lord referred to the role of the new oversight committee. I would remind Members of the Committee that the oversight committee will be composed of members of the court; it will not be anybody outwith the internal structure of the Bank. I am enormously disappointed—the most disappointed I have been with anything I have done in relation to this organisation—that the Government have not taken this on board. We are trying to formalise a continuous process of debate, review and assessment by people who have high levels of skill in this area but who are not otherwise involved. That is what a truly effective advisory panel should do. I was struck by my noble friend Lord Liddle’s comments on what is happening at the European Systemic Risk Board. As the noble Lord, Lord Stewartby, said, we want people with the right sort of skills doing this sort of assessment. He is absolutely right.
I ask the Government to think again on this issue. This area can contribute significantly to the overall success of the FPC. I assure the Government that I will return to this matter at later stages, but for now I beg leave to withdraw the amendment.
Financial Services Bill
Lord De Mauley Excerpts(12 years, 5 months ago)
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Lord De Mauley
My Lords, I think I detect that the mood of the House is that we should move towards a conclusion. I do not want to stifle debate but perhaps I might suggest that my noble friend should speak and then my noble friend the Minister should wind.
FSA Investigation into LIBOR
Lord De Mauley Excerpts(12 years, 5 months ago)
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Lord De Mauley
My Lords, there is plenty of time. Perhaps we can hear from the Cross Benches and then from my noble friend.
Lord Elystan-Morgan
My Lords, if I may, I will make a point in support of the very pertinent submission made by the noble Baroness, Lady Kramer. This is not a question of who should prosecute or who can prosecute. A simple, straightforward criminal offence was created in Section 397 of the Financial Services and Markets Act 2000; I checked it. That provision deals with a false statement or declaration that is made deliberately or misleadingly and that distorts a market. It is an offence that is punishable on indictment with a maximum of two years’ imprisonment. There would seem to be ample prima facie evidence that such an offence has been committed. In the circumstances, bearing in mind the damage done and the ruthlessness with which such practices were conducted, is there any reason why persons responsible should not stand trial?
Baroness Williams of Crosby
My Lords, I want to pursue for a moment the sheer seriousness of the situation that the noble Lords, Lord Eatwell and Lord Blair, and my noble friend all pointed to. I can think of nothing more likely to undo the prospect of this country’s return to prosperity from the crisis than the present, huge doubts about the trustworthiness of the financial system. When I extensively read newspapers from the United States, what comes out very loud and clear is the view that as a result the major beneficiaries will be countries that are in direct rivalry and competition with the City and that hope to gain from what they regard as an extremely dangerous problem that we have brought upon ourselves.
I am satisfied with the prospect of a parliamentary inquiry and I accept what the noble Lord said about the necessity for speed and getting on with it. The noble Lord, Lord Eatwell, and my noble friend Lord Higgins asked about the terms of reference. The missing term of reference that troubles me is the inquiry’s relationship to the role of the regulators. The Daily Telegraph may not be a very good source, but it is becoming completely clear that there were seminars, discussions, meetings and debates throughout 2007 and 2008 about LIBOR, and if anything is likely to be true about those rumours and suggestions it is vital that we explore whether our present regulatory structure is adequate to deal with an issue as serious and as far-reaching as this one. I therefore, with great respect, suggest to the Minister, probably with the support of the Opposition, that the terms of reference should at least extend to the roles of regulators, to the reasons why they failed to probe into this matter at an earlier stage and to what steps could now be taken to give them the confidence and the resources to enable them to do better in future.
Financial Services Bill
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Lord Northbrook
My Lords, I support the amendment of the noble Lord, Lord McFall. I noted that in the Treasury Committee’s first report on the Financial Services Bill of 23 May, Mark Hoban was quoted as having spoken in the other place as follows. I hope that the Committee does not mind me repeating it, because it is quite important:
“My hon. Friend the Member for Chichester also mentioned publication of the court’s minutes. The Bank has committed to publishing what it terms a record of future court meetings. It is worth pointing out that the FPC also produces what it calls a record of its meetings, which is a very full account of the debates that go on in the FPC, and we will expect a similar process to be undertaken for the court’s meetings. Let me be clear: I believe that there is a clear need for the Bank’s accountability arrangements to be strengthened through the publication of the court’s minutes and the enhanced scrutiny of the court’s work, although I believe that the changes announced by the Bank help address the concerns raised by my hon. Friend and the Treasury Committee. He made some powerful arguments that have been echoed by other members of the Committee, and we will consider further whether these arrangements should be put in the Bill. We will reflect on these matters and reconsider them when the Bill goes to the other place. I hope that that helps to reassure the House on how seriously we take these matters and our willingness to listen and respond to the concerns raised by Members during the debate”.—[Official Report, Commons, 23/4/12; col. 766.]
I ask the Minister to consider those comments by Mr Hoban in the other place.
Lord De Mauley
My Lords, in its report on Bank of England accountability, the Treasury Select Committee indeed recommended that the court publish minutes of its meetings. In its response to the Treasury Select Committee, the court accepted this recommendation in principle and agreed to begin to publish a record of its meetings once the new structure was in place. By putting this requirement into the Bill, as we propose to do through government Amendment 97, we ensure that this important transparency mechanism will remain in place.
As the Treasury Committee itself recognised, the court is likely to discuss extremely sensitive matters that are unsuitable for publication—for example, the provision of emergency liquidity assistance to an ailing bank. Therefore sub-paragraph (3) of new paragraph 12A establishes that the record must not contain any information whose publication would be against the public interest. I am pleased to see that Amendment 12, tabled by the noble Lord, Lord McFall, contains a similar provision. However, in a divergence of opinion, perhaps similar to that discussed by my noble friend Lord Sassoon in the previous group, the Government do not agree that the court should be required in all cases to notify the Treasury Select Committee of the reasons why information might have been withheld for public interest reasons from publication.
When the Bank takes actions that involve risk to taxpayer money, such as liquidity operations indemnified by the Treasury, it is the responsibility of the Treasury rather than the court to ensure that the relevant parliamentary committees are informed, on a confidential basis if necessary. There are already formal and informal mechanisms in place for this to happen, including in the new crisis management MoU. When a court discusses sensitive matters that are not related to public money, I do not see the value in creating a bureaucratic requirement for the court to notify the TSC, or to keep under review material that it excludes from meeting records, with a view to publishing it at a later date. Of course, the court may publish information on discussions that were originally excluded from the record at a later date if it believes it appropriate to do so.
The same arguments apply to Amendments 72 and 86 in the name of the noble Lord, Lord Eatwell, in relation to material excluded from the records of FPC meetings and meetings between the Chancellor and the governor. There is also widespread agreement that the Financial Conduct Authority should publish a record of its board meetings. The future leadership of the FCA has agreed to this. We have therefore brought forward Amendment 144, which makes similar provision for the FCA. Indeed, the FSA will publish in early August a record of its June board meeting, consistent with the provisions proposed.
Amendments 70 and 80, tabled by the noble Baroness, Lady Hayter, attempt to include the word “minutes” in other places in Clause 3 where the word “record” is used. That goes to the point made by the noble Lord, Lord McFall. The specific word used is not important. I hope we can agree that what is vital is ensuring that the record provides a clear public account of decisions taken by the court, the FPC and the FCA, and of the rationale and arguments that were put forward by members in favour of and against each decision. Sub-paragraph (2) of proposed new paragraph 12A, which sets out what the record must contain, ensures that that will be achieved for the court. Identical new provisions cover the FCA under Amendment 144. New Section 9R(2) similarly sets out precisely what the FPC’s meeting record must contain.
I move on to Amendment 85, which was also tabled by the noble Lord, Lord Eatwell, and the noble Baroness, Lady Hayter. Subsection (5) of new Section 9U requires the Treasury to consult the Bank before publishing the record of the meeting between the governor and the Chancellor. That will ensure that the Bank’s views about whether material is suitable for publication will be taken fully into account. The noble Baroness can be assured that the Treasury would not publish any material which the Bank believed was sensitive.
Amendments 20, 59, 60, 71, 77, 78, 83, 84 and 85 are generally speaking to do with websites. Transparency and openness are a critical part of any regulatory system. Transparency of decision-making is a vital aid to the public understanding of regulatory actions. In all cases where the Bill provides for certain documents to be made public, including those affected by amendments in this group, I would of course expect the publications to be made available on the relevant website. That is because the internet is at present the primary method for the public to access this type of material. However, I ask noble Lords to accept that technology advances at a tremendous pace. Fifty years ago, neither the internet nor websites existed. It is impossible to foresee how far digital communication will have advanced in the next five years, let alone 50.
As well as publishing documents on their websites, the Bank, the Treasury and the FSA already make use of Twitter, Flickr, YouTube and RSS to communicate with the public. Any one of these, or some other new form of media, may become the most widespread way to communicate with the public in the future. That is why we should not make provision in the Bill for specific types of communications media that may be superseded sooner or later. That is in line with the long-standing principle of future-proofing new legislation. While I think we agree on the principle of transparency and openness, I hope that the noble Lord will be persuaded to withdraw the amendment.
Let me reassure noble Lords that this should not be taken to imply that the new authorities will not make use of the internet to promote transparency and openness. The interim Financial Policy Committee has already published two financial stability reports and a record for each of its five meetings on the Bank’s website, with the latest record to be published on 6 July. In addition, last year the Bank published on its website a public consultation on macroprudential tools. I have no doubt that this will continue, but in general I contend that it is sensible to allow the publishing authority to decide in what manner to reach interested parties most effectively, which is why I hope noble Lords will understand why I cannot support Amendment 82, which seeks specifically to remove this discretion from the Treasury. I hope that noble Lords will accept government Amendments 97 and 144 and be prepared not to press their own.
Baroness Hayter of Kentish Town
Did the Minister mean to refer only to the Treasury Select Committee? Our amendment related to the decision taken not to publish and whether only the chair of the Treasury Select Committee would be informed of the reasons. He did not actually comment on this.
Lord De Mauley
I think I have an answer. The point is that the principle is as I outlined, whether it is an individual or the committee.
Lord McFall of Alcluith
I apologise to the House; I am away in another world. I still believe that there is quite a difference between a minute and a record. However, given that the Government have come forward with a number of proposals, I withdraw the amendment.
