Financial Services (Banking Reform) Bill
Lord Lea of Crondall Excerpts(10 years, 10 months ago)
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Lord Hodgson of Astley Abbotts (Con)
My Lords, I have not so far taken part in the debate on this Bill, although I participated during the passage of the earlier Financial Services Act. I therefore need to declare my interests as the chairman of two regulated entities and an as approved person under FiSMA.
I have listened carefully to the arguments deployed on both sides of this complex debate and have a couple of concerns about what is being proposed. The noble Lord, Lord Eatwell, described his amendments as designed to provide—I think that I have got the words right—a three-stage, self-reinforcing regulatory process. In doing that, he may have overlooked the degree of uncertainty that his amendments may cause. If I may follow his analogy further, I think that it is his amendment that may remove the third leg from the three-legged stool that he mentioned.
I agree with my noble friend Lord Lawson about the importance of reviews, particularly in cases where the likely outcome of fundamental legislation is so uncertain. In a parallel case in the Transparency of Lobbying Bill, I have tabled amