British Banking Sector

Lord Eatwell Excerpts

Tuesday 21st March 2023 Lords Chamber

[Lord Eatwell (Lab)]

My Lords, I found the noble Baroness’s position on the current status of the banking system to exhibit extreme complacency. Is she aware that Credit Suisse was very highly capitalised and had in place all the financial anchors on which she relied in her Answer? Yet Credit Suisse has collapsed. Do the so-called Edinburgh reforms not actually come up to this: we are going to make the banking system more competitive, which equals taking greater risks?

[Baroness Penn (Con)]

My Lords, in the Financial Services and Markets Bill we are introducing a new objective for the regulators to look at competitiveness, but we are clear that that objective comes second in the hierarchy to the systems objectives around financial stability. We think that strikes the right balance. We are absolutely not complacent about the global banking system and the wider financial services sector, but it is important to recognise that we are in a different position from 2008 and that we are making further changes to ensure the resilience of our sector. For example, the Bank of England announced in December that, for the first time, it will run an exploratory stress-test exercise focused on non-bank financial institutions, recognising the increased risk posed there. We will continue to do what we need to do to ensure financial stability in this country.

Budget Statement

Lord Eatwell Excerpts

Thursday 16th March 2023 Lords Chamber

[Lord Eatwell (Lab)]

My Lords, I am sure the whole House is grateful to the noble Baroness, Lady Penn, for introducing this important debate. We all look forward with interest and, as a professional economist myself, some excitement to the maiden speech of the noble Baroness, Lady Moyo.

The Minister who delivered this Spring Budget in another place bears the title of the Chancellor of the Exchequer, but this title does not adequately reflect Mr Hunt’s role. His real title should be the Minister for mitigating disastrous Tory economic policies. He is “The Mitigator”, a role that becomes ever more important as every parliamentary Session brings forth yet a further Conservative economic blunder.

We all recall Mr Hunt’s noble labours in reversing the appalling damage done to Britain by the Truss/Kwarteng economic regime—damage that still resonates in every mortgage holder’s higher current and/or future monthly interest payments. Now, in this Budget, he is reversing the damaging decision taken by Conservative Chancellor George Osborne in 2012 when he first cut the pension lifetime allowance and then cut it again in 2014—and it was cut again in 2016. The result, as Mr Hunt made clear, has been damaging not just for the NHS but for the availability of skilled, experienced professional expertise throughout the British economy. But, being a good Tory, even The Mitigator could not resist doing his own little bit of wasteful spending. Instead of a balanced increase in the LTA, he abolished it altogether, thus handing up to £1 billion to the wealthiest. The champagne corks were popping in the City. When she sums up, will the Minister tell us the Treasury’s full estimate of the cost of this excessive giveaway, including the cost of consequential losses in inheritance tax revenues?

These blunders are perhaps not the most serious that Mr Hunt has had to contend with. Contrary to the Minister’s rosy scenario, in the first half of 2010 the policies of Chancellor Alistair Darling had resulted in the economy growing at an annual rate of 3%, and the economy was set on the path of sustained recovery from the global financial crisis. In June, the newly elected Conservative Chancellor killed that recovery stone dead. Austerity cut demand, inflicted damage on social services, education and the health service and, by generating an aura of all-pervading economic pessimism, led to cuts in investment and growth in the private sector too. The next time a school or hospital is closed because the roof is unsafe or necessary equipment is lacking, remember Austerity George. It is no wonder that Mr Hunt is so keen to project his personal optimism.

Mr Hunt is also struggling with the consequences of the next huge Tory economic disaster: Brexit. I am well aware that Brexit was not just about the economy, and we can argue about the role of sovereignty in all aspects of our national life and whether there was a price worth paying. But, as an economic policy, Brexit has seriously damaged the country’s economic health. Noble Lords will recall that, after three years of austerity and with a general election on the horizon, economic conditions were eased by Mr Osborne and in 2013 business investment began a significant recovery. Then Brexit dealt business investment to blow from which it has not recovered to this very day. Having grown steadily as a share of GDP from 2013 to 2016, following the Brexit vote business investment fell year on year. Even with the incentive of the superdeduction in place, it is back to the austerity-induced levels of the end of 2012. As the Office for National Statistics has pointed out, the UK has the lowest average private sector investment as a percentage of GDP of any G7 nation. How ironic to hear Mr Sunak congratulating the people of Northern Ireland so enthusiastically on the extraordinary and unique economic advantages they will enjoy as members of the UK market and the EU single market. Perhaps the Minister will tell us when she sums up why what Mr Sunak declares to be so good for Northern Ireland is not good for England, Wales or Scotland.

The Mitigator, Mr Hunt, has correctly identified his task as reversing this sad tale of Tory low investment and consequential low productivity. With the end of the superdeduction cutting business support by £10 billion a year, he has introduced full expensing, which will increase business support by £9 billion. So, while incentives are not up, they are down by only £1 billion a year. Unfortunately, the new incentives are scheduled to last for only three years. As the IFS commented,

“the fact that this change is temporary and only announced now is most definitely not welcome. Today’s announcement is just the latest in a long line of changes and temporary tweaks. There’s no stability, no certainty, and no sense of a wider plan”.

Contrary to what the Minister said about the burden on companies falling, this April sees an increase in corporation tax of around £14 billion a year. When she sums up, will the Minister confirm that, as a result of this Budget, British business is now worse off by a total of around £15 billion a year? There will be no champagne corks in the boardrooms of British industry.

The other flagship scheme, the 12 new investment zones, will be good news for the successful zones but bad news for everywhere else. Long experience demonstrates that such schemes shift investment around the country without any significant impact on the overall figures. They simply shift the deckchairs. Against the new £15 billion burden on industry, the extra £1.8 billion help to

“cutting-edge companies who … are turning Britain into a science superpower”,—[Official Report, Commons, 15/03/23; col 840.]

to quote the Chancellor, welcome as it is, sounds distinctly underpowered.

Creative superpowers are built on a firm foundation of high-quality education and skills, yet where are the measures in this Budget to foster the high-wage, high-skills economy Mr Hunt seeks? What has he done to mitigate the disaster of Tory education policies? School spending per pupil in England fell an average of 9% in real terms between 2009 and 2019. According again to the Institute for Fiscal Studies, the Tory squeeze on educational resource is

“without precedent in post-war UK history”.

The result is that England is today one of the very few OECD countries where the young have worse literacy and numeracy skills than 55 to 65 year-olds. The Government have also cut adult education by half. Against this, the impact of the announced midlife MOTs and returnerships are drops in the ocean. Is it any wonder that this country has such a skills shortage?

However, instead of focusing on skills, The Mitigator focuses on numbers by providing a package of measures aimed at increasing labour market participation. The OBR costs this package at £7.1 billion. It estimates the increase in labour force participation as a result to be 110,000 people: that is, £65,000 for each extra person joining the labour force. At the same time, the OBR forecasts that trend unemployment will rise by more than 130,000. All this is in a labour force of 35 million. There is not much mitigation there. Of course, the investment in childcare is to be heartily welcomed. However, when she sums up, I would be grateful if the Minister would comment on the Sutton Trust’s estimate that, given the way in which the scheme is designed, 80% of the poorest families will be unable to access the childcare they need. Is the Sutton Trust right? In the medium term, once some of the restrictions built into Mr Hunt’s scheme have been removed, the provision of high-quality childcare will indeed herald a welcome advance in British society, extending opportunity, particularly to women, and providing greater security for poor families that need both partners in work in order to get by.

Falling real incomes define today’s economy and falling living standards blight today’s society. As the OBR notes, the 5.7% fall in real household disposable income over the next two financial years will be the largest two-year fall since records began. Even five years hence, in fiscal 2027-28, the OBR states that living standards will still be lower than pre-pandemic levels. This dismal outcome is of course due primarily to the increase in the price of energy and other tradeable goods, but is made even worse by the freezing of tax thresholds by Chancellor Sunak. The Sunak freeze ensures an extra £500 in tax for basic rate taxpayers in 2023-24 and an extra £1,000 in tax for higher-rate taxpayers—and yet more in subsequent years. Once again, matters would be worse if Mr Hunt had not mitigated the costs with the extension of the energy support measures and the commitment to increase social security benefits in April by the rate of inflation.

The problem is that mitigation is not enough when, as the Resolution Foundation pointed out this morning, the Budget leaves many government departments facing 10% real-terms cuts; it is not enough when living standards decline; and it is not enough for the Chancellor to be focused solely on mitigating the mess left by all his Conservative predecessors—with the notable exception of Nadhim Zahawi, who, perhaps fortunately, did nothing.

The chairman of Legal & General commented last week that Britain is a

“low-productivity, low-growth, low-wage economy fraught by political infighting and that has to change”.

He added:

“We need a massive step-up in investment in the UK”.


He was right. He could have added that low growth equals high taxes, even as public services deteriorate.

What was totally absent from the Budget was a medium-term strategy to turn Britain around that did not focus just on tax and spend but embodied fundamental institutional reform to link invention to innovation to investment in the skills and technology of the future. Without that institutional commitment, we will not see the investment in growth that Britain desperately needs. That is what is happening in the United States, but it is not happening here. As the clean technology race between the US, the EU and China hots up, the lack of any substantive UK response is chilling.

The result of 12 years of economic mismanagement has been stagnating productivity, the worst post-pandemic growth in the G7, higher taxes drained from a population suffering record falls in living standards and a shrinking labour force squeezed by the high cost of going to work and by long-term sickness unmitigated by an increasingly desperate NHS. However, accessing his inner Monty Python, Mr Hunt claimed this morning that he is setting out a long-term plan to make us

“one of the most prosperous countries in Europe”.

Always look on the bright side of life.