Lord Eatwell
Perhaps I may clarify that point. It is a term of art to say that you consult the public. When an institution such as the Bank of England or the Financial Services Authority initiates a general consultation and publishes a consultation document, they consult the public. In fact, it tends to be the financial services industry and other immediately interested parties who are consulted, not the gentleman on the Clapham omnibus.
Lord De Mauley
My Lords, as I said in the debate on the last group of amendments, the Government recognise the need for transparency and accountability in financial regulation. The Bank also places great value on transparency and openness. It uses a variety of methods to engage with the public on issues of policy, including FPC and MPC meeting records, financial stability and inflation reports, public speeches, policy papers, consultations, regional agencies and various forms of social media. The Bank and the FPC further demonstrated their commitment to transparency in their work on macroprudential tools by publishing a discussion document in December that invited public opinion.
The Bank’s court will be responsible for setting the Bank’s strategy in relation to its financial stability objective. The Bill requires that the court consults the Treasury and the Financial Policy Committee about a draft of the strategy before determining or revising it. The Bill does not prohibit the court seeking the opinions of others. For example, the court might wish to consult the European Systemic Risk Board to get is opinion on the outlook for financial stability in the European Union; it might wish to consult the International Monetary Fund or the Financial Reporting Council, as the noble Lord, Lord Eatwell, mentioned; it would almost certainly want to consult the PRA board and perhaps the FCA too. The list goes on. The Bill is drafted in a flexible way which allows the court to consult anyone on its strategy.
As to Amendment 16 specifically, the current drafting of the Bill already allows the court to consult the public on its financial stability strategy. The Bank’s financial stability strategy is currently published annually in the Bank’s annual report and is available on the Bank’s website. It is open to any organisation or member of the public to send the Bank comments on its financial stability strategy if they wish. I would expect the Bank to take seriously any contributions from the public and, where appropriate, to take them into account when revising the strategy. Given that revisions to the financial stability strategy will be less frequent—every three years—the court may well choose to undertake a public consultation process in advance of revising its strategy, particularly if the Bank were considering making any significant changes to it.
Such a public consultation process may not be necessary or even possible on every occasion. For example, the changes being made might be minor and technical and so not warrant a public consultation. In other cases, the changes to the strategy may be urgent and so there may be inadequate time for public consultation.
While I entirely support the sentiment behind the amendment, I do not think that it would be appropriate to put in the legislation a prescriptive requirement for public consultation in all cases. On that basis, I hope that the noble Lord will feel able to withdraw his amendment.
Lord Eatwell
My Lords, I was very struck by the Minister’s speech because it was rather better than mine in support of my amendment. He said that the public would typically be consulted. The only slightly off-base comment that he made was that the financial stability strategy would be revised every three years. That is not according to the Bill, which says,
“complete a review … before the end of each relevant period”.
“Before the end” could be one month, six months, two years, 11 months or 30 days, whichever is relevant. The notion that revisions will take place irregularly—in fact, on a three-yearly basis—is not what is in the Bill.
The Minister then shot his fox by saying that urgent revisions might have to be made. In that case, given that revisions can take place at differing intervals depending on the exigencies of the time—let us remember that financial markets can change their character and behaviour quite rapidly and unexpectedly—and if this impinges on strategy, it should be appropriate that consultation takes place. My amendment provides that variations in strategy be widely consulted on, including among the public. A public consultation would take place, and the relevant authorities listed so accurately by the Minister would no doubt participate.
I do not understand the Minister’s rejection of what I would think is an extremely helpful amendment given what he had to say. However, we will come back to this matter on Report. In the mean time, I beg leave to withdraw the amendment.
Lord Eatwell
The amendment relates to what I think is a mistake in drafting because there is failure in symmetry between the two new subsections. We have just discussed new Section 9A(2), which states that the Court of Directors must consult the Financial Policy Committee and the Treasury. New Section 9A(3) states:
“The Financial Policy Committee may at any time make recommendations to the court of directors as to the provisions”.
Why is the Treasury included in subsection (2) but not in (3)? Surely, if the Court of Directors must consult the Financial Policy Committee and the Treasury about a draft of the strategy, then if, from time to time, the Financial Policy Committee or the Treasury wishes to make recommendations to the court, the Treasury should be able to do so on the same terms.
I think that there is just a mistake in drafting here. If subsections (2) and (3) are to be symmetrical, my amendment should be accepted. I beg to move.
Lord De Mauley
My Lords, there are already a number of measures in the Bill relating to the Treasury’s involvement with the setting and revision of the Bank’s financial stability strategy. The court must, for example, consult the Treasury before setting or revising the strategy. In addition there is nothing to stop the Treasury making proactive recommendations to the court on the content of the strategy on a non-statutory basis. I believe that these arrangements strike the right balance between insulating the Bank from political pressure while ensuring that the Treasury’s voice will be heard.
I am not sure that this goes entirely to address the specific question from the noble Lord, Lord Eatwell, but the Treasury can at any time, if it wants to, make recommendations to the court as to its strategy. Express provision is needed for the FPC to make such recommendations since the FPC is a creation of statute and its functions need to be set out in statute. The Treasury is not a creation of statute and has the ability under common law to provide advice to anyone. I ask the noble Lord to withdraw his amendment.
