Consumer Insurance (Disclosure and Representations) Bill [HL]

Lord Eatwell Excerpts

Tuesday 20th December 2011 Lords Chamber

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, I beg to move Amendment 1, which leaves out Clause 2(5). This subsection was added to the Bill following acceptance of an amendment in Committee. I will also speak to Amendment 2, which proposes an alternative and—I hope that the House will agree—improved approach to addressing the Committee’s concerns about renewal of insurance contracts. Having considered the amendment accepted by the Committee, we felt it was necessary to come forward with alternative drafting to achieve what noble Lords had in mind through the original amendment.

Taken together, these two amendments will mean that insurance companies are expected to have to show that they told their policyholder that answering questions on renewal was important. However, they also avoid some unintended consequences of including this requirement in its current form as part of Clause 2.

These amendments address something which the Bill Committee touched on extensively in its deliberations. There was much discussion of the implications of the Bill for consumers renewing insurance. Renewal involves entering into a new contract and consumers are therefore under the same obligation as when first purchasing their policy—that is, they must take reasonable care to answer the insurer’s questions, or the insurer may be entitled to refuse a later claim. Noble Lords were concerned that consumers might not recognise the significance of questions asked on renewal, as they may not understand that it is a new contract, and as a result might not take sufficient care to answer these questions.

The Government agree that insurers should take measures to ensure that their consumers are aware of the importance of responding to questions which they are asked at renewal. However, as I mentioned, to ensure that the effect of this change to the Bill reflects the wishes of noble Lords, we felt that it was necessary to come forward with alternative drafting. There are some relatively small drafting points.

The inserted text splits subsections of the current clause which need to run together, and the phrase “make clear” may be a difficult standard. However, most importantly, it leaves no remedy for an insurer who has not included the right wording, even if the consumer’s failure to reply was a deliberate or reckless misrepresentation. I am sure that the Committee did not intend to give consumers a “get out of jail free card” in circumstances where they knowingly and deliberately deceived their insurer. The amendment therefore removes the drafting accepted in Committee stage and substitutes an alternative in Clause 3. That explicitly adds to the list of factors that a court may take into account, when determining whether a consumer acted reasonably, whether the insurer communicated the importance of answering questions on renewal. Both the Association of British Insurers and the Investment and Life Assurers Group agree that that is a more suitable approach.

There are many ways in which an insurer may communicate the importance of answering questions at renewal. The Committee discussed whether wording which explicitly told the consumer that they were entering into a new contract would achieve that. That is indeed one way in which an insurer may communicate the importance of answering questions as required by the amendment.

It might be helpful if I set out for noble Lords current market practice at renewal and the effects of the amendment in this context. An insurer will often send the consumer a letter to say that their insurance is up for renewal. Market best practice is usually to send a list of the facts that the consumer told them the last time. The consumer is asked to read and consider the list, and to contact the insurer if the facts have changed.

In motor insurance, it is common practice for insurers to renew the policy even if the consumer fails to reply. It is now a criminal offence for a motorist to allow their car insurance to lapse without notifying the Driver and Vehicle Licensing Agency and we therefore welcome any practice which makes renewal a simple process for the consumer. If nothing has changed, there is no need for the consumer to reply, but if something has changed and the consumer fails to respond, this is capable of being a misrepresentation. As my noble friend Lady O’Cathain stated during the last Committee sitting, it may be that nothing has changed in relation to your car insurance. Alternatively, you may have been convicted of a new driving offence which you should tell your insurer about. As a result of this amendment, the insurer should clearly communicate the importance of mentioning such changes. If the letter is poorly laid out or in very small print, or if it fails to tell the consumer that failing to mention changes may lead to claims being refused, then a consumer may act reasonably in overlooking it.

In circumstances where the consumer fails to respond because they did not understand the implications, the insurer would be expected to show that they told the consumer how important it was to respond to the questions at renewal time. The insurer would know that it could not just point to the consumer’s oversight. This last important point was teased out in Committee and was, I believe, noble Lords’ real intention. I believe that the amendment addresses the concerns raised by noble Lords during those discussions.

[Lord Eatwell]

My Lords, as I have stated throughout our proceedings, we on this side of the House fully support the Bill as a measure which makes a major improvement to the relationship between insurer and insured in consumer insurance. We have sought to improve the Bill, making clear elements of the drafting which were unclear or which, on careful examination, did not correspond to the declared intentions of the Law Commission and therefore required amendment. Accordingly, in Committee I proposed the amendment to which the noble Lord has referred and which in due course the Committee passed almost unanimously, the only dissenting voice being that of the Minister himself.