As a long-serving Conservative Health Secretary, Mr Hunt is accustomed to managing decline with an optimistic smile, always looking out for opportunities to mitigate the pain wherever he can. But mere mitigation is not what Britain needs. Britain is in a hole, and Mr Hunt can claim credit only for having slowed down the digging.

Financial Services and Markets Bill

Lord Eatwell Excerpts

Committee stage
Tuesday 7th March 2023 Grand Committee

[Baroness Penn (Con)]

My Lords, we were addressing the question of when alternative service provision is put in place and the accessibility of that service provision.

I have addressed the point made by the right reverend Prelate the Bishop of St Albans about connectivity. He also made a point about customers needing, for example, a smartphone to make payments or access online banking. The FCA has stated that it expects payment service providers to offer solutions that work for all groups of people. It encourages all firms to consider the impact of their solutions for customers. The regulators’ guidance recognises that not all customers will have mobile phones or a reliable signal and that viable alternatives should be provided in these situations.

All service providers, including banks and building societies, are bound under the Equality Act to make reasonable adjustments where necessary. Many of them support access to digital services through initiatives to distribute devices, teach skills, or facilitate support networks.

As my noble friend Lord Holmes highlighted, moving towards digital can create opportunities for accessibility but it can also create barriers. It is important that we embrace these technological changes in ways that reduce those barriers, so his point about ensuring that interfaces, including ATMs and point-of-sale terminals, are accessible is really important.

[Lord Eatwell (Lab)]

Would the Minister indulge me for a moment? I have been intrigued by her discussion of the role of digitisation. I refer to Amendment 184, tabled by my noble friend Lord Tunnicliffe, on the duty to collect data on cash acceptance.

When teaching monetary economics, the first thing that you ask students to understand is, “What is money?” Money is something that is generally accepted in discharge of a debt. That is the definition of money. The issue of cash acceptance is therefore vital as society develops in the way that the noble Baroness, Lady Noakes, outlined so clearly. What will happen is that, for the section of society who rely on cash—several million people—their cash will no longer be money. It will no longer be generally acceptable in payment of a debt. In those circumstances, the digital instrument will be crucial. However, if the digital instrument is issued only by companies, namely banks, to those who are customers of the banks, who have some basic criterion, it is surely the responsibility of the state to issue a digital instrument that is available to all citizens.

That being the case, to get to that stage, we need to know how cash is generally accepted. Therefore, the amendment, which contains a duty to collect data on cash acceptance, is vital for the development of future policy with respect to cash and digital instruments. The Minister rejected the amendment by saying that it is not the FCA’s responsibility. Can she tell me which department of government has this responsibility to collect data on cash acceptance?

[Baroness Penn (Con)]

My Lords, there are a number of ways to tackle the issues that the noble Lord referred to. There are various statistics around payment methods used by consumers in the UK; I quoted some at the start of my speech. The Government have not mandated service providers to accept certain forms of payment; that is not the approach we intend to take to ensure that people continue to have access to cash or money. I have said that, in supporting businesses’ access to deposit services, that will support people’s ability to use their cash as a form of payment.

The noble Lord also raised the question of a digital form of money. That is a question that the Government have looked at very carefully. We launched what I think was a joint consultation between the Government and the regulators, looking in more detail at the question of a central government digital currency and how to take forward that work, as well as considering questions such as those from the noble Baroness, Lady Fox, about privacy issues in a world of having a digital form of money versus having cash as a form of money.

I understand the importance of having a picture and the data that allows us to understand what is going on. I do not think that the data is necessarily the gap here; it is about how you provide for the ongoing use of cash in a society where rapid changes are being made. Our approach to that has been through legislating in this Bill on access to cash withdrawal and deposit facilities.

I was just talking about the importance of the accessibility of payment interfaces, including ATMs and point-of-sale terminals. I am pleased that UK Finance and the RNIB have developed accessibility guidelines for touch screen chip and PIN devices, as well as an approved list of accessible card terminals. The Government’s disability and access ambassador for banking, Kathryn Townsend, also encourages a consistent consumer experience and engagement with deaf advocacy groups.

Financial Services and Markets Bill

Lord Eatwell Excerpts

Committee stage
Wednesday 1st March 2023 Grand Committee

[Lord Roborough (Con)]

The Bill introduces secondary objectives unrelated to the core objectives. Should that unlimited liability also be extended to these? Will the regulator be determining acceptable travel policies for business? Which financial markets are priorities for growth and competitiveness? What will be the enforcement process if individuals or companies disregard these? How can the regulated have confidence in the application of these objectives without some kind of body of precedent and rapid appeals process? The regulators themselves will benefit from a clear body of case precedents when making decisions. I urge the Minister to give serious consideration to the importance of rapid and practical accountability of the regulator for its actions to those it regulates, if London is to remain a financial hub where the global community wants to base its investments, businesses and careers.

[Lord Eatwell (Lab)]

My Lords, I regret that I was not able to take part at Second Reading as I was working in the United States. I hope I have the indulgence of the Committee to make some comments on this set of amendments. As someone who has chaired a major regulator, I found the representation of the principles and approach to regulation as “vague” a rather chilling remark.

What we have seen with the amendments of the noble Lord, Lilley, and those who have supported them, is an attempt significantly to change the entire philosophy on which the regulatory system has so successfully developed in this country. That philosophy has been based on principles-based regulations. Those principles are not vague, as has been asserted; they are determined by Parliament. The rules have then been developed on the basis of serving an industry which is dynamic and continuously changing, unlike the building industry, many of whose practices have not changed since Tudor England.

The fact that the regulatory system can adapt to a rapidly changing industry has been a source of considerable strength within our regulatory system. If we are to introduce an entirely different legal approach, that has to be argued out. There should be a Green Paper, a White Paper and a proper Bill saying that the regulatory approach in this country is going to be fundamentally changed. That is what I fear: the amendments of the noble Lord, Lord Lilley, would effectively introduce a wedge of change that would fit very uncomfortably with the current structure.

On the other hand, I support the amendments proposed by the noble Lord, Lord Bridges, and particularly commend the remarks of the noble Lords, Lord Hill and Lord Forsyth. They argued that although this new accountability device—this new entity—would deal with, let us say, the technical side of regulatory issues, we still need a parliamentary committee to deal with the political side because regulation is both highly technical and has an essential political core. That is why we need both components. Therefore, I strongly support the amendments of the noble Lord, Lord Bridges, and the views put forward by the noble Lords, Lord Hill and Lord Forsyth, on the need for the dual structure to ensure a proper level of both technical and political accountability.

[Lord Tyrie (Non-Afl)]

First, I declare my interest as in the register. I am deeply concerned about this second set of amendments; they could have a profound impact on and consequences for the SMR, the ombudsman’s service and the RDC in particular, and I shall go through each in turn. I strongly agree with what has just been said about the nature of regulation and the risks of moving at such pace to a wholly different approach, bearing in mind for how many decades this system has been in place and has become understood and accepted—at some cost, by the way, and, therefore, changing it is itself something whose costs we need to bear in mind.

On the question of predictability, consistency and unintended consequences, in response to an earlier amendment I cited abuse of cryptocurrency technology, which might be made more difficult for the regulator to adapt to if it has to show that what it has done was predictable on the basis of existing law. That could be spread betting or, to take a topical example of 15 years ago, asset-backed securities. I am extremely nervous about including this without substantial consultation, which should be preceded by a detailed explanation of what is intended. We have not had any of that, and it is certainly not suitable to be put in this Bill.

Although I have not said very much so far on the Bill, I fear I will speak at some length on these three areas, which in my view are crucial to providing fairness and making sure that we are better prepared for the next financial crash that will inevitably come.

As I read Amendment 169, it would create a defence before the Upper Tribunal, and possibly a complete defence if a person could show that they had acted reasonably and in good faith. That might sound quite reasonable in itself—more apple pie—but a defence of reasonableness and good faith would mean that if an individual did not know about a problem, he could not be held responsible for it. That would be goodbye to the SMR, at least, as an effective regulatory tool. It strikes me as likely to reintroduce all the gateways to unacceptable risk and risk taking that the SMR was designed to expunge.

Autumn Statement 2022

Lord Eatwell Excerpts

Tuesday 29th November 2022 Lords Chamber

[Lord Eatwell (Lab)]

My Lords, over the past three months, the Government have subjected the British economy to two episodes of extreme foolishness. First came the Truss-Kwarteng episode, going for growth without a coherent strategy and throwing money at the wealthy. Unfortunately for Britain, the ideology and economic reality did not mix. As a result, all Britain is worse off and the poorest suffer most. Then came this Sunak-Hunt episode, described by financial market experts as a “massive overreaction”. This time, political intent was dressed up as technical economics. Again, there was no coherent growth strategy as taxes were raised to an all-time high and massive expenditure cuts in 2024 and 2025 were announced. Why would anyone invest in a Britain that the Chancellor tells us is heading for a recession, not just now but with massive cuts in 2024 and 2025 too? The result is that all Britain is worse off. The two episodes share these common characteristics: no coherent plan for growth and severe damage to the British economy for years to come—a continuation of 12 years of Tory economic incompetence.

In the first half of 2010, with Alistair Darling as Chancellor of the Exchequer, the economy was growing at an annual rate in excess of 3%. Following the May election, with George Osborne as Chancellor, growth came to a shuddering halt. Austerity was the new, destructive policy. Education and local authority support for economic development were severely cut, and the NHS was underfunded. School spending per pupil in England fell by an average of 9% in real terms between 2009 and 2019—before the pandemic—which, according to the Institute for Fiscal Studies, was

“without precedent in post-war UK history.”

The result? England today is one of only a few OECD countries where the young have worse literacy and numeracy skills than 55 to 65 year-olds. Perhaps the Government were trying to balance things up, as they also halved spending on adult education. Is it any wonder there is a skills shortage?

As we know, there are currently major labour shortages in many sectors of the economy. Well over a million British workers are “missing” from the labour force. A significant contribution to the shortage of labour arises from those untreated or waiting for treatment in an overstretched NHS.

Let us add to these “headwinds”, as the Chancellor calls them, the cost of Brexit—another Conservative policy. We do not need to argue over the OBR’s estimate of a permanent 4% loss of GDP, and hence 4% loss of tax revenue: the negative impact of Brexit can be seen all around us, whether in migrant labour shortages, markets lost, SMEs withdrawing from European markets, or the Paris stock exchange overtaking London. The Conservative mayor of Birmingham has now commented on the damage to the economy in his area.

It was not the war in Ukraine that caused the current economic crisis: the war revealed the underlying long-term weakness of the UK economy. That is why the OECD ranks only Russia as a worse economic performer than the UK.

Now, to bookend the Conservative years, austerity is back. Twelve years of policies which have been consistently damaging to the economy raise an important question: why are Conservative Chancellors so incompetent? I think the answer is clear in their rhetoric: the private sector is portrayed as the “wealth creator” that has to carry the burden of funding the public sector. In a speech in 2014, George Osborne referred to

“government as the enemy of business and wealth creation”.

Similarly, in his 2021 Budget speech, Mr Sunak declared:

“Government should have limits”


and that

“my goal is to reduce taxes.”—[Official Report, Commons, 27/10/21; col. 286.]

In the Autumn Statement, Jeremy Hunt maintained the anti-state rhetoric by asserting that

“high-tax economies damage enterprise and erode freedom.”

Tell that to the Scandinavians. The point about these statements is not that reducing the burden of taxation is a bad idea—we all want lower taxes. In appropriate circumstances, cutting taxes may be a very good idea, but underfunding the public sector sources of growth is a very bad one.

However, in the Conservative mindset, the public and private sectors are seen as separate entities competing for resources—what economic nonsense. The private sector depends on top-class research conducted in publicly funded universities, on efficient infrastructure, and on a well-educated, adaptable, healthy labour force. Austerity that cuts spending on schools, libraries, skill centres and Sure Start, and underfunds the NHS, damages the very core of British private enterprise.

The lessons of economic history are clear. When in the latter half of the 19th century Germany sought to compete with the industrial strength of Britain, it created industrial banks to ensure the flow of long-term funding to nascent German industry, and it created the Technische Hochschulen to provide the scientific and engineering expertise to drive German industrial competitiveness. In more recent times, all the important technological innovations in the iPhone were made in public sector institutions; it was the public sector that took the extreme risks associated with experimental new technologies. It was the genius of Steve Jobs to take those public sector ideas and mould them into the most commercially successful product of modern times.

In today’s fast-changing competitive world of artificial intelligence and bioengineering, high risk and high reward go hand in hand. That is why the rest of this century must be the era of an entrepreneurial state. We need new institutions to channel funds to the development of new high-tech products and to link our outstanding research with commercial innovation; a pro-business state that complements private industry; and a well thought through medium-term growth strategy.

In vain, I searched the Autumn Statement for such a strategy. The Chancellor’s speech ends with what I can only interpret as a joke. He said that

“you do not need to choose either a strong economy or good public services. With the Conservatives, and only with the Conservatives, you get both.”—[Official Report, Commons, 17/11/22; cols. 845-56.]

When the Resolution Foundation reports that:

“Almost three-in-five households in the most deprived areas are already cutting back on essentials such as food and fuel”,


and the Institute for Government declares that the Autumn Statement’s impact on public services will be a “poisoned inheritance”, the joke is on the British people.

--- Later in debate ---

[Baroness Penn (Con)]

My Lords, I thank all noble Lords for their contributions to this debate. Given the range of expertise that has been contributed today, I will spend my time directly addressing as many noble Lords’ comments as possible.

Many noble Lords reflected on the economic circumstances that we find ourselves in. My noble friend Lord Lamont is correct in his analysis that there is no greater enemy than inflation. He reminded the House, as did the OBR, that the inflation we face is predominantly down to global forces, as my noble friend Lord Flight also noted. High inflation puts pressure on households managing those rising costs and, in turn, dampens growth. We have to be honest with people that we cannot shelter them from all of the effects of this economic storm. In our fiscal policy, we must be careful not to stimulate the economy in a way that makes it more difficult for the Bank of England to reduce inflation, leading to higher interest rates. So we have had to target our fiscal policy carefully.

But it is worth reminding noble Lords of the extent of the support that we are providing. Overall policy decisions since the Spring Statement provide support of £64 billion this year and £40 billion next year, which represents a combination of universal support, through the energy price guarantee, and targeted cost of living payments. In response to the noble Lord, Lord Rogan, the Government are working to ensure that the people of Northern Ireland receive energy bills support scheme support as soon as possible. I reassure him and the people of Northern Ireland that support will reach them this winter.

We have also taken action to uprate pensions and benefits in line with inflation, which I note, in the context of the contribution of the noble Lord, Lord Rooker, was a recommendation from Barnardo’s. We have accepted the Low Pay Commission’s recommendation to increase the national living wage by 9.7%.

Some noble Lords, including the noble Lord, Lord Fox, questioned the profile of the Government’s consolidation plans. But, again, we have had to strike a balance, providing support to households and the economy while inflation is high and growth is low—then, once growth returns, we will increase the pace of consolidation to get debt falling. The OBR delivered its verdict on our plans, saying that the recession will be shallower than it would otherwise have been, jobs will be protected and inflation will come down.

I must also correct the assertions of the noble Lords, Lord Hain and Lord Howarth of Newport, the noble Baroness, Lady Jones, and others that these plans are a return to austerity. In 2010, total departmental spending fell by about 3% a year; in this Parliament, it will rise at 3.6% a year in real terms. This is not just more money for public services; it is also considerably more money than the Benches opposite have committed to.

The noble Lord, Lord Hain, also claimed that the Autumn Statement would open the door to a Labour Government, but I remain slightly at a loss as to what Labour’s economic plans are. The noble Lord opposite made a valiant attempt to set some of them out, but I remain unclear: does it sign up to the need to consolidate our public finances? If it does, does it agree that we have taken a balanced approach between tax and spend? If it does not, what would it do differently?

I also profoundly, and perhaps unsurprisingly, disagree with the Benches opposite on this Government’s economic record. Over the last 12 years, alongside EU exit, the Government have had the third fastest growth in the G7. Since 2010, we have grown faster than France, Germany, Italy or Japan, and we have the lowest unemployment in nearly 50 years.

I will correct one further point from the noble Lord, Lord Razzall, and others, on the London Stock Exchange missing out to Paris. We had a Question on this the other week, where we addressed in quite a lot of detail why that is not the case. I also thank the noble Baroness, Lady Kramer, for reminding us of Labour’s own record on the economy.

Perhaps it is time for a little more consensus, and, in this debate, I heard more consensus on the need to improve productivity. Many noble Lords—including the noble Lord, Lord Eatwell, my noble friend Lord Horam and others—spoke about the need for greater investment in public sources of growth. The Government agree, which is why public spending on capital investment will remain at the record highs set at the 2021 spending review, delivering more than £600 billion of investment over the next five years. I can only ask the noble Lord, Lord Eatwell, why he could not persuade his own party of the need for this in government, with capital budgets next year being more than double those under the previous Labour Government.

Noble Lords also spoke powerfully of the need to improve private sector investment, and many spoke about the need to support R&D. The noble Lords, Lord Fox and Lord Londesborough, among others, expressed concern about the Government’s planned changes to R&D tax credits for SMEs, and many noble Lords spoke about the importance more broadly of R&D, including my noble friend Lady Blackwood. I assure noble Lords that the Government remain unequivocal in their support for R&D, including recommitting to the largest ever R&D spending increase over an SR period. Our aim is to ensure that the spending is as effective as possible and to do more to work towards a simplified, single R&D tax credit for all.

The noble Lord, Lord Londesborough, asked whether the Government have considered the impact on productivity of the changes that we are proposing. From my experience looking at the R&D tax credit, the officials working on this think of almost nothing other than how we can make the R&D tax credit system the most effective it can be. We must recognise that the SME scheme has become a target for fraud. That is not to say that noble Lords did not make important points on the need to support research-intensive SMEs in particular. Ahead of the Budget, the Government will work with industry to understand whether further support is necessary for R&D-intensive SMEs without significant changes to the overall costs of the scheme. Over the SR period, we also increasing funding for Innovate UK by 50%, and 70% of Innovate UK’s grants benefit small and medium-sized enterprises.

Also on investment, the noble Lord, Lord Bilimoria, asked about doing more regarding small modular reactors. I agree with him that, for Britain to achieve energy security, a pipeline of new nuclear is needed, alongside the large-scale project that we have committed to in Sizewell C. Today, the Government have confirmed their commitment to set up Great British Nuclear, an arm’s-length body which will develop a resilient pipeline for new builds beyond just Sizewell C.

On energy more broadly, many noble Lords, including the formidable noble Baronesses, Lady Hayman and Lady Jones of Moulsecoomb, raised questions about our approach to energy and climate change. I reassure noble Lords that the Government remain fully committed to reaching net zero by 2050, and to seizing the opportunities for growth through that transition.

On specific questions around the energy profits levy, several noble Lords, including the noble Lord, Lord Sikka, expressed concern about the design of the levy and the investment incentives in it. The Government have always been clear that the tax regime is intended to strike a balance between ensuring a fair tax return for the UK from its resources and continuing to encourage investment in the North Sea, supporting jobs and our energy security. I reassure the noble Lord that the Autumn Statement sets out that the Government expect to raise £41.6 billion from the EPL between 2022-23 and 2027-28, in addition to the £39 billion paid through existing taxes, ensuring that oil and gas companies pay their fair share.