Lord Eatwell
I am sorry—once again, I really do not understand. New Section 9A(2) is absolutely clear that the Court of Directors must consult the FPC and the Treasury in developing a proper financial stability strategy. That is good—after all, this particular strategy is a very complex thing and it is going to involve direct intervention in the growth, or limitations of the growth, of credit in the economy. New Section 9A(3) states that the Financial Policy Committee may at any time make a recommendation, which is perfectly reasonable. It is doing its research, it comes up with an idea, it finds that something has been left out that is terribly important, and so it goes along to the Court of Directors to say that it really needs to consider it.
Surely the Treasury should have the symmetric right as from new Section 9A(2) to new Section 9A(3). Unless the noble Lord can point to somewhere else in the Bill where this right is available to the Treasury, then this is the point at which to include the Treasury’s ability to make a recommendation on its observations on changing circumstances. After all, it has the widest observation of changes in economic circumstances, both domestic and international. If the noble Lord can point to another part in the Bill which I am overlooking then I will certainly withdraw my amendment. At present, I am not convinced. I would be grateful if he could enlighten me.
Lord De Mauley
I understand the question from the noble Lord, Lord Eatwell, but I do not have an answer for him now. It is an important question so perhaps I may look into it and write to him.
Lord Eatwell
It would be churlish to say no. On that basis, I shall leave the question on the table and, for the moment, beg leave to withdraw the amendment.
Lord Northbrook
My Lords, as a historian, although I have some sympathy with the amendment of the noble Lord, Lord Eatwell, I feel that sometimes you need a little more perspective on these problems. Sometimes a gap of time can be useful, particularly when a crisis has had such complicated origins and effects which keep continuing. I would rather keep the three years as in the Bill.
Lord De Mauley
My Lords, Amendments 18 and 19 would require the court to review the Bank’s stability strategy annually. The extant legislation, the Bank of England Act, requires the court to determine and review the bank’s strategy in relation to the financial stability objective. That legislation does not set out how regularly the strategy should be reviewed. In practice, the court has recently revised the financial stability strategy annually. That is understandable given the sheer volume of legislative and other changes to the system of financial regulation in the past three or so years.
However, a strategy ought to be something for the long term. If the strategy is revised annually—ad infinitum, I contend—there is a risk that the short timeframe would lead to focus on short-term issues, reading more like what one might call a business plan than a genuine strategy. That is why new Section 9A will require the court in future to revise the Bank’s stability strategy at least every three years—more in line, I suggest, with a long-term strategy. Of course, if circumstances mean that the strategy must be changed in a shorter timeframe, new Section 9A allows the court the flexibility to revise the strategy earlier, as the noble Lord, Lord Eatwell, pointed out in an earlier debate.
We believe that a long-term financial strategy should provide vision, purpose and certainty for the Bank, its staff and the industry alike. That is why I believe that a three-year timeframe for a strategy is appropriate, so I ask the noble Lord to withdraw his Amendment 18.
Lord Eatwell
My Lords, once again, I thought that the noble Lord was making a better speech than me in support of the amendment. As he pointed out, the significant changes which have taken place over the past three years have required annual revision. Once one gets into a sequence of annual revisions, some of which can be looking back quite a long way—there is no reason why they should focus on the short-term—that creates an environment in which the regulated community knows what to expect every year, can consider the report, and if it says that the strategy is unchanged, that provides a great deal of comfort to the regulated community.
If there is no report, the regulated community is left hanging in the air, thinking, “Yes, it is all the same, but is something going on that is not quite so important but that they do not want to reveal to us?”. Surely, if there is a regular annual report, that provides a decision-making environment optimal for the financial services industry. Once one goes to three years and then is forced to do things once a year because so much is changing, think of the pessimism that one creates, think of the loss of certainty created in such circumstances. The industry wonders, “Why are they changing their three-year cycle? Why are they moving to one year? There must be something going on that we do not really know about. Perhaps something really bad is happening”.
If one sticks to a steady one-year cycle, apart from emergencies—to which the noble Lord referred, and on which I entirely agree—that creates the comfort and certainty which the financial services industry really needs with respect to, let us remember, the utilisation of instruments, such as leverage collars and countercyclical provisioning, which will have a major impact on business plans and performance of the whole financial services industry.
I really would press the Government to take this under advisement and to think carefully about it. We will return to this on Report because leaving the period at three years is not the way to effectively manage confidence and expectations in an industry in which confidence and expectations are paramount in decision-making. In the mean time, I hope that the Government will take it away and think about it, and I beg leave to withdraw the amendment.
Baroness Anelay of St Johns
My Lords, it may be convenient at this point if I explain why the House is resuming and will adjourn before we have reached the agreed target, which was agreed in the usual channels this morning, of Amendment 32. It has been agreed after constructive discussions in the usual channels this evening that we should finish as close to 10 o’clock as possible, even if, as I understand from my noble friend the Minister, the next group of amendments might take only a matter of a few minutes. But we came to an agreement, and I stick by my agreements, as I know that the noble Lord, Lord Eatwell, sticks by his—and that is valued.