Before dealing with the substance of the Minister’s amendments, I first ask him whether he consulted the Companion before tabling them. Paragraph 8.133 states that,

“an issue which has been debated and voted on in committee can be reopened, provided that the relevant amendment is more than cosmetically different from that moved in committee”.

When we look for the meaning of “cosmetically different”, earlier in the same paragraph it is stated that amendments must not be identical or of identical effect. Consequently, the Minister cannot argue that this amendment has identical effect. If he does, he must withdraw the amendment.

[Lord Sassoon]

I wonder whether it would be helpful at this stage to confirm that the government amendments have been drafted in full recognition of what the Companion says. As I tried to explain in setting out the rationale for the amendment, I do not believe that it has the same effect because it provides greater clarity and, I believe, delivers what, in Committee, noble Lords wanted to achieve. My understanding of the process is that, if there had been a problem with the technical raising of the amendment, the Public Bill Office would have raised questions on it. Therefore, I believe that both in substance and in form the right things have been done.

[Lord Eatwell]

I think that the noble Lord is contradicting himself. He said that it was what noble Lords wanted to achieve when they voted on the amendment in Committee, yet he says that it is not identical in effect. That does not seem consistent. However, let us move on.

Turning to the substance of the amendment, I accept that its placement in the Bill is superior to that which I proposed in Committee, and for that I am grateful. However, the intention of the Committee was that insurers would be required to make clear to consumers that when a policy was renewed, it would in fact be a new policy, and consequently the importance of questions asked would be of the same order as when new business was written. As many noble Lords argued in Committee, they were not aware of this—indeed, I believe that the Minister himself admitted that he was not aware of it—and they could well understand a consumer failing to be aware of it too. This lack of awareness might result in the consumer taking insufficient care in answering questions posed by the insurer.

The Government’s amendment does not refer explicitly to the fact that a renewal is a new contract and hence this is not of identical effect. Instead, it proposes the vague test of,

“how clearly the insurer communicated the importance of answering those questions (or the possible consequences of failing to do so)”.

That is a very vague rendition of what was intended by the amendment in Committee. Instead of being explicit, the matter is now to be left to the courts to decide. However, I note that the Minister stated that explicitly telling the consumer that they were entering into a new contract would be “one way” in which the insurer could communicate the importance of the questions asked at renewal. I fully expect that the ABI and the ILAG will draw this passage in Hansard to the attention of their members and that it will form a background to any subsequent court proceedings. On that basis, I shall raise no objection to the government amendment.

Finally, I would be grateful if the Minister would clear up the matter raised in Committee by the noble Lord, Lord Goodhart, and not subsequently resolved. That is the relationship between Clause 5(1) and Clause 5(3). As the noble Lord, who is in his place, pointed out, they seem to duplicate one another and hence, potentially, they are a source of confusion. As we still have a chance to sort this out at Third Reading, perhaps the Government could enlighten us about the reasoning behind this dual oddity of drafting.

Independent Commission on Banking

Lord Eatwell Excerpts

Monday 19th December 2011 Lords Chamber

[Lord Eatwell]

My Lords, I am most grateful to the noble Lord for repeating the Statement made by the Chancellor of the Exchequer in another place. However, I regret that effective scrutiny by this House has been limited by the Government providing the 80-page response only half an hour before the noble Lord got to his feet.

As the Statement makes clear, banking policy in this country has two potentially conflicting goals: first, to ensure that a stable domestic financial system supports the real economy with a steady and reliable flow of appropriately priced credit, together with other domestic and international banking services; and secondly, there is the goal to sustain the City of London and other UK centres as the world’s premier offshore financial centre, providing a wide range of financial services that transform and repackage saving flows from all around the world. This was the core conflict highlighted by the Independent Commission on Banking—the trading activities of the offshore centre can inflict instability and contagion on the domestic economy. The proposal of the ring-fence that the Government are endorsing today is a response to that core conflict. It is an inadequate response, but perhaps something is better than nothing.

Why is it an inadequate response? Noble Lords may be surprised to learn that more than three years on and contrary to the assertions of the ICB in its final report, nothing in these policy proposals would have prevented the collapse of Northern Rock. The reason is that there are two serious flaws in the ICB approach. First, there is the belief, echoed by the noble Lord, that moving to a 10 per cent capital to risk-weighted assets ratio will provide the resilience to the banking sector required to head off a serious crisis. This belief is a fantasy without empirical foundation. For example, Allied Irish Bank had capital in excess of the maximum now being proposed by the Government prior to its collapse. It was not enough. In a real financial crisis, no feasible capital ratio will be enough. While on the subject of risk-weighted assets, do the Government intend to maintain the Basel II approach that leaves the calculation of these risk-weights to the banks themselves? With respect to other primary loss-absorbing capacity, what is the Government’s view of the buoyancy of the market for these instruments on which they put so much weight and which do not at present exist?