The UK will also receive tax revenues from the investments made under the investment allowance, as and when they generate a profit. Given that these companies are mostly the same ones that are innovating and producing renewable energies, their investments will bring wider economic benefits through jobs, a secure supply chain and more progress towards net zero. Conversely, my noble friend Lord Leigh of Hurley voiced concerns about the impact of the EPL on independent UK companies and suggested that we use an approach more akin to the one that we have taken with electricity generators. His concerns are precisely why we have included such a generous investment allowance, which demonstrates our commitment to encouraging investment in the North Sea to strengthen the UK’s vital offshore oil and gas sector, putting more UK gas on the grid for longer and bolstering our energy security.

The noble Baroness, Lady Hayman, was also concerned about investment incentives for renewables under the electricity generators levy. The EGL is charged on a different basis from the energy profits levy and at a lower combined rate; the EPL is applied to total profits, whereas the EGL applies to only extraordinary returns above a given level. I reassure noble Lords that the electricity generators levy is designed in a way that maintains incentives for investment and preserves the effect of existing government support. Renewable generators will be able to deduct investment costs from their corporation tax.

[Lord Eatwell (Lab)]

I know that the Minister would not want to mislead the House, so I was very surprised by her figures on government investment. I looked up the OBR figures and, as a share of GDP, public sector net investment is now half what it was in the last year of the Labour Government.

[Baroness Penn (Con)]

My Lords, the statistics that I gave referred to overall levels of investment, not expressed as a percentage of GDP. I stand by the figures that I gave to the House.

Budget Statement

Lord Eatwell Excerpts

Wednesday 23rd March 2016 Grand Committee

[The Commercial Secretary to the Treasury (Lord O'Neill of Gatley) (Con)]

My Lords, last week in the other place the Chancellor set out a Budget to continue the UK’s economic recovery. It was a Budget which responded to the global economic uncertainties that have grown in recent months, and made appropriate choices to insulate ourselves from those risks as much as possible.

There are many positive stories to tell about the UK’s economy. For example, last Wednesday the employment statistics showed yet another boost to employment, with 150,000 more jobs than the Office for Budget Responsibility expected just four months ago. This means that employment is at the highest level ever, and the proportion of people on the claimant count is the lowest it has been for over four decades. Last year also saw the highest annual growth in nominal and real earnings since 2008. Meanwhile, the fiscal deficit as a share of GDP is forecast to be cut this year by almost two-thirds from its 2009-10 post-war peak—from 10.3% to 3.8%. The OECD has forecast that the UK will be the fastest-growing major advanced economy in 2016.

However, there are still significant economic issues that need to be addressed. The Office for Budget Responsibility has forecast a deterioration in the fiscal position between 2016-17 and 2020-21, largely driven by lower tax receipts—particularly as a result of a weaker productivity outlook and a weaker outturn for nominal GDP. This reflects a common recent phenomenon of low productivity growth across the western economies, but it also comes at a time when economic turbulence worldwide has led to weaker growth forecasts for the global economy and, importantly, for global trade.

I observe that there have been three specific developments in global markets since the Autumn Statement that are material. First, until this month, there had been evidence of the US economy slowing. Secondly, as is well discussed, commodity prices and inflation expectations have continued, or did continue, to drop, resulting in nominal GDP in many places, including the UK, being weaker than previously thought. Thirdly, while in my judgment Chinese activity data has not deteriorated much further—remember that this is since November—additional policy uncertainty has raised risk premia in markets exposed to China. Against that, I would note that, in the context of the revised OBR forecasts for public sector finances, it is interesting to observe that there have been signs of reversal in all three of these trends in recent weeks. None the less, there remain many global risks—these and others—and, as an open trading economy with extremely strong links worldwide, we are by no means immune from them.

At the same time, domestically our productivity remains too low, as we have discussed many times in this House. I have spoken at length about tackling the UK’s productivity challenge. These issues have existed and been debated for decades and the solutions and better outcomes will not necessarily materialise in a matter of months. Nevertheless, the measures set out in this Budget take further important steps which, as well as helping us stick to our path for running a budget surplus, will secure growth and promote productivity increases over the long term.

With noble Lords’ permission, I will first discuss the revised fiscal figures for the next five years and then move to specific measures introduced in this Budget. In the face of the new assessment of productivity and the slowing global economy, the OBR now forecasts that UK GDP will grow by 2% this year, 2.2% again in 2017 and then 2.1% in each of the three years after that. The Government have responded to the deterioration in the OBR’s fiscal forecast and are taking new measures to ensure we keep living within our means. To help us achieve this, the Government will make further savings of £3.5 billion from departmental spending, following an efficiency review.

Although debt as a percentage of GDP is above target this year, compared to the forecast, importantly, the actual level of our national debt in cash is around £9 billion lower. In the future, debt is forecast to continue to fall as a share of GDP each year to the end of the forecast period. In 2009-10, the deficit was forecast to reach 10.3% of national income. Thanks to sustained action, the deficit is forecast to fall by almost two-thirds by this year, reaching 3.8% of GDP. The deficit is now forecast to continue to fall across this Parliament and, because we have taken decisive action to control spending and make savings, in 2019-20 Britain is set to run a surplus.

When the forecasts change, of course our plans also have to change. However, the decisions made in this Budget ensure that our fiscal mandate will be met, meaning greater resilience for our economy in uncertain times. Importantly, we have set out how to achieve this in a fair way. HM Treasury analysis published alongside the Budget shows that, as a result of actions taken, the proportion of taxes paid by those on highest incomes will increase, while the poorest and most vulnerable will continue to be supported.

In parallel, I also welcome this opportunity to listen to Members’ views on the information that will be provided to the Commission this year under Section 5 of the European Communities (Amendment) Act 1993. As in previous years, the Government will inform the Commission of the UK’s economic and budgetary position as part of our participation in the EU’s stability and growth pact. The Government plan to submit their convergence programme, with the approval of both Houses. The convergence programme explains the Government’s medium-term fiscal policies as set out in the 2015 Autumn Statement and Budget 2016, and also includes the OBR forecasts. As such, it is based entirely on previously published documents that have been presented to Parliament.

The UK economy is deeply intertwined with the economies of other EU member states. In 2014, 44% of total UK exports were destined for the EU 28, so it is in our interests that the European economy is successful and stable. It is therefore important that we participate in the EU’s macroeconomic co-ordination processes to continue to drive important messages about sound economic policy and further development of the single market. With the Budget on 16 March this year, I appreciate that the time to prepare for this debate has been particularly tight. Against that background, the Treasury has made every effort to provide early copies of the convergence programme document in advance of the debate today.

Before I turn to the measures contained in the Budget, I would like to make a few comments on one now key and topical aspect of the fairness agenda: namely, disability payments. The focus of the Government has always been on strengthening the economy in order to create a fairer society. As a result of the Government’s policies, unemployment is at a four-decade low, wages are higher, inequality, child poverty and pensioner poverty have fallen, and the gender pay gap is at an all-time low. These have not happened by chance but because of deliberate strategies to fix the economy, back business, control spending and reform welfare by incentivising the reasons to work. So although there have been controversies, the results have helped to build a stronger society.

We have also significantly increased our support to disabled people. Indeed, the sums are considerably greater than those under the previous Labour Government. However, it was clear that the reforms proposed to personal independence payments, although they drew on the work of an independent review, did not command support. That is why they have been withdrawn. Over the coming months, the Government will be working to build a system of disability support that is stronger, fairer and better integrated with our health and social services. And, to be clear, there are no plans to make further welfare savings. But there remain strong reasons to keep the welfare budget under control. Strong leadership demands taking difficult decisions—decisions that may not always be popular, but which will make the country stronger.

The measures set out in this Budget will make the country fundamentally stronger. They will encourage growth, savings and investment, boost productivity, invest in our skill base, ensure that the tax system is fair as well as being competitive, rebalance the economy, and help people’s well-being. We know that, in order to strengthen our economy, our businesses have to be as competitive as possible because that increased competitiveness will be a driver of long-term growth.

It is for this reason that the Budget cuts the rate of corporation tax even further, to 17% in 2020, giving us the most competitive rate in the G20 and benefiting more than 1 million businesses. The Budget also cuts the burden of business rates by £6.7 billion over the next five years, taking 600,000 of our smallest firms out of business rates altogether. Through a £1 billion North Sea oil and gas package, this is a Budget that helps Britain’s largest industry succeed in difficult economic times. Through cuts to both the higher and basic rates of capital gains tax, it encourages investment, which is the lifeblood of Britain’s businesses. And through the abolition of Class 2 national insurance contributions, it creates a simpler tax system and a tax cut of more than £130 for the 3 million-plus self-employed people in Britain.

Tax should not merely be competitive; it also has to be fair. The Budget sets out a series of measures designed to ensure that multinational companies pay their fair share of tax by introducing restrictions on the use of internet expenses, strengthening the rules on hybrid mismatch agreements, preventing property developers shifting payments offshore and taxing royalties payments where these are used to avoid tax. Important measures are also taken to simplify the tax system, including modernising the climate change tax system, updating corporation tax rules on losses and reforming stamp duty land tax on residential properties.

This is also a Budget that helps incomes and savings. It raises the tax-free personal allowance to £11,500 from next year, and the higher rate threshold to £45,000. It freezes fuel duty, helping families and businesses keep costs low every time they fill up. For the first time, it creates a lifetime ISA, helping people to buy their first home or save for their retirement—potentially one of the most exciting savings tools for a generation.

In this Budget, we have taken further important steps to boost our productivity, adding to those announced in the summer of 2015. On education, it commits a further £1.6 billion to education spending, gives more schools the opportunity to extend the school day, drives forward the academies programme, creates the first national funding formula for schools, boosts sport in schools, helped not least by the soft drinks industry levy, and, crucially—I am particularly pleased about this—fires a starting pistol for transforming education in the so-called northern powerhouse.