The understanding between the usual channels is that, after two days in Committee, the opposition Chief Whip’s office will sit down and work with the Bill team to provide accurate guidance for Back-Benchers as to which subjects will be dealt with in the remaining days in Committee. Overall, all of us have a care to ensure that those on the Back Benches, who are playing an important part in this Bill, know which amendments may be taken on which days and roughly at what time of day, because that is how the House works well. I am aware from what my noble friends have said today that those who have worked in Committee today have taken care to give proper scrutiny to the Bill. I am sure that the discussions that we have had in the usual channels tonight will enable that to take place again in future days.
Economy: Budget Statement
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Lord De Mauley
My Lords, I wonder if noble Lords would kindly leave the Chamber quickly and quietly so that we can proceed with the debate.
Lord Sassoon
My Lords, yesterday’s Budget reinforces this Government’s determination to restore the UK to prosperity. It is because of the decisive action that the Government have taken, starting with the June 2010 Budget, that we have secured and maintained the stability of the UK economy. The private sector has already responded vigorously. Since the election, private sector employment has risen by more than 630,000 and the Office for Budget Responsibility forecasts that between the start of 2011 and the start of 2017, some 1.7 million jobs will be created in the UK’s private sector—an extra 1.7 million jobs creating wealth, leading innovation and driving our recovery across the nation. The dynamism of UK businesses is truly remarkable. As the Government, we have to continue to reduce the burden of the state. If we do that, the economy will flourish.
Yesterday’s Budget builds on a strong foundation, safeguarding our economic stability, creating a fairer, more efficient and simpler tax system, and driving through reforms to unleash the private sector enterprise and ambition that are critical to our recovery. As my right honourable friend the Chancellor said yesterday, Britain will earn its way in the world.
We can succeed in that goal only if we continue to safeguard our economic stability by tackling the record deficit and debt that we inherited from the previous Government. It is because of our determination to tackle that legacy that we have sheltered the UK economy from the turbulence that undermines our nearest neighbours. It is because of our commitment to stick the course that, in the past two years, the cyclically adjusted primary deficit has been halved, falling from 7 per cent of GDP in 2009-10 to 3.4 per cent in 2011-12 and approaching balance in line with our fiscal mandate. Indeed, borrowing over the forecast period will now be £11 billion lower than was predicted in the Autumn Statement last year.
Stability is the vital precondition for growth and will continue to be our key priority, but as the Office for Budget Responsibility said in its report yesterday,
“the situation in the euro area remains a major risk”
to the UK’s economic forecast. The OBR also identifies a risk of a,
“further spike in oil prices.”
Despite these headlines, however, there are positive signs for the UK economy. The OBR continues to forecast positive but subdued growth. Along with the Bank of England, it forecasts that the economy will avoid recession, with this year’s growth forecast broadly unchanged at 0.8 per cent, then 2 per cent for next year, 2.7 per cent in 2014, and 3 per cent in both 2015 and 2016.
Economic stability is the vital foundation for securing that growth and the Budget reaffirms our commitment to safeguarding that stability. That is why this year’s Budget has a neutral impact on the public finances, implementing fiscal consolidation as planned. It keeps us on course to achieve a balanced structural current budget by 2016-17, with debt falling as a percentage of national income by the end of this Parliament in 2015-16.
Restoring fiscal sustainability will remain this Government’s number one priority. Such is the scale of the challenge that we must remain vigilant on spending. In particular, it is vital that we maintain control over welfare spending. That is why my right honourable friend the Chancellor announced yesterday that the additional costs of universal credit will be capped at £2.5 billion. We will also address the rising costs of an ageing population and the burden which that places on future generations. That is why there will be an automatic renewal of the state pension age to ensure that it keeps pace with increases in longevity. However, as the director of the Institute for Fiscal Studies said this morning, when you look at all the Government’s measures, you see that pensioners have not been hit as hard as other taxpayer groups.
We have also taken the difficult decision to remove child benefit from high earners. It is right that we focus support on those who need it the most, but we have to do it in a way that is fair, without setting up a cumbersome tax credit system and avoiding a cliff-edge for millions of families. That is why, instead of withdrawing child benefit all at once when people earn more than the higher-rate threshold, the benefit will be withdrawn only when someone in the household has an income of more than £50,000. And the withdrawal will be gradual, so that only those on an income of more than £60,000 lose all their child benefit. Overall, child benefit will continue to benefit 90 per cent of families with children.
These are tough choices to make, but this Government will not shirk their responsibility to restore fiscal sustainability and economic stability. We have learnt, to all our costs, the consequences of unsustainable spending and ever increasing debt.
As my right honourable friend the Chancellor said in the Budget, if Britain is to earn its way in the world, then we need to build a recovery based on private sector enterprise, investment and export, and if we are to succeed in that ambition then we have to undertake far-reaching reform to ensure that our tax system is simple, predictable, fair and supports work.