Secondly, the report maintains the outdated and indeed discredited approach of focusing on the asset position of the banks and has very little to say about the liabilities side of the balance sheet. Hence, the ring-fencing proposals are all about what is done with depositors’ assets and the capital needs are related to that dubious measure of risk-weighted assets. But in the case of Northern Rock, the collapse was entirely attributable to what was happening on the liabilities side of the balance sheet. It was the inability to turn over short-term funding that resulted in the taxpayer needing to provide a £30 billion rescue. The ICB’s claim that current liquidity proposals could have prevented this is, I believe, wishful thinking. By the way, in the glance that I have been able to give the Government’s response, I would suggest that the illustrative diagrams of balance sheets on page 28 are profoundly misleading as the boxes do not represent the proportions of liabilities and assets as they are presumed to do. I shall return to the issue of the liabilities side of the balance sheet later. For the moment, I give one cheer to the Government’s endorsement of the ICB’s approach. At least it is better than nothing. Ring-fencing is the right thing to do even if they put the fence in the wrong place.

Crucial to the entire approach will of course be the construction and policing of the ring-fence. Can the noble Lord tell the House whether the Government have accepted all—I stress, all—of the ICB’s proposals on the construction of the ring-fence? In particular, the Government seem to suggest that ring-fenced banks will be permitted to hedge risks to which they are exposed in derivative markets. If they are allowed to hedge, how is the line to be drawn between hedging and speculation, and who is to draw that line? A major hole in the ring-fence as it now stands—or perhaps it is a flexible thing as it now waves in the wind—is that banking activity for large companies can take place either within or without the ring-fence. This means that organisations that produce well over half the UK’s GDP will have banking services outside the ring-fence. In that case, will not banking operations outside the ring-fence be too big to fail, because they could bring down major British companies, and will not the exposure of the taxpayer that the ring-fence is supposed to eliminate be almost as great as it ever was?

More generally, it is a well known outcome of regulatory activities that they stimulate a creative response from the banks, creative in the sense that they work out ways to circumvent and/or evade the regulations. Hence there will be a need to keep the operations of the ring-fence under continuous review. How do the Government intend to do that? The response states:

“The Government believes that the location of the ring-fence should be flexible”.

What does this mean—it sounds like a fine opportunity for lobbying to me—and who will determine the location of this “flexible” fence? Would it not be appropriate to keep the ICB in being and charge it with the task of reviewing regularly the performance of the ring-fence?

One of the declared objectives of the ring-fence, which the noble Lord repeated, is to protect the assets of depositors from the casino operations of the investment banking divisions of the banks. Where a ring-fenced bank is the wholly owned subsidiary of a bank holding company and that holding company fails, perhaps due to casino-style activities, will its creditors have access to the assets of the ring-fenced bank? If not, why not? If so, what is the value of the ring-fence?

I turn to the liabilities side of the balance sheet. Am I right in saying that the Government have no intention of limiting the wholesale funding of the balance sheet other than through the imposition of a leverage collar that fails to discriminate between deposits and wholesale funding? Why are the Government therefore intent on penalising banks that have a strong deposit base—banks that proved to be the most resilient during the financial crisis? Of course, the FSA’s proposals on liquidity and a leverage collar will improve the situation, but surely they are not enough. Why do the Government not take note of the research that demonstrates that deposits by families and firms are “sticky”, while wholesale deposits embody greater risk? On the other hand, what is to be the role of the interbank market within the ring-fence?

On competition, the noble Lord made it clear that the higher levels of capital and loss absorbency will apply just to UK banks. What of the branches of non-UK banks operating in the UK, such as Deutsche Bank? What is the Government’s assessment of the competitive impact on UK banks of branches of European or other banks operating in the UK not being required, as the response states, to have the same levels of loss absorbency?

On timing, the ICB said that the ring-fence should be in place as soon as possible and well before the Basel III deadline. The Statement refers to compliance with the legislation on ring-fencing being as soon as “practically possible”. Who is to determine what is practically possible and what are the criteria for that determination?