On our transport infrastructure, this Budget tackles some major existing barriers to growth: the green light to so-called HS3 and, in particular, a commitment to a Manchester to Leeds train time reduction to 30 minutes; a national plan for developing the Thames Gateway; major motorway improvements in the north, including working up a plan for a trans-Pennine tunnel; the start of the Crossrail 2 development; and two new subjects for the independent National Infrastructure Commission to study—5G and developing the Cambridge to Milton Keynes to Oxford corridor.

This Budget also continues the Government’s devolution agenda through: new devolution deals with Greater Lincolnshire, East Anglia, the West of England and the Cardiff Capital Region; the start of negotiations with Edinburgh and South East Scotland; further devolution to Liverpool city region and to Greater Manchester; and an accelerated launch of the 100% retention business rates pilot.

Over the past six years, this country has grown and strengthened its economy in precisely the way that we need if we are to continue succeeding in an uncertain world. Global circumstances have the power to blow any country’s economy off course. It is for this reason that it is so important to redouble our efforts to build economic security through sustainable growth and sensible public spending decisions. But living in a changing, uncertain world creates opportunities as well as threats. I want the UK to be in a position where we can focus on making the most of those opportunities, both here and around the world. That is what this Budget helps us do. It prioritises stability, security and sustainable long-term prosperity, and I commend it to your Lordships.

[Lord Eatwell (Non-Afl)]

My Lords, before the Minister at least notionally sits down and before I begin my speech, I listened very carefully to what he had to say about disability payments. He failed to explain how the budgetary position set out in the Red Book is to be restored, given that the payment cut has been rescinded. It will be very difficult for this Grand Committee to evaluate the Budget unless he provides this essential piece of information. I am happy to give way for him to do so.

[Lord O'Neill of Gatley]

My Lords, I am planning to talk about that more. I anticipate that that will not be the only comment on this topic, and I plan to respond when I hear other noble Lords make their comments. It needs to be said in exactly the right context rather than for me to respond right now.

[Lord Eatwell]

Very well, we will wait with interest.

My Lords, in opening his Budget speech in another place just six days ago, the Chancellor of the Exchequer declared:

“The British economy is resilient because, whatever the challenge … we have held to the course we set out”.—[Official Report, Commons, 16/3/16; col. 951.]

This is a remarkable statement, because neither part of it is true: the British economy is not resilient and he has certainly not held to the course. The story of a vacillating Chancellor is told in wonderfully subversive terms in table B.2 of the OBR’s Economic and Fiscal Outlook. The author of the OBR report explains the Chancellor’s reaction to revised OBR forecasts of changing economic fortunes:

“On some occasions, the Government has chosen to offset the effects of our underlying revisions – e.g. in November 2011, when they would otherwise have led to a target being missed. On others it has chosen to accommodate those changes – e.g. in December 2012, when despite our forecast revisions implying that the debt target was set to be missed, it decided not to offset their effect”.

So much for “holding the course”. These vacillations have not been trivial. They go a long way to explaining what has happened to the economy in the past six years, and why it is not resilient. They also help us to anticipate the consequences of the Chancellor’s last remaining target: a budget surplus by 2020.

Let us recall the economy that the Chancellor inherited from the noble Lord, Lord Darling, whom I am delighted to see here in his place. There was a fiscal deficit of a little under 8% of GDP—down from more than 10% the previous year—and the real economy was growing at 3% a year. In May 2010, Mr Osborne’s new austerity killed that growth performance stone dead. The squeeze reduced growth to zero by early 2012 and the deficit had started to tick upwards again. Something had to be done. The response, as we have heard from the OBR, was what the Chancellor calls in his speech a short-term fix. He stopped squeezing. Austerity was quietly shelved for a while. In technical terms, the cyclically adjusted budget deficit was left unchanged instead of being cut further as the growing deficit would have demanded if the Chancellor had held to the course. What was the result? The removal of the deadweight of Osborne’s austerity led to a return to growth and a falling deficit once more.

Now the vacillating Chancellor plans to return to austerity, even though, interestingly enough, that word failed to appear in the budget speech. He plans to cut the cyclically adjusted budget deficit every year for the next five years, with a huge fiscal tightening in 2019—the content of which is unspecified—all in the search of that dogmatic objective of a budget surplus by 2020. We can only expect the same outcome as that of Mr Osborne’s previous bouts of extreme austerity.

While the Chancellor has vacillated in practice, the underlying theoretical belief that drives his policy has remained constant: first, that a balanced budget is the foundation of economic growth; and, secondly, that a tight fiscal policy is necessary to provide the opportunity for an expansionary monetary policy that will stimulate the requisite growth. It is this policy mix—Mr Osborne’s policy mix—that is the source of much of the “turbulence” that he blames on others, and it is this policy mix that has seriously weakened the foundations of the British economy.

What are the markers of this weakness? The first is low productivity growth—the spectre that dominates this budget. Since 2010, the UK has suffered the largest fall in growth of output per worker hour in the G7, and now we have the lowest rate of productivity growth among the advanced countries. It is attributable, perhaps, to many factors, but predominantly to an investment rate still 20% below the pre-crisis level, with low wages and ever more easily disposable workers creating an incentive to hire cheap labour rather than invest in labour-saving capital. Low productivity growth not only undermines the possibility of raising the standard of living but undermines the competiveness of the economy.

The second indication of weakness is the UK’s sharp fall in our share of world markets since 2010. The impact of slow-growing world markets is, for the UK, doubly severe. Our markets may be growing slowly, but our share of those markets is becoming smaller, delivering what I believe in the Conservative Party is called a double whammy. The result is a record for Mr Osborne in 2015—the largest current account deficit, relative to GDP, since the early 19th century. That means that our standard of living is now funded by the accumulation of foreign debt.

In his Budget speech, Mr Osborne boasted that,

“we have doubled our foreign exchange reserves”.—[Official Report, Commons, 16/3/16; col. 952.]

He failed to point out that Britain’s foreign debts have risen much faster, so that our net international investment position has deteriorated from around minus 2% of GDP at the end of 2010 to in excess of minus 25% today. This growing international indebtedness exposes the UK to the vagaries of the international money markets. That unhappy situation is not resilience.

What then of the expansionary monetary policy that was supposed to be one of the goals of fiscal austerity? There has certainly been monetary expansion—not just the historically low interest rates but quantitative easing, too. But apart from funding the growth in consumer demand and hence in household debt that has been the main driver of growth over the past three years, monetary easing has not produced the expected increase in investment. Instead, it has fostered the financial turbulence of which the Chancellor complains in the Budget speech. The old adage that, in the absence of the prospect of growing demand, cheap money amounts to pushing on a string has once again been confirmed. Instead of funding real investment, monetary expansion has resulted in a boom in asset prices—not just in houses and equity markets, but in the flow of funds into emerging market corporate bonds in the search for higher yield.

All these asset markets have the potential for extreme instability, as is all too evident today, and, as has been amply demonstrated in the last seven years, financial instability leads to substantial real economic loss—loss that overwhelms any positive impact that cheap money may have had. This financial fragility is the third marker of economic weakness. Very low productivity growth, deteriorating international competitiveness and severe asset market distortions that can only lead to further financial instability—that is what the Chancellor calls resilience. Yet in the face of evident policy failure, the response of the Chancellor and of the monetary authorities is more of the same: more austerity, more QE.

It will be up to future generations of economic historians to examine exactly how George Osborne managed to get things quite so wrong, but it is possible to say today why fiscal austerity and cheap money have not produced the results that were expected. In both cases, the Chancellor was expecting behavioural responses, particularly the responses of business investors, that simply did not come to pass. The proposition that a balanced budget is the foundation of economic strength and that cheap money will stimulate recovery both rely on the belief that the economy is essentially a self-adjusting system. There may be unexpected shocks, there may be what the Chancellor refers to as “a dangerous cocktail” of risks, there may be time lags and mistakes, but in the long run, markets will revert to an equilibrium of steady growth. Nothing else needs to be done. That belief was tested to destruction in the 1930s. Mr Osborne has tested it again and it has failed again. The economy is not, in any significant sense, self-adjusting. Businessmen do not respond to the stimulus of cheap money by increasing investment if they see no prospect of a future of growing demand.

So what is to be done? How is the trend to low productivity, decreasing competitiveness and financial fragility to be reversed? Here I agree, in part, with the Chancellor. We do not want “short-term fixes”, as he put it. We certainly do not need what we are offered in the Budget, described by the OBR as,

“near-term giveaways followed by long-term takeaways”.

What we need are,

“long-term solutions to long-term problems”. [Official Report, Commons, 16/3/16; col, 951.]

I believe the Chancellor is right that a simple stimulus, whether fiscal or monetary, will not work; it will just lead to further deterioration in the balance of payments and yet more foreign debt. Therein lies the dilemma. To lift the UK economy out of the hole that the Chancellor has dug requires long-term sustained investment in the productive base of the economy—in the supply-side, if you like. That sustained investment would raise the prospect of growing future demand and provide the pull on the string to validate the monetary push. Yet in the immediate future, before it delivers higher productivity and enhanced competitiveness, sustained investment will also result in a further—perhaps short-term—deterioration in the balance of payments, with the potential for yet further financial instability that will blow any business-led investment programme off course.

That is why the Government must take the lead. There are positive noises in the Budget about infrastructure, technology and skills and even a pothole initiative—though only a small one—but there is nothing on the scale required. Given that the cost of funds to the Government is today just about zero in real terms, it is difficult to understand the failure to initiate a major expansion of investment in infrastructure and the other major components of supply-side strength—skills, higher education, R&D, new technologies and creative industries. This failure is resulting in not just loss of output today but a long-term loss of competitive productive capacity.

