Financial Services Bill

Debate between Lord Framlingham and Lord Peston

Tuesday 3rd July 2012 Lords Chamber

[Lord Peston]

My Lords, the background to my few remarks is the text:

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices”.

I am delighted that some of the better educated—no doubt those who were taught economics—are well aware of the provenance of this remark, which was by Adam Smith. He would not have been in the least surprised by what happened with LIBOR or by all the other conspiracies that, if we had enough time, I could tell you about, including the price fixing that still goes on in our economy.

Turning to my main remarks, I have a feeling that I will be in somewhat of a minority. I found what the noble Lord, Lord Sassoon, said yesterday, in announcing the Government’s proposal for what we will call the Tyrie inquiry to be totally unconvincing. The public require an objective inquiry which they can believe without a shadow of doubt is not a stitch-up. I do not believe for one moment that the remit given to the chairman of the Treasury Select Committee enables that inquiry to take place in any way whatever. I speak for myself in saying that, although I regard myself as totally objective and totally honest, if I were asked to be on that inquiry I would refuse because I do not believe that the public want people who are involved inside to be conducting it. We have very much to face up to that. I might ask the noble Lord, Lord Sassoon, why, if he is so anxious to keep politics out of things, does he make political remarks in almost every address he gives to this House—but that is simply me being my usual acerbic self.

Am I right, that the Prime Minister—given that this is a matter of absolute national importance—did not consult the Leader of the Opposition in deciding how we should go forward? The Government ought to backtrack and try to find a consensual way of going forward that would involve the Prime Minister talking to the Leader of the Opposition. I am not saying that we would definitely get a good outcome to that but I am absolutely convinced that that is the approach that ought to have been adopted.

I want to say a brief word about how speedily anything can happen. We are going to rise in three weeks’ time and, in the case of our House, not come back until October. As far as I can see, that means that any inquiry will certainly have to be short—whether it will be sweet, I do not know. This notion that it is all going to be done very quickly I just do not find believable, whoever does it. I have a holiday booked so I am not very keen on coming back earlier but we may have to. Again, perhaps the Minister can talk to us about the speed of the inquiry.

Perhaps I might ask another practical question: am I right that the corrupt practices on LIBOR have stopped? Do we know for a fact that they have definitely stopped? Perhaps the Minister could tell us. I hope that they have definitely stopped.

What is unavoidable is that we have to look at what the regulators have been doing. An inquiry that does not do a full examination of the regulators themselves would simply not be worthwhile. We are told that neither the FSA nor the Bank had the power to investigate the setting of LIBOR. I would have thought that the head of the FSA and, even more, the governor could have sent for some of the people involved with LIBOR for an informal chat—forgetting about what their powers might be—just to find out what they were doing, looking for some enlightenment. I find it astonishing that we are being told that neither the governor nor the main regulator knew about LIBOR, and did not think to apprise themselves of what went on, whatever they thought their formal powers were. I must say, if I had been one of them, I would have done that—perhaps that is why I have never been appointed to anything.

I have also been going through the nightmare of rereading your Lordships’ Second Reading debate, in which I was unable to take part. What is absolutely fascinating is that the one acronym that never appears in any noble Lord’s speech is LIBOR. There we are, all the great experts, and what we are really doing—as always happens—is fighting the battles of the past. Most of the speeches were looking at accounting for the financial crisis that started a few years ago and discussing a Bill to prevent that financial crisis ever happening again.

The great Chicago economist Frank Knight—who was very much on the right, I might add—wrote a classic work called Risk, Uncertainty and Profit. He said that risk was what you did not know was going to happen but that it was measurable, due to probability and that sort of thing. He argued that what really mattered was uncertainty, which you know about in an almost contradictory way: you know that what is really going to happen is something that is totally unexpected. The problem was how to prepare for it—how to expect the unexpected. He never found a satisfactory answer to that but he did say that the free market capitalist system was at least the best way of adapting to those unexpected shocks when they occurred.

This is where I disagree very strongly with the noble Lord, Lord Kerr, who said that what we have to do is make sure that LIBOR does not happen again. That is precisely to get it wrong: LIBOR is not going to happen again; something different is going to happen and we need a system that prepares us for dealing with something different. I do not think any of what the Government are proposing covers that.

En passant, the noble Viscount, Lord Trenchard, said that light-touch regulation was discredited. I have to tell him, I would be a light-touch regulator if I were one, because I do not believe that the role of the regulator is to run the businesses that it is regulating. That is my concept of light-touch. I believed it then and, if you accept my concept of light-touch, I believe it now. One place I would like us not to go to is the regulators essentially running the banking system, and I hope that the noble Viscount agrees with that.

Going back to the issue of the Joint Committee, it should not be ad hominem, as I think has been said; it is nothing to do with Andrew Tyrie. The real question is: should the Treasury Select Committee in the other place, which deservedly has a tremendously high reputation, be involved in this in any way? I do not want to go down the path of the Joint Committee; I would much rather go down the path suggested by my noble friend Lord Eatwell. I would be interested to know if other noble Lords know anything about this, but I think it would be a terrible mistake, in trying to maintain the very high reputation of the Treasury Select Committee, if it got involved in this inquiry. That would be a mistake beyond belief.

We end up with two possibilities. One is that we divide and test the opinion of the House on what my noble friend Lord Eatwell proposes; he will decide this. The other, which is what I would like to see happen—and I know I am being immensely naive here and there is probably nothing the Minister can do to help us—is that the government proposals are withdrawn and the Minister’s right honourable friend the Prime Minister and my right honourable friend the Leader of the Opposition do what I suggested earlier: get together and see if they cannot come to us with some proposals. This is a matter of national importance.

The noble Lord, Lord Carlile, will notice that I have not said a word about prosecuting the guilty because that is not my subject. As an atheist, I believe that if we do come back to this planet, I intend to come back as a Queen’s Counsel and certainly not as an economist. I really do believe that in the national interest the leaders of both main parties should get together and come back to us with some jointly agreed proposals.

[Lord Framlingham]

My Lords—