What do the Government expect to be the impact of these recommendations on the supply of credit? Given the abject failure of the Government’s Project Merlin and the desperate need to increase lending at reasonable rates to UK SMEs, the Bank of England’s executive director for financial stability has suggested that the ratio of capital requirements to risk-weighted assets should be lowered, not raised as the ICB and the Government recommend. Do the Government agree with the ICB or with the executive director of the Bank of England?

I welcome the Government’s announcement on the Royal Bank of Scotland. These are changes that we on this side have urged for some time. This is a taxpayer-owned bank and it should pursue the taxpayer interest.

I therefore give one cheer for a faltering step in the right direction. We will seek significantly to improve the approach when the Government bring forward their legislative proposals.

Economy: Deficit Reduction

Lord Eatwell Excerpts

Thursday 15th December 2011 Lords Chamber

[Lord Eatwell]

My Lords, the Minister has made it clear to the House today that the Government’s deficit reduction strategy is based on sand. It is always five years ahead. He has told us today that the target is to balance the budget by 2017; next year it will be 2018, the year after that 2019 and, like old age, it will simply retreat before us. Given that the Government’s strategy has been pushed off track and is failing to meet its deficit targets, why in the autumn Statement did they not cut expenditure more and raise taxes more to put the deficit reduction strategy back on track?

[Lord Sassoon]

My Lords, first, the deficit reduction strategy, as the OBR confirms, is absolutely on track. If the noble Lord is suggesting that we should cut expenditure and raise taxes, is that the policy of his party?

Sovereign Credit Ratings: EUC Report

Lord Eatwell Excerpts

Tuesday 15th November 2011 Lords Chamber

[Lord Eatwell]

My Lords, a great strength of this report, on which my noble friend Lord Harrison is to be congratulated, is that it distinguishes clearly between the role that rating agencies play in the markets for private securities and the role that they play in the sovereign debt markets. In private markets, rating agencies provide a relatively simple rating for what are often mathematically very complicated financial instruments. Without this sort of interpretation, the markets in complex products could not operate. The role of the rating agencies is to provide confidence to the buyers. Unfortunately, in the recent past that confidence was seriously misplaced, as my noble friends Lord Foulkes and Lord Monks both commented.

However, as the report makes clear, and as the noble Lord, Lord Kerr, pointed out, the task of rating agencies in respect of sovereign debt is quite different. Sovereign debt instruments are typically fairly simple; they are standard bonds of fixed duration. In this instance, the necessary rating skills are quite different from those needed in unpicking a complex statistical model. First, they consist of a devotion to whatever is the conventional economic wisdom of the time. It is convention, not good economics, that matters and often drives markets. Secondly, the sovereign appraisal should include an assessment of the political and economic controversy within and between sovereign states. Here, political fashion inevitably plays a role in determining whether any given package of economic policies is deemed sound or not. As we in this country know to our cost, the current fashion is for austerity—today’s cure for all economic ills.

It is not at all obvious, as the report acknowledges, that the rating agencies have any particular superiority in evaluating sovereign risks over any intelligent investor, as my noble friend Lord Myners emphasised. If the role of rating agencies is so straightforward, why are they of any importance at all in the discussion of sovereign debt? Neither the report nor, disappointingly, the Government’s response addresses this core question. If, as the report’s title suggests, rating agencies are but the messenger, what is the origin of the message that they bear? To put it another way, if they are but the symptom—distressing and perhaps worth treating in itself, but not fundamental—what is the nature of the disease? It is in the light of that more basic issue that we should judge the Government’s response.

The basic issue has two dimensions: the development of the international bond market over the past three or four decades and the particular design of the sovereign bond market in the eurozone. The current structure and scale of international bond markets are a relatively recent phenomenon. For example, today the annual value of cross-border transactions in UK sovereign bonds comfortably exceeds 1,000 per cent of UK GDP. In 1971, the comparable value was nil. A similar explosion of cross-border activity is to be found in the sovereign bond markets of all G7 countries other than Japan. Into this environment of huge cross-border flows is thrust the eurozone, an economic entity larger than the United States of America. The sheer scale of the eurozone economy ensures that any significant bond fund manager anywhere in the world who is seeking to diversify exposure must have major holdings of US dollar bonds and sovereign bonds denominated in euros. However, whereas exposure to the dollar may be obtained by investing in US treasuries, exposure to the euro may be obtained by investing in any of the various eurozone sovereign bonds. Investors have a choice as to which euro sovereign to hold—a choice that is likely to be informed by their estimate of risk and return, and influenced to a greater or lesser degree by the rating agencies. This is a perfect structure for costless speculation and costless hedging, leading to huge flows between euro sovereigns and exposing any given sovereign to almost unlimited speculative pressure via naked trades. This is the disease.