To fund such a programme while mitigating—though not eliminating—the likelihood of financial instability, there should be a hypothecated, ring-fenced, British reconstruction fund, financed by the sale of long-term bonds either to the private market, or, if necessary, to the Bank of England—quantitative easing with a purpose, if you like. To avoid the fiscal sleight of hand to which Chancellors are unfortunately prone, the objectives of the fund should be clearly delineated and audited.

Of course, the deficit hawks will claim that this is just another government spending proposal presented in attractive wrapping paper. But what the austerity junkies fail to appreciate is that fiscal balance is the consequence of economic growth, not the cause, as the experience of the last six years has clearly demonstrated. Unless we solve the problem of lack of investment, low productivity and declining competitiveness first, the Chancellor’s financial targets will never be met.

Previous Governments have been criticised for failing to fix the roof while the sun is shining. But far from fixing the roof, Mr Osborne has been hacking at the foundations. That is why a new approach is needed, and needed now.

Banking System

Lord Eatwell Excerpts

Monday 9th February 2015 Lords Chamber

[Lord Newby]

My Lords, there are several elements of holding people to account. I think the shareholders need to hold them to account. If there has been any criminal wrongdoing it is obviously for the police and prosecuting authorities in the relevant jurisdictions to pursue those matters.

[Lord Eatwell (Non-Afl)]

My Lords, I am sure the Minister will confirm that the agreement with Switzerland to reveal tax information was made in 2011, after the coalition Government took office. Does he believe that confidence in the banking system is enhanced by the fact that concrete evidence of a major bank aiding and abetting tax evasion was comprehensively ignored by the coalition Government?

[Lord Newby]

No, I do not. As for the first part of the noble Lord’s question, the agreement with Switzerland, which he seems to deride, has generated £1.2 billion for the Exchequer. That is £1.2 billion more than was being generated under the previous Administration.

Banks: Payment Protection Insurance

Lord Eatwell Excerpts

Monday 13th January 2014 Lords Chamber

[Lord Newby]

My Lords, every call made in respect of PPI is not necessarily inappropriate. Some are. Many people have used claims management companies because they did not feel confident going through the process themselves. I accept that there has been abuse. The key thing we have done is to give the regulator power to crack down on firms which make speculative claims to the banks when there is no justification for it.

[Lord Eatwell (Lab)]

My Lords, the noble Lord has not answered the point made by the noble Lord, Lord James, which was that individuals have to apply to the banks for restitution of PPI claims rather than the banks recognising the obligation that they know they have. Why are the Government letting the banks off the hook?

[Lord Newby]

My Lords, the Government are not letting the banks off the hook. The banks have paid out almost £13 billion in respect of PPI claims, which is about 70% of the total we think is payable, and a lot more claims are in the pipeline. The concern raised by the noble Lord in his Question relates primarily to the way in which the detailed amounts were calculated and the extent to which individuals can understand those calculations from the material that they receive from the banks.

Financial Services (Banking Reform) Bill

Lord Eatwell Excerpts

Monday 16th December 2013 Lords Chamber

Moved by

[Lord Tunnicliffe]

As an amendment to Motion A, leave out from “House” to end and insert “do insist on its Amendment 41”.

[Lord Tunnicliffe (Lab)]

My Lords, I speak on behalf of my noble friend Lord Eatwell. We are in but, we hope, moving towards the end of the worst financial crisis in most of our lifetimes. We will not agree on the reasons for this crisis, as we have proved when we have touched on it over the past several months. However, I think all noble Lords agree that some part of it related to the regulation and structure of the banking sector. We have had several White Papers on this subject and the Vickers report. We have had two financial Bills, of which this is the second. Half way through this process, there was a discontinuity when the LIBOR scandal changed the mood and grounds of the debate. We all hoped it was a one-off, just as we hoped RBS and Northern Rock were one-offs, but from that scandal onwards unease about the sector has continued to grow. Other banks—HSBC and the Co-op—were involved in mis-selling, but what really hit me was the latest report on the Lloyds Bank issue, which brought out how deep mis-selling has gone in these organisations. The FCA press release states:

“For a Lloyds TSB adviser on a mid-level salary, not hitting 90% of their target over a period of 9 months could see their base annual salary drop from £33,706 to £25,927; and if they were demoted by two levels their base pay would drop to £18,189—almost a 50% salary cut. In the worst example that the FCA saw, an adviser sold protection products to himself, his wife and a colleague in order to hit his target and prevent himself from being demoted”.

This final debate is about the whole issue of standards and culture. As a result of the LIBOR scandal, Parliament decided to set up the Parliamentary Commission on Banking Standards. As Mr Tyrie said in the other place today, its role was to,

“consider and report on professional standards and culture of the UK banking sector”.

We hope to tease out this issue by insisting on this amendment.

We are not happy—nobody can be happy—with the way this Bill has progressed. It started in your Lordships’ House 35 pages long and it was more than 200 pages long when it left. In the other place, it had a two-hour debate. The Minister had barely got to Amendment 41 in his winding-up before the debate was terminated by the guillotine. This is unsatisfactory. Other elements of the Bill have, in many ways, been a model of good practice which I hope will be taken up in future. My parliamentary experience is not long enough to be sure, but I think the Parliamentary Commission on Banking Standards is an innovation. It has been a good one, roundly approved by all sides of the House and I thank its members, two of whom are in their place tonight.

I also commend the Government for the graceful way they have bowed to the wisdom of the commission and the size of our voting power. The combination of the two has been, in most places, most satisfactory. What is now left between the Official Opposition and the Government? One thing that is not left is the duty of care. We wish we had carried that amendment, which could have made a big impact on standards and culture in the future. Unfortunately, we were unable to persuade the House. We are left with professional standards and it is on these that we want to emphasise our differences. I wish the process had not ended up with 150-plus pages of the Bill being discussed in two hours in the other place. More extensive and thoughtful work on this area might have achieved the level of consensus that the Minister hopes for.

I wish to make four points about the amendment which are subtly, but importantly, different. The first relates to the term “licensing”: the amendment calls for a licensing regime. For 10 years, I carried in my pocket—actually it was a little too bulky for that, so I carried it in my briefcase—a licence to fly an aircraft and carry passengers. At one point in my career I was privileged to carry up to 400 passengers, so society imposed on me the requirement to have a licence. We were very serious about that licence, the validity of which cost three days a year to maintain. You had a simple, clear concept of what a licence was. It is therefore important that the word “licence” should be used. In the rest of industry, such as the railway industry, from which I come, the concept of licensing is growing in strength. It is a good idea and we should call this a licensing regime.

Secondly, the amendment requires that we,

“specify minimum thresholds of competence including integrity, professional qualifications, continuous professional development”.

The Government’s amendment does not set out that these areas must be specified in the regime. This is a modest, but important, difference.

Thirdly, our amendment sets out that there should be a set of “Banking Standards Rules”. These were referred to by the commission, in paragraph 107 of its summary of conclusions and recommendations, paragraph 634 of the total document. Paragraph 2.18 of the Government’s response states:

“The Government will also take forward the Commission’s recommendation to replace the existing statements of principle (and codes of practice) for Approved Persons with banking standards rules”.

We believe it is important that banking standards rules should be set out, with the implication that this is a universal document for all parts of the industry to know of and take account of.

Finally, our amendment calls for,

“an annual validation of competence”.

I am happy to be corrected on this, but the tone of the government amendment suggests that in the previous 12 months the individual has not been found out—been found to be incompetent—because it talks about issues, errors or problems being recorded and being passed on to other employers. We want this to be a positive thing. Just as it was in my day, when I had to prove my right to hold a licence, we want bankers to go through a similar process, which looks positively over the previous 12 months at the continuing professional development and professionalism of the individual, and validates that annually. For those reasons, I beg to move.

Financial Services (Banking Reform) Bill

Lord Eatwell Excerpts

Monday 9th December 2013 Lords Chamber

[The Commercial Secretary to the Treasury (Lord Deighton) (Con)]

My Lords, this amendment brings forward the timetable of the independent review to be held of ring-fencing. As the House will recall, the Government previously amended the Bill to provide for an independent review of ring-fencing, once the ring-fence has come into force. Following the recommendation of the Parliamentary Commission on Banking Standards, our original amendment provided that the review be conducted no later than four years after the ring-fence had come into effect. This was to allow the ring-fence time to bed down before being reviewed.

The Government have, however, listened to arguments from the Opposition that the review should be held sooner. Two years is a long enough period over which to observe the operation of the ring-fence, and assess its effects. The knowledge that ring-fencing will soon be reviewed may also be a further encouragement to banks to comply faithfully with the ring-fence.

This amendment therefore requires that the independent review of the ring-fence be held within two years of the ring-fencing taking effect, rather than four years. This is a sensible change and one that we hope illustrates the Government’s constructive approach to reasonable suggestions from all sides.

[Lord Eatwell (Lab)]

My Lords, everyone in the House has from time to time expressed the view that this is a great experiment. We are not quite sure how the ring-fence will work and therefore it is appropriate that that it be monitored promptly and on a regular basis. I think this is a very sensible amendment—I would do, since I moved a version of it earlier—and I urge the House to support the Government.

[Lord Lawson of Blaby (Con)]

My Lords, I thank my noble friend Lord Deighton for putting forward this amendment. As he said, it is something which the banking commission, of which I had the honour to be a member, has been calling for. It is extremely welcome and it is very good that he has acceded to it. As the noble Lord, Lord Eatwell, said, the whole idea of ring-fencing is something of an experiment. We do not know whether it is going to work and therefore it is necessary that after an appropriate time it should be thoroughly investigated to see whether it is working satisfactorily and, if it is not, to have a move to full separation.