First and foremost, we are committed to creating the most competitive tax system in the G20—a tax system that supports work, encourages growth and keeps our most successful businesses here in the UK. While the previous Government increased taxes on small businesses, we have cut the tax rate on small companies to 20 per cent. While the previous Government wanted to increase national insurance on jobs, we have cut it, and while the previous Government sat idly by as our competitiveness drained away, we have already committed to reduce the headline rate of corporation tax to 23 per cent by 2014 because it is necessary to cut one of the most growth-impeding taxes there is. As we announced yesterday, we are going even further, cutting the rate of corporation tax to 22 per cent by 2014. That is a headline rate of corporation tax dramatically lower than our competitors and a spur for prosperity and job creation across the economy.
That is why we are also cutting the 50p rate of income tax. That rate was higher not just than the US, but higher than France, Italy and Germany—the highest in the G20. It was a rate that damaged our competitiveness while raising next to nothing in additional revenue. From April next year, the top rate of tax will be 45 per cent, restoring our competitiveness and galvanising our entrepreneurs and hard-working families. But at the same time, we will continue to ensure that those with the broadest shoulders carry the heaviest burden. That is why the Chancellor has announced a new cap on income tax reliefs that are currently uncapped. From next year, for anyone seeking to claim more than £50,000 of these reliefs in any one year, a cap will be set at 25 per cent of their income.
While the Chancellor ruled out a mansion tax, it is right that those with considerable assets do pay a fair share. That is why we are also introducing a new stamp duty land tax rate of 7 per cent on properties worth more than £2 million, and why we are tackling the abuse whereby people avoid stamp duty on their homes. Taking the cumulative tax, tax credit and benefit changes in the Budget together, it is the top decile of the income distribution that sees the largest reductions in income and the top quintile that makes the greatest contribution to reducing the deficit. That is exactly how it should be.
At the same time, we are taking decisive action to support working people on the lowest incomes. The Government believe that the best way to support working people on low incomes is to take them out of tax altogether. Next month, the personal allowance will rise to £8,105. Taken with the previous increase, that is more than 1 million low-earners taken out of tax. But we are going further and sooner. Yesterday, my right honourable friend the Chancellor announced the largest ever increase in the amount that people can earn tax-free—an increase from next April of £1,100 to £9,205. That means that around 2 million low-income earners will have been taken out of tax altogether and there will be a tax cut of £3.5 billion for working families. These are substantial tax reforms that demonstrate our commitment to tackling the deficit in a fair way.
But tax is only one part of our ambition to restore competitiveness, promote business and encourage investment. As your Lordships are well aware, this Government have already set out ambitious infrastructure plans, setting the stage for some £250 billion of investment in the next decade and beyond. That investment is critical to enabling Britain to compete with emerging giants in the global market. Yesterday, the Chancellor provided further details on those ambitions, for example confirming that Network Rail will extend the Northern Hub and improve the Manchester to Preston and Blackpool and Manchester to Bradford lines. We will live up to our commitment to devolve power and responsibility to local authorities. That is why we concluded a groundbreaking deal with Manchester to support £1.2 billion of investment in infrastructure, will support £150 million of tax increment financing to help local authorities promote development and are providing an extra £270 million to the Growing Places Fund to help local authorities unblock stalled infrastructure projects.
Just as we invest in our physical infrastructure, we have to invest in our digital infrastructure. That is why we are funding ultrafast broadband and wi-fi in 10 of the UK’s largest cities, providing £50 million to increase urban broadband in our smaller cities as well, and helping build on our long and rich history of scientific and technological leadership. It is right that we capitalise on and commercialise that leadership, which is why we went even further in the Budget to commit £100 million of support, with the private sector, for investment in major new university research facilities, £125 million towards making UK advanced manufacturing supply chains more competitive, and £60 million to establishing a UK centre for aerodynamics, creating a springboard for innovative businesses and entrepreneurs to lead our economic recovery. Government, local authorities, universities, businesses and entrepreneurs are working together to catalyse private-sector growth and innovation.
All this is of particular interest to my noble friend Lord Heseltine. I look forward with particular anticipation to his maiden speech today. My noble friend’s extraordinary work in Liverpool has rightly been recognised by that great city. Now, my noble friend has kindly agreed to review how spending departments and other public-sector bodies can better work with the private sector to support economic development.
Of course, while we can provide the right conditions for a private sector recovery, we also have do all we can to remove barriers to those businesses attempting to seize new opportunities. That is why we are simplifying the administration of tax for our smallest firms, consulting on a new cash basis for calculating tax for firms with turnover up to £77,000, making tax returns dramatically simpler for up to 3 million firms. Of course, bureaucracy does not end with tax. If we want those businesses to lead our economic recovery, then we have to match their “can do” attitude. That is why the Budget endorsed a fundamental overhaul of the planning system, replacing 1,000 pages of guidance with just 50, and introducing a presumption in favour of sustainable development and a new planning guarantee so that no decision should take more than 12 months, including appeals.
Just as we encourage businesses to expand at home, we want to encourage British businesses to expand overseas. It is a damning statistic that, over the past decade, our share of world exports shrank as Germany’s grew. In the past three years, UK exports have risen almost 30 per cent, rising above their pre-crisis peak, with exports to India and China nearly doubling from five years ago. But we can and must go further. By 2014-15, UK Trade and Investment will be working with 50,000 small firms a year to expand their sales abroad—double the current number. We have set the ambition to more than double the UK’s annual exports to £1 trillion by 2020.