Let me put the matter another way. The state of California, comprising 13 per cent of the US economy, is bankrupt. This has no impact on the US bond market. Greece, comprising 2 per cent of the eurozone economy, is similarly compromised, with disastrous destabilising consequences for the eurozone as a whole. It is against this background of a huge international bond market and a serious design flaw in the eurozone that the Government’s response to the report should be judged.

Do the Government’s proposals, such as they are, help to suppress the symptoms, or do they provide a guide to tackling the disease? The Government rather downplay the report’s criticism of the rating agencies’ performance prior to the sovereign crisis in the eurozone. The report is forthright:

“The valid charge against the rating agencies … is ... that they failed … to identify risks in some Member States”.

The Government’s response ignores this conclusion altogether and focuses instead on the need to share “factually correct information”. Can the Minister explain why the Government do not share the committee’s views on the failings of the rating agencies prior to the crisis?

On the symptoms, the Government are surely right to support measures to reduce hard-wiring of ratings into legislation rules and guidance. Yet the Government’s statement that they believe that,

“the more sophisticated use of ratings by investors should be encouraged”,

is surely one of the more vacuous platitudes of recent times. The Government’s support for greater transparency in the methodologies of the rating agencies, mentioned by the noble Lord, Lord Vallance, is likely to make matters worse rather than better, by increasing volatility as traders, knowing the methodologies, anticipate ratings changes.

In contrast to the noble Baroness, Lady Noakes, the Government express enthusiasm for greater regulation of the ratings agencies. As was pointed out, the Government signed up to this at the G20. Will the Minister tell us what regulatory steps the Government propose and explain how these steps will enhance the smooth operation of sovereign bond markets? What is most striking about the Government’s response is that it makes no attempt whatever to locate the role of the rating agencies in the context of the overall operation of the eurozone sovereign debt market. That, after all, was the topic of the report. Mr Cameron and Mr Osborne have repeatedly urged the eurozone Governments towards action, without spelling out exactly what action they propose. Perhaps the Minister will help fill the void in government thinking this evening by telling us what steps the Government propose should be taken to stabilise the eurozone bond market and where the rating agencies fit in to the Government’s plans.

Economy: Monetary and Fiscal Policy

Lord Eatwell Excerpts

Tuesday 8th November 2011 Lords Chamber

[Lord Sassoon]

The debt is going up. Far be it from me to criticise my noble friend, who quite rightly makes this point. If the deficit was running at the level that we inherited from the previous Government, of 11.1 per cent a year—the highest deficit level in our history—it would not take very many years before our debt got up to the level of the Italian and the Greek debt. That is why we will continue to keep our deficit policy on track and keep our interest rates low. I entirely agree with my noble friend that we must be reminded about the level of debt as well.

[Lord Eatwell]

My Lords, in his first Answer to my noble friend, the Minister said that the Monetary Policy Committee takes account of growth and inflation, but its statutory responsibility is to take account only of inflation. When did the Treasury change the policy?

[Lord Sassoon]

My Lords, I will let the noble Lord, Lord Eatwell, read the actual words in Hansard tomorrow. [Interruption.] No, I am not changing anything. The MPC has to take account of the prospects for growth and inflation when it is judging how to set the direction of monetary policy. Its target is an inflation target, but it needs to take account of a wealth of other factors when making its decision, so that is what it does.

Devolved Administrations: Financial Flexibility

Lord Eatwell Excerpts

Tuesday 8th November 2011 Lords Chamber

[Lord Sassoon]

My Lords, a lot of factors have to be taken into account in setting expenditure for the devolved Administrations, not least our favourite Barnett formula, but the fact remains that expenditure on a head-count basis in Wales will, in the present period, be some 12 per cent higher than the per head expenditure in the United Kingdom.

[Lord Eatwell]

My Lords, was the Welsh Assembly consulted before this decision was made?

[Lord Sassoon]

My Lords, the United Kingdom Parliament—this House and another place—was not consulted before an awful lot of spending decisions were taken. That is the way that Governments make spending decisions.

Financial Services and Markets Act 2000 (Exemption) (Amendment No. 2) Order 2011

Lord Eatwell Excerpts

Monday 31st October 2011 Lords Chamber

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, I beg to move the Motion standing in my name on the Order Paper.

[Lord Eatwell]

My Lords, I am afraid that this may take a little longer than expected, the order having been considered previously in Grand Committee. Unfortunately, at the time of the Grand Committee consideration, noble Lords did not have available to them the results of the consultation on the order and consequently were not then able to give the order the scrutiny it deserved.