We know for certain that full separation works; indeed, separation was the norm in this country for most of our lifetimes. It is only during the past 25 years that there has not been separation. In the old days, there were the so-called joint stock banks, which were to do with the commercial banks and did retail lending and lending to small businesses, which are now known as SMEs, and there was a completely different group called the merchant banks, which were different people and institutions. For a long time, most of them were partnerships and had a different set-up altogether. They did what is now known as investment banking and it worked extremely well. We know that separation can work but we do not know whether this idea can work, so it is right that there should be a review.

While commending the Government, and in particular my noble friend, for introducing this, I hope that it will not be necessary. That is not because the ring-fence will, as it were, be found to work. I have grave doubts about that if it persists. However, there must be considerable doubt as to whether it will persist. Some noble Lords may have seen the interesting report in today’s Financial Times that the HSBC is thinking seriously of spinning off its UK retail and commercial banking enterprise as a separate company, with outside shareholders taking up to 30% in it. That is according to the Financial Times; we do not know, but there is a good reason for that. If the requirements of the ring-fence are really to be enforced toughly, they will make it so difficult, complicated, burdensome and onerous that many banks should, if they are rational, ask, “Is it actually worth staying together? Might it not be better for us”—the management—“and for our shareholders to separate and release increased shareholder value for that purpose?”. I hope that the institutional shareholders will also keep the banks up to the mark. That would be the happiest conclusion—that we will not even need the review because separation will happen of its own accord. However, just in case it does not we will need the review and I am grateful to my noble friend.

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[Lord Brennan (Lab)]

My Lords, the present amendments fortify Part 4 by creating a comprehensive structure for conduct, standards, licensing and so on. Third Reading is an appropriate time for the Minister to clarify how in this structure directors, including the chairman of a bank, bear responsibility for the fulfilment of Part 4 as regards conduct and standards. Amendment 9 talks about:

“Vetting by relevant authorised persons of candidates for approval”.

The relevant authorised person is the bank. The bank ultimately sets its standards at directorial level, and directors carry a responsibility for it under statute and common law. Therefore I invite the Minister to clarify what, under this system, is the position of the directors and the chairman in terms of the enforcement of this framework for good standards.

[Lord Eatwell]

My Lords, I am glad to see that the introduction of Clause 15 on Report has at last seen the Government take the recommendations of the Parliamentary Commission on Banking Standards seriously in this matter and introduce these amendments that capture most, though not all, of the recommendations. What we have left, as the noble Lord, Lord Turnbull, has pointed out, is something of a tripartite muddle because we now have three different regimes affecting persons working within banks. I am afraid that this is characteristic of so many parts of this Bill and will need to be sorted out in future.

I would like to ask some questions about Clause 17 which, as was pointed out, brings branches into part of this aspect of regulation. As the House will be aware, in recent months the Prime Minister has significantly weakened Britain’s regulatory protections of its banking system by encouraging the establishment of branches in this country. Previously, the regulatory authorities had strongly discouraged this because they are not then regulated by British regulators but by their home regulator. The Prime Minister has chosen to weaken this protection particularly by encouraging the establishment of Chinese branch banks, which will be regulated by the Chinese authorities.

However, what is particularly interesting about Clause 17 is that it brings some branches possibly within some British regulatory ambit. I say possibly because according to this clause the Treasury may by order provide that authorised persons falling within any of the descriptions are relevant authorised persons. Relevant authorised persons, for those who have not participated in these debates before, are actually banks. The Treasury can choose which branches will be brought into the ambit. It is enormously important that the branches should be. The noble Lord, Lord Newby, was absolutely right in this respect. I hope the Prime Minister will not undermine this legislation by instructing the Treasury to exclude particular branches, perhaps those emanating from Chinese banks, from this regulation.

[Lord Newby]

My Lords, I am very grateful to noble Lords for the general welcome that they have given these provisions. I have some sympathy with the noble Lord, Lord Turnbull, and the tripartite system of regulation which we now find ourselves with but the approved persons regime is still needed, in our view, not least for people responsible for money-laundering. At some point we may want to see whether it is possible to rationalise all these provisions but I do not think at this stage it would be sensible to attempt it.

The noble Lord, Lord Flight, asked about banks in Crown dependencies and referred to the discussions that he had with the Financial Secretary on this. I will take his concerns back to the Financial Secretary and ensure that we bring some clarity to these discussions so that people in the Crown dependencies and banks can be clear of their position.

The noble Lord, Lord Brennan, asked about the role of directors and responsibility for the enforcement of the standard. One of the key things we are trying to achieve here is to put the responsibility on the banks to ensure that their staff on appointment have and continue to follow adequate standards. The alternative is to say to the regulator, “You have a look at all these people and make sure that they are behaving in a responsible way and have the appropriate qualifications”. We believe that the banks should not be able to duck out of that and that it is for directors and the board to ensure that they follow the rules and do not hide behind the regulator.

The noble Lord, Lord Eatwell, asked whether it would be possible for the Treasury to choose certain categories of branches and treat them in a different way from other categories: in other words, whether it would be possible to deal with Chinese banks in a different way. Your Lordships’ House has spent many a happy hour discussing the meaning of “may”. My belief and understanding is that in the situation we are discussing “may” means that the regulators will adopt rules in respect of branches and will treat all branches equally.

[Lord Eatwell]

That is very helpful, but will the noble Lord therefore explain why proposed new Subsection (3B) begins with the word “If” rather than “When”?

[Lord Newby]

I think that is consequential on using “may”.

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[The Lord Bishop of Birmingham]

My Lords, I take a moment to thank the noble Lord, Lord Lawson, for his kind remarks about my friend the most reverend Primate’s speech last Thursday. I shall pass that on to him. He regrets that he is not in his place today. He is presiding over a whole number of bishops—it amounts to about the number of noble Lords in your Lordships’ House tonight—up in York.

I support these amendments, particularly Amendment 22 on the timetable. I am grateful for the Government’s approach and seriousness towards this payday lending crisis. The examples we have heard from noble Lords about the experience of poverty are gruesome. I should like to introduce a new element of competition to the response time for this particular bit of industry in terms of its timetable, because the risk, referred to by the noble Lord, Lord Newby, to the industry itself in not getting it right is paralleled by the risk just mentioned by the noble Lord, Lord Mitchell, of people having yet another Christmas borrowing at too great a cost and risk to their own future and that of their family. The Minister is trying to set a final deadline of January but I ask that he really encourage the industry to bring this forward to 1 October.

We have heard about the industry’s complexities and the credit unions that are needed. We have also heard of the encouragement this would give to those who are working very hard to provide effective money advice to those who are managing unmanageable debt and to help those young people who have been mentioned start handling their money properly. Local charities, churches and the faith groups are responding to the Government’s approach to tackling this global financial crisis. However, the slow timetable—several years before all this is implemented—is a completely different timetable from that of someone who has no resources, who has no back-up and who is looking for food tomorrow. I encourage people to support this amendment.

[Lord Eatwell]

My Lords, my noble friend Lord Mitchell in speaking to his amendment on the proposed date referred to 90 days. One might ask how 90 days can make a difference. Surely when the Government need something to be done they can get it done. The idea that somehow the whole process is so darn elaborate that they cannot do it in a period of time which saves 90 days on their side is, in the true meaning of the word, incredible. On the other hand, for the borrower 90 days includes Christmas Day 2014. That is a big issue, because this is the period when short-term borrowing is at its peak. That is why it is incumbent on this Government to take swift action. They have been dragging their feet on this issue for four years. It is incumbent on them to take swift action and that is why Amendment 22 is so important.

The noble Lord, Lord Sharkey, has raised a crucial and frightening point—that payday lenders within the European Economic Area could lend within the UK. I hope the Minister will be able to tell us that we are not wasting our time completely this evening—because that is what that would mean we would be doing—and that the noble Lord’s fears are unfounded.

Swift action is so important that when this amendment is called I intend to test the opinion of the House.

[Lord Newby]

My Lords, noble Lords have raised a number of issues and questions. I shall do my best to answer. The noble Baroness, Lady Oppenheim-Barnes, discussed the way in which the total cost of the loan, as opposed to the interest rate, is portrayed, and of course many people do not understand interest rates. The Government are discussing with the European Commission the relative prominence of the total cost of the loan. This discussion is taking place in the context of the Commission’s review of the consumer credit directive, so I hope we are well on top of that.

My noble friend Lord Sharkey asked a raft of questions. I hope that I managed to write them all down. He asked whether the FCA understood the particular problems of multiply sourced simultaneous loans. I can assure him that that is within its remit. My noble friend talked about rollovers and asked whether the FCA would look at one or none as part of this review. I can give him that assurance. He asked whether he could see a draft regulation in a timely manner. We will try to do that. Of course, if we are going to consult on draft regulations, things such as the odd 90 days here and there make a lot of difference. Our ability to consult properly at any point in this process requires us to follow something like the timetable that I set out earlier. He asked whether data sharing is being considered as part of the FCA’s remit. I can assure him that the FCA is looking at that.

My noble friend asked for a definition of “excessive” and why it was not in the Bill. The FCA will be looking at existing definitions of excessive, including that in Florida. Different people in different places who cap payday loans have different definitions of excessive. There is no single definition that is uniquely right. It has to be taken in the context of all the other factors and the overall design of the scheme. The FCA will be looking at international definitions as part of that work.

My noble friend asked whether there will be an opportunity and time in Parliament for debate on the publication of the draft rules. That partly goes to the speed with which we do that. If, as I set out, the FCA publishes a consultation paper by the end of May, it will be perfectly possible for Parliament to debate it. There are a number of ways in which that could be done. In your Lordships’ House, it is now very easy for individual Members to get a debate on an issue within a very few weeks, even if no other formal debate was allowed. I would be very happy to raise that issue in the usual channels. Finally, my noble friend asked whether the FCA will consider the limit to cover both the amount and the term of the loan. I can give him that assurance.

The noble Lord, Lord Higgins, asked why we do not refer to interest in the Bill. The provision covers every aspect of the cost of a payday loan, of which interest is only one part. The definition in the Bill subsumes interest.