At the same time, we have to ensure that our businesses have the finance to feed their ambition. In particular, it is critical that we support the small businesses that provide more than 50 per cent of private sector jobs and 30 per cent of private sector investment and which have the potential to become the global leaders of tomorrow. That is why we launched the National Loan Guarantee Scheme earlier this week to give smaller businesses with a turnover of up to £50 million access to cheaper loans. We have provided up to £20 billion of guarantees under the scheme. This Government’s deficit reduction strategy has earned market credibility and low interest rates, and this Government are ensuring that the full benefits of those low interest rates are passed on to businesses across the UK.
In conclusion, this Government are committed to making Britain the best place to start, grow and finance a business. We are providing businesses with the most competitive tax environment; access to low-cost finance, capitalising on record low gilt yields; reduced bureaucracy and simplified tax rules; access to emerging economic giants; world-leading physical and digital infrastructure; and investment in our technology and innovation future. That is why the OBR forecasts that between the start of 2011 and the start of 2017, 1.7 million jobs will be created in the market sector. That is why Nissan has decided to move new production to the north-east, creating more than 2,000 jobs in the region; why Jaguar Land Rover has confirmed that it is creating 1,000 new jobs in its Halewood factory, on top of the 1,000 new jobs in Solihull; why Tesco has announced that it will create 20,000 new jobs in the UK over the next two years; and why GlaxoSmithKline, Britain’s biggest pharmaceutical company, has today confirmed plans to invest more than £500 million and create up to 1,000 new jobs because of the tax incentives in the Budget.
This Government are building a sustainable and prosperous economy, a recovery that builds on our strengths across all regions of the country and all the creativity and productivity of our private sector. Whereas under the previous Government, the country borrowed its way into trouble, under this Government, we will earn our way out of trouble.
Lord Eatwell
My Lords, a year ago the Chancellor of the Exchequer presented a Budget for “enduring growth and jobs” and published a plan for growth that would,
“put fuel in the tank of the British economy”.
That was some fuel. Growth collapsed and unemployment rose by 150,000, and more than 1 million young people are now unemployed. This year, once again, the Chancellor has presented a Budget that he claims,
“helps those looking for work”,
and supports growth.
The auguries are not good. The OBR’s forecast for the growth of business investment this year is down from 7.7 per cent in November to nearly 0.7 per cent now. The forecast for growth of exports and for house-building is down. As for unemployment, another 150,000 are on the dole in 2012. No wonder that the OBR states that it has made no,
“material adjustments to our economy forecast”,
as a result of the Budget 2012 policy measures. In other words, the policy impact of the Budget on the prospects for growth and jobs is nil.
Why is the Government’s growth strategy such a spectacular failure? Why did last year’s plan for growth vanish without trace? Why does the plethora of encouraging-sounding micro-measures on energy, exports and science not make a scintilla of difference to the OBR’s growth forecast? The answer is provided by the Institute of Directors in its response to the Budget:
“The key factor blocking implementation of these”—
investment—
“plans is not cash, but confidence”.
How right it is. The Government simply do not seem to understand that it matters not how cheap finance might be, or even what the corporate tax rate might be; if companies believe that investment will yield no return, they will not invest. What is the point of investing if you have no confidence in the prospect of sales? You are simply going to lose your money.
The source of the Government’s central policy failure is revealed in a chart published in the Budget Statement. Chart 1.5 on page 20 shows what has happened to public sector net borrowing—the deficit—since 2005. Those of your Lordships who have had to suffer the interminable repetition by the noble Lord, Lord Sassoon, of the record deficit—we heard again today that the Government inherited it—may be somewhat surprised by this chart, for it shows that from 2005 to 2008 the deficit was falling from £40 billion a year to around £32 billion a year. Then, following the failure of Lehman Brothers in September 2008, the financial crisis devastated the public finances. A veritable financial tsunami cut revenues and increased spending, driving net borrowing to the peak, which we hear so often from the noble Lord, of £157 billion in May 2010.
In fact, the Government inherited a composite position: a perfectly sound financial stance, overlain by the financial consequences of the crisis. They chose to treat a unique post-war event as if it were due to policy excess. They threw the economy into reverse, devastated business confidence and cut the growth they inherited from 2 per cent to zero. That is the growth rate they inherited, and that is the consequence of their policies.
As an illustration of the Government’s folly, let us suppose that instead of a financial tsunami Britain had been hit by a real tsunami that destroyed 6 per cent of productive capacity, resulting in a sharp fall in tax revenues and an equally sharp rise in government expenditure. Would they then have chosen the path of austerity to restore the public finances? Of course not; they would have set about funding reconstruction. A sinking fund would have been established to spread the cost of restoring the economy, and would in consequence have restored the public finances, over a lengthy period. No one would have recommended bearing all the cost in just a few years, and no one would have imagined that reconstruction could be guided by market forces alone. What is the difference between this hypothetical tsunami and the all too real financial tsunami that the country has suffered? There is none, other than the Government’s failure to distinguish between a unique shock and a normal policy stance.