I would be grateful if the Minister could answer a couple of points raised in the consultation that the Government have not addressed. First, given the peculiar importance of credit unions in Northern Ireland, are the Government intending to address the issue raised in the consultation of whether an office of the FSA or a successor organisation should be established in Northern Ireland? This is clearly a sensitive issue in the Province, and it ill behoves the Government simply to ignore it, as they do in this document.

Secondly, I am unclear about the Government’s position on question 2(a) of the consultation on whether the Northern Ireland Assembly would retain legislative control of credit unions in Northern Ireland. As the Government acknowledge, considerable concern was expressed about the loss of Northern Ireland influence over an aspect of financial life that is very important in the Province but less so in the rest of the UK. Could the Minister please clarify the Government’s position? Again, in the consultation document the question was simply ignored. As a corollary to this last point, what are the Government doing to ensure that no adverse effects are felt in Northern Ireland from the legislation on credit unions passed in this House on Thursday, 20 October? That legislation allowed businesses to assume up to 10 per cent of the share of the capital of a credit union and eliminated the role of the common bond as the basis of a credit union.

How will the Government ensure that credit unions in Northern Ireland do not, in some cases, become dominated by local business members, with the potentially unfortunate impact on investment decisions, particularly when the credit union considers investment in the local community? How do the Government intend to monitor the impact of the loss of the common bond in Northern Ireland credit unions, when it is evident that the common bond has played an important role in the unique character of the credit union movement in the Province?

[Lord Sassoon]

My Lords, for the benefit of noble Lords who did not take part in the discussion in Grand Committee on 17 October, it is perhaps worth explaining that this statutory instrument transfers responsibility for regulation of Northern Ireland credit unions to the Financial Services Authority. It implements a policy decision of the previous Government announced in March 2010—which has the support of all three main parties—the outline of which is the subject of this statutory instrument. There will be further instruments dealing with the detail of the transfer and a number of the consequentials arising from that.

It is unfortunate that the consultation issued by the previous Government in March 2010, having said that the decision had been taken that regulation would transfer to the Financial Services Authority, slipped into a consultation about how this is best achieved and what other associated action should take place. Those matters will be the subject of further statutory instruments in due course and it is unfortunate that there was one somewhat confusing question that could have been taken as touching on the statutory instrument before us today. I regret that. Had I known that that question was there, we could have had the consultation responses out earlier, even though it was not intended that the previous Government’s consultation should have anything to do with the business before us today.

On the issues raised by the noble Lord, Lord Eatwell, the question of the FSA and the allocation of its resources to offices is a matter for it. The responses on this point were linked to concerns about what the regulatory regime was going to entail and the FSA has worked hard to address those concerns by carrying out visits to Northern Ireland and answering questions from the credit unions.

As to the common bond and possible domination of local businesses, as we discussed in Grand Committee, the credit unions do not feel that this issue will be a threat. Of course, along with seeing how the credit unions sector generally across the United Kingdom develops—it is prospering and the Government wish to see it do so—it is one of the many factors that the Government will continue to have in view. The matter does not touch directly on this instrument, but it is relevant to the whole of the credit unions sector across the United Kingdom.

The other points will be the subject of ongoing work by the FSA following another consultation that the FSA and the Treasury had issued, which closed last week and which will be the subject of further statutory instruments in due course.

[Lord Eatwell]

And what about legislative control?

Economy: Inflation and Unemployment

Lord Eatwell Excerpts

Thursday 27th October 2011 Lords Chamber

[Lord Sassoon]

I am sure that the authorities of both Houses have heard what the noble Lord, Lord Martin of Springburn, has said. Of course, skills will be part of the supply-side reforms that we continue to work on going forward.

[Lord Eatwell]

Does the Minister agree that the very high rate of inflation in this country is one of the key factors leading to a significant reduction in the living standards of ordinary households and is therefore contributing to lower expenditure and lower employment? Will he explain to the House why, at over 5 per cent, the inflation rate in this country is almost double that of all other European countries and that of the United States?

[Lord Sassoon]

My Lords, the noble Lord, Lord Eatwell, seeks to get me to commentate on matters that we have given to the independent Monetary Policy Committee of the Bank of England. It was the party opposite in government who took the right step of giving the Bank of England independence. Therefore, as I have already explained twice in my answers today, it is for the Bank to explain, as it does very transparently, the track of inflation. The Government are ensuring that we relieve wherever we can the pressures on household bills because I accept that inflation puts a high burden on our households. That is why we cut fuel duty by 1p per litre in the Budget and why we announced in recent weeks a further £805 million to enable council tax to be frozen for a further year. The Government are concerned to make sure that our hard-pressed households are relieved of pressures. That is why we need to keep interest rates low, which have contributed to £10 billion of lower mortgage payments than there would otherwise have been.