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Moved by

[Lord Eatwell]

22: After Clause 123, line 19, leave out “2 January 2015” and insert “1 October 2014”

[Lord Eatwell]

My Lords, I was struck by the reply of the noble Lord, Lord Newby, on the issue of companies from other parts of the European Economic Area trading on the internet. He said that the Government are just beginning to look at this. It is extraordinary that the Treasury does not know, now, what are the particular rules that affect financial trading within the European Economic Area. That is another incredible statement. We have been dragging our feet on this area. It is urgent that we deal with it with all due speed and that we ensure that the cap is in place before next Christmas. I therefore wish to seek the opinion of the House on Amendment 22.

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[Lord Newby]

My Lords, I now turn to an amendment which will better position the PRA to take account of consumer interests by drawing on the views of the FCA’s Consumer Panel. This follows the debate at Lords Report stage where the noble Lord, Lord Eatwell, proposed amendments which would have created a role for the Consumer Panel by creating a duty on the PRA to consider representations made to it by the panel and to publish its responses, equivalent to the duty on the FCA.

We have considered the issues carefully, as I said we would on Report, and have proposed alternative arrangements which are more proportionate to the PRA’s prudential remit, but deliver, we believe, the essence of the noble Lord’s amendment. Our amendment will confer a role on the panel by allowing it to raise issues it is considering with the PRA; for example, through meetings or in correspondence. It will also enable the PRA to meet the expenses of the Consumer Panel when the Consumer Panel discharges this function. This will ensure that the PRA can benefit from the expertise of the panel without the undue burden on either the PRA or the Consumer Panel of a binding requirement on the PRA to consult the panel each time the PRA changes its rules or policies.

I have no doubt that this amendment, which has been welcomed and supported by the chair of the Consumer Panel, will strengthen the voice of consumers at the PRA, and I am pleased to add it to the list of improvements we have been able to make as a result of constructive debate and scrutiny in your Lordships’ House. I beg to move.

[Lord Eatwell]

My Lords, I welcome this amendment, which will add important coherence to the consideration of consumer affairs within the regulatory structure.

Amendment 23 agreed.

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[Lord Eatwell]

My Lords, I am delighted to support Amendment 26, which stands in the names of the noble Lord, Lord Deighton, and of my noble friend Lady Hayter of Kentish Town. She is very sorry she cannot be in her place this evening to say this herself, but she is very grateful to the Government not only for accepting the essence of her amendment, moved at Report, but also for turning in some far better drafting than she could have done. This was done under some tight time pressures, for which we are grateful to both of the Ministers concerned and to their staff. My noble friend cannot be here to thank the Government herself because she is at a Labour Party fundraising event to help fund the campaign to expel the Government from office, but in the mean time she does sincerely want her appreciation for the help to be recorded.

The impact of the amendment is that, in future, consumers with complaints against claims management companies will be able to take these to the Legal Services Ombudsman to be resolved. They will therefore get redress when there is judgment in their favour. This will also help to drive up standards. By reporting repeat offenders to the regulator, it will help to get some of the CMC sharks out of the business. So congratulations to both to the noble Baroness, Lady Hayter, and to the Government for accepting the essence of her amendment.

[Lord Deighton]

My Lords, I know it is getting late, but as this group of amendments draws to a close, I hope you will permit me to spend a few moments reflecting on the changes that this Bill has undergone since it first arrived in this House, and to thank all those who have contributed to it in that time. On Second Reading in July, my noble friend Lord Newby remarked that the great strength of this legislation was due in no small part to the intense degree of scrutiny that it had undergone on its journey to this House, and the constructive spirit in which those of all political colours had contributed to it. This is surely even more true of the Bill that leaves this House today.

My first thanks must go to the members of the Parliamentary Commission on Banking Standards, represented in this House by the noble Lords, Lord Turnbull, Lord McFall and Lord Lawson, the noble Baroness, Lady Kramer, and the most reverend Primate the Archbishop of Canterbury. The central role that they have played in shaping this legislation is one of the things that has made this Bill so unique; indeed, the great majority of the amendments that it has undergone in this House directly implement the recommendations of the Commission’s final report on professional standards and culture in the banking industry. These measures are not only the crowning achievements of this piece of legislation, but the final piece in this Government’s ambitious four-stage programme of reform for the banking sector.

Many of the noble Lords in this Chamber today will have contributed to the first stage of that reform, the Financial Services Act 2012, which recast the regulatory architecture for financial services. This Bill, as it was introduced in another place, made provision for the second stage of that reform, the implementation of Sir John Vickers’s recommendations on structural reform of the banking sector, and the Bill that leaves this House today puts in place the two final pillars of that legislative programme, overhauling the culture of the banking industry, and driving out competition to improve outcomes for consumers. Of course, the Government’s commitment to implement the recommendations of the Commission’s final report through this Bill has meant that the task of scrutinising these incredibly important measures has fallen largely to this House.

I shall respond to the noble Lord, Lord Brennan. As I understand it the explanatory notes have already been written for the amendments, and they will be published tomorrow. As always, my officials are a little bit ahead of the game, but we absolutely take on board the need to communicate this effectively, both to the other place and more broadly to the City.

All these changes are a challenge to which this House has ably risen, but I must thank all noble Lords for their patience in giving such careful consideration to this wide-ranging and important set of provisions, particularly with the number of amendments that have been introduced, the speed with which drafts have been turned around, and the speed with which noble Lords have been asked to absorb so much information. In particular I must thank the opposition Front Bench, led by the noble Lord, Lord Eatwell, for its thoughtful and constructive contributions to the debate. I thank my noble friend Lord Newby for his support, without which it would not have been possible to provide the House with the level of response that it deserves, and my officials for their consistent hard work. Special thanks must go to parliamentary counsel for their heroic efforts in drafting amendments with such speed and precision.

The Bill that leaves this House today is completely transformed from the one that arrived here five months ago, and it is hard to imagine how it could have reached its present state without the contribution of those that I have but briefly mentioned. It is a vital addition to the statute book, whose importance is hard to overstate. I beg to move.

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[Lord Lawson of Blaby]

My Lords, it is incumbent on us to respond to the very kind words of my noble friend Lord Deighton. As he said, the Bill has been completely transformed. I have been a Member of this House for a very long time now but I cannot recall a Bill—let alone a Bill as important as this one—to have been so totally transformed for the better. It is not only a great deal bigger but also a great deal better as a result of its passage through your Lordships’ House. I am extremely grateful and the nation will be extremely grateful.

There has been a lot of nonsense talked about the excessive size of the banking sector in this country. Some people have been even as foolish as to talk about a monocrop economy. The fact of the matter is that banking accounts for a little over 5% of this country’s GDP; it is nothing like a monocrop economy. However, it is a supremely important sector and one in which we are world class.

There is a size problem—I have not got time to go into it now and it would not be proper to do so—with individual institutions. As the former Governor of the Bank of England said, if an institution is too big to fail, it is too big. The size of the sector is a great strength of this country. As the present governor, Mr Carney, said recently, it is a great strength of the United Kingdom that we are prominent and world class in this growing and supremely important industry. We want it to grow further, which I hope it will. It is our great strength. It is what economists call the law of comparative advantage—you should do what you are best at—and this is a sector in which we are very good. However, if it is going to get bigger and bigger, which I think it will and should, it has to be both clean and robust. The purpose of the Parliamentary Commission on Banking Standards was to try to ensure that it would be both clean and robust. That is what the Bill is about.

I say again how grateful I am to the Government, and particularly to my noble friend Lord Deighton, for having implemented so many of the recommendations of the parliamentary commission to ensure that the Bill leaves this House in an infinitely better state than when it arrived here.

[Lord Eatwell]

My Lords, the noble Lord, Lord Deighton, expressed the view that this was the final piece of the jigsaw in financial regulatory reform. He is going to be disappointed in that respect. What we have achieved is but a step on the road. Many issues have still not been addressed and many parts of the financial services industry have not been incorporated into the overall consideration of what is necessary as we move into the future with a successful and resilient banking system, to which the noble Lord, Lord Lawson, referred. More will need to be done.

I add my thanks to those of the noble Lord, Lord Deighton, to the Parliamentary Commission on Banking Standards, and particularly the Members of this House—the noble Lords, Lord Lawson, Lord Turnbull and Lord McFall, the noble Baroness, Lady Kramer, and the most reverend Primate the Archbishop of Canterbury. They have done a fantastic job, as was discussed in the debate last Thursday, and they deserve the thanks of the whole House.

I also thank those on this side of the House who have contributed so constructively to the discussion of the Bill—my noble friends Lord Watson, Lord Brennan, Lord Mitchell and Lady Hayter. I would particularly like to thank my noble friend Lord Tunnicliffe for keeping me in order, as he has done throughout this entire process. I would also like to thank our researcher, Miss Jessica Levy, who has worked alone, as opposed to having a team of officials. She has done the most remarkable job. She is a very talented person and we would not have been able to achieve what we have achieved and contributed from this side without her help.

The noble Lord, Lord Higgins, who regrettably is not in his place at the moment, referred to the somewhat unfortunate process by which the Bill has got to this stage. The Treasury has made a bit of a shambles of it, really, and we have just been catching up through these various stages. I hope that when we next have a financial services Bill that, instead of having this elaborate and confusing process of continuously amending parts of FSMA, we have a proper coherent rewritten Bill to consider at the very beginning and that it is considered properly by both Houses in its passage.

That critical comment about the Treasury has not diminished at all my pleasure in discussing the Bill with the noble Lord, Lord Deighton. Ageing professors typically take rather excessive proprietorial pride in the achievement of their pupils; all I can say at this stage is that I am delighted that my teaching of the noble Lord does not seem to have done him any permanent harm.

Bill passed and returned to the Commons with amendments.