However, perhaps my characterisation of coalition policy as folly is a little too harsh. After all, the supposed need for austerity has provided the Government with the opportunity to dismantle the welfare state with a zeal that would never have been tolerated in normal times. To assess the impact of this budget on the bottom 50 per cent of incomes, it is necessary to include all those measures that were announced over the past year, in the 2011 Budget and in the Autumn Statement, which will come into effect next month—measures that the Institute for Fiscal Studies estimates will cost families with children an average of £530 per year.
Now set that figure of £530 against next year’s increase in the personal tax allowance announced in the Budget. Taking people out of tax sounds like a laudable goal until you remember that the poorest do not pay tax. Then consider the consequences carefully. As a result of this measure, the poorest 10 per cent of households will gain £10. The richest 10 per cent of households will benefit to the tune of £111. Indeed, of the overall cost of this measure, 70 per cent goes to the top half of the income distribution. Yet that is what Liberal Democrats call “progressive”.
Compare these crumbs thrown to the poor to the £1.6 billion of cuts to the working tax credit about to hit them this April—cuts that are supposed to increase the incentive to work, when there are no jobs. Yesterday, in addition to what has been done already, the Chancellor announced, and the noble Lord confirmed, that the coalition is planning a further £10 billion of cuts to the welfare budget. I never cease to be amazed at the savage pleasure that Tories and Liberal Democrats take in attacking the living standards of the poor. However, my credulity has been stretched to breaking point by their naked pandering to their rich friends.
It is worth examining in some detail the coalition’s case for the pre-announced cut in the 50p tax rate. HMRC’s evaluation of the impact of the tax is based on one year’s data—a sample that no self-respecting economist would ever rely on. Moreover, the self-assessment figures are clearly distorted by income being brought forward in the preceding tax year—a predominantly one-off effect.
Next, let us consider the Chancellor’s claim that as a result of changes to stamp duty and capping unlimited tax reliefs, which will yield about £500 million in a full year,
“we will be getting five times more money each and every year from the wealthiest in our society”.—[Official Report, Commons, 21/3/12; col. 806.]
The origins of this claim can be found in Table A2 of the HMRC review. The table shows that the 50p tax without what is politely called “behavioural impact”—tax avoidance—would yield £3 billion in a full year. However, extraordinarily the 45p tax will result in revenues of £2.9 billion, as the 5p difference will be enough to reverse the behavioural impact. So, while 50p triggers almost complete avoidance, 45p is paid with equanimity. If you believe that, you’ll believe anything.
There is more to come. A Government who quite rightly declare tax avoidance to be “morally repugnant” have created the perfect tax avoidance scheme. Everyone knows that the top rate will fall from 50p to 45p next year, so all those who shifted their income back to avoid the 50p rate last year will shift their income forward to avoid the 50p tax this year. This is a stealth subsidy on a grand scale. To pay for the stealth subsidy, there is the stealth tax on pensioners. Never can a £1 billion a year tax grab have been explained as “simplification” that helps the poor old dears who find the forms too complicated.
Table 2.1 of the Budget Statement provides a helpful guide to the cumulative effect of the measures taken by the Chancellor since assuming office. As of today, 90 per cent of his planned benefit cuts are still to come, resulting in a cumulative 6 per cent taken out of aggregate demand over the next four years. That is the government headwind that business in this country has to battle against.
So what are the overall effects of the Government’s policies? With total output still 4 per cent below the peak achieved in 2008, we will not return to the level of 2008 for another three years. They have transformed a shock as large as that experienced in 1930 into a depression that will last two years longer than the 1930s depression. It is no excuse to argue that everyone else is adopting the same policy. There is only one prize for the quickest lemming.
This country needs policies for growth and jobs. The coalition believes that the rich must be made richer to encourage them to work and the poor must be made poorer to encourage them to work. In the mean time, the economy stagnates, the prospects of growth retreat before our very eyes and the pain of fiscal consolidation intensifies. The Government’s stance, echoed in this mean little Budget, is fundamentally misconceived. Without measures to boost confidence in the growth of demand, supply side reforms, however worthy, will have a negligible impact. A new approach is needed. This Budget illustrates that the coalition has neither the imagination nor the will to meet that challenge.
Lord De Mauley
My Lords, perhaps I may respectfully remind noble Lords that this is a time-limited debate and that contributions, other than that of my noble friend the Minister and the noble Lord, Lord Davies of Oldham, are limited to 10 minutes.
Lord Eatwell
The noble Lord is mistaken. The Opposition have 12 minutes to reply to the opening statement by the noble Lord, Lord Sassoon.
Revenue and Customs Appeals Order 2012
Lord De Mauley Excerpts(12 years, 10 months ago)
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Lord De Mauley
My Lords, in view of the absence of the noble Lord, Lord Carter of Coles, who is to open the next debate, I suggest that the Committee do adjourn during pleasure until 4.40 pm.
Public Service Pensions
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Lord Lea of Crondall
I should be very glad to have such a discussion, but I have an even longer memory. For many years, I represented the TUC on the Retail Prices Index Advisory Committee, which was abolished by the Treasury when we made a recommendation that it did not like. The recommendation in about 1970 was that we should stick with the RPI for general purposes because—
Lord Lea of Crondall
I am quite entitled to come in for a second time within the 20 minutes. I have been asking a question. Is there not a case for looking at which index should be used, based on considerations other than which one is likely to increase more slowly than the other?