Financial Services and Markets Act 2000 (Exemption) (Amendment No. 2) Order 2011

Lord Eatwell Excerpts

Monday 17th October 2011 Grand Committee

Considered in Grand Committee

[Lord Eatwell]

With the leave of the Committee, I wonder whether I might make a statement before the Minister rises and request that he withdraw this order on the following grounds. First, much of the relevant material of this order is still under consultation by the Financial Services Authority. The consultation concludes on 31 October and today is 17 October. Secondly, I draw the Minister’s attention to the report of the Merits of Statutory Instruments Committee, which, on 13 October, wrote to the Treasury with a reminder of the need to make summaries of consultation responses available at the time an instrument is laid and to ensure that the summary for this draft instrument is available before the debate in this House.

Thirdly, a lot of the scrutiny of this order is dependent on the Opposition and other noble Lords having access to the results of the consultation so that they can properly and fully scrutinise the consequences of the order. The results of the consultation are not available and it is therefore not possible for noble Lords to effectively scrutinise this legislation. If we proceed, it would be the sort of action that brings Parliament into disrepute.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, there is perhaps some confusion about what we are doing here today and what else needs to be done in connection with this order from the Joint Committee on Statutory Instruments.

Let me start by explaining the situation we are in, because it is complicated. The previous Government in March 2010 made a decision—a joint decision of Treasury Ministers and Ministers of the Department of Enterprise, Trade and Investment in Northern Ireland—that credit unions in Northern Ireland should no longer be exempt from regulation under the Financial Services and Markets Act 2000 and that responsibility for their regulation should transfer from the Department of Enterprise, Trade and Investment to the Financial Services Authority. That decision was taken by the previous Government and we are considering the order today. As the Deputy Chairman reminded us, the formal business is moved on the Floor of the House. We are considering the statutory instrument that puts into place a decision by the previous Government.

The running consultation is about consequential provisions relating to the details of the transfer, the transitional arrangements, grandfathering, temporary powers for the FSA, how information will transfer between the department and the FSA, and consequential issues to do with money laundering and terrorist financing. Those will all be dealt with—to the extent they need to be—in the appropriate way through instruments or regulation. Therefore, what is being consulted at the moment is nothing that should detain us from putting in place a decision by the previous Government with which this Government completely agree. In our view, it is about time that we got on with the enabling instrument and there is no reason not to allow the consultation on the “how” of the transfer to carry on in the normal way.

The Treasury is publishing today responses to the original policy proposals in principle. However, the decision was originally taken and announced in a joint document by the UK Government and the Northern Ireland department in March 2010. I think we should turn to the substance of the order.

--- Later in debate ---

[Lord Eatwell]

Perhaps, if the Minister would allow me, we can clarify this matter. In the consultation document on the FSA website, the first question is:

“Do you agree with the proposed legislative measures outlined in chapter 3?”.

The order before us today is included in Chapter 3. Does the Minister know the answer to that question from the people of Northern Ireland?

[Lord Newby]

My Lords—

--- Later in debate ---

[Lord Sassoon]

That the Grand Committee do report to the House that it has considered the Financial Services and Markets Act 2000 (Exemption) (Amendment No. 2) Order 2011.

Relevant document: 28th Report from the Joint Committee on Statutory Instruments

[Lord Eatwell]

My Lords, I put a question to the noble Lord, which he has not answered, regarding the response of the people of Northern Ireland to the question about whether they agree with the order. On this side of the Committee we are entirely supportive of the objectives of the order. That is not the point that I am raising. My point is that the Merits Committee wrote to the Treasury on 13 October, reminding it to ensure that the summary of this draft instrument was available before the debate in the House. I have not been able to find a summary of the consultation on this draft instrument. Without the reactions of the people of Northern Ireland, who are closely and greatly involved in credit unions, as the Minister pointed out, it is very difficult to offer the order proper scrutiny. Therefore, I cannot continue, other than to say that it would be appropriate for the Treasury to ensure that relevant consultation material is published, as the Merits Committee requires, prior to consideration of draft legislation by the Committee.

[Lord Newby]

My Lords, there seems to be a muddle over the consultation. The Explanatory Memorandum said that the summary of responses to the March 2010 consultation will be published shortly. I think the Minister said that it was published today. I do not know when the March 2010 consultation formally finished, but it was presumably quite a long time ago. It is indeed unsatisfactory that we do not have the results of that consultation.

However, I think it is appropriate to look at what the order says. It is an extraordinarily short order, and it says nothing, as the Minister said, about the detail of how this change will be effected. All it says is that the change will be effected and that Northern Irish credit unions will be brought under the ambit of the FSA. I do not know, but I would be surprised if there was a single, solitary soul in Northern Ireland who would oppose that change, particularly if they look at what has been happening south of the border in recent weeks. Only a couple of weeks ago, the Irish Finance Minister was called upon to inject €1 billion into the credit union sector south of the border, because many of those credit unions—and we are talking about a sector that is as predominant as it is north of the border—found themselves, as a result of rising unemployment and declining income, in some difficulties. Of the 407 credit unions in the Republic of Ireland, some 79 are now in need of this injection of capital. It seems likely not only that that will need to happen but that there will have to be some consolidation in the sector and smaller credit unions will need to merge.

My question to the Minister is, in a completely different sense to that of the noble Lord, Lord Eatwell, why it has taken the Government so long to bring this legislation forward, given that the majority of the population of Northern Ireland would be affected if their credit union got into difficulty. Even if we approve this order in due course, it does not come into effect until 31 March next year. My question to the Minister was going to be, and remains, whether he has any evidence that the travails that afflict the Republic of Ireland credit union sector are spreading north. Does he envisage that any individual credit unions north of the border will get into difficulties over the coming weeks and months? In the absence of any covering FSA jurisdiction, what would the Government’s response be were they to find themselves in the same position of the Government south of the border, where a significant number—in their case about 15 per cent of credit unions—required short-term capital support?

[Lord Sassoon]

My Lords, notwithstanding the welcome rare appearance of the noble Lord, Lord Myners, as a former Treasury Minister in this Committee, it is a bit rich of the Opposition to talk about delay in this order. The Northern Ireland credit unions were left out of FSA regulation from the time that the Financial Services and Markets Act was enacted in 2000 until the previous Government left office 18 months ago. So for members of the Opposition to talk about the delay of this Government in not getting the order through earlier while on the other hand asking for evidence of a decision that they had taken before the election—seemingly without waiting for the evidence that they are now asking for—is indeed a bit rich. If noble Lords on the other side really want to persist with this line, this order will not get through, as it has to in the next few days and weeks, in order to give the people of Northern Ireland proper protection of their money in mutuals from the proposed transfer date to FSA regulation of March 2012.

What does the noble Lord, Lord Eatwell, who has come along with all kinds of clever procedural tricks this afternoon, have to say to the people of Northern Ireland if he is to deprive them yet further of proper protection under the Financial Services Compensation scheme? We need to get this order through if the people of Northern Ireland are to be protected from March of next year.

[Lord Eatwell]

My Lords, to refer to the fact that the Government have apparently published only this morning the evidence of the consultation and the raising of the objection of not having had access to it as a clever procedural trick is an abuse of language.

The point we are making is that the Government should take seriously the consultation with the people of Northern Ireland and make the results of the consultation available to the Opposition so that they can properly scrutinise and assess the impacts of the change. That is all that I asked for. I also pointed out that on 13 October the Merits Committee wrote to the Treasury requesting that the material be published, and it was not published until this morning.

As my noble friends and I have made clear, we are entirely supportive of this legislation. We want to get it through as soon as possible, but we want proper due process. This is an abuse of due process. I think it would be best if we let the Minister proceed with his Motion, because he is not interested in actually debating the issues.

[Lord Myners]

I would always defer to the advice and conclusion of my noble friend Lord Eatwell, but the petulant language used by the Minister is a sign of how rattled he is by this subject. I invite the Minister to clarify. He has said that if this order is not approved today it would deny the people of Northern Ireland certainty and protection in due course, with effect from the end of March next year. Can the Minister confirm that delaying the approval of this order for another week so that the necessary information can be reviewed by Parliament would mean that that certainty could not be delivered and that this is, therefore, the last chance for us to discuss it? In the absence of a clear answer I think that the should withdraw this order and re-present it to the Committee in a week or so.

Economy: Capital Expenditure

Lord Eatwell Excerpts

Tuesday 4th October 2011 Lords Chamber

[Lord Wigley]

My Lords—

[Lord Eatwell]

My Lords, the other cunning plan that the Government put forward, announced by the Chancellor, was the expenditure of billions—his word—on credit easing for small and medium-sized firms. What is the Treasury’s estimate of the impact on the deficit of the inevitable default rate associated with this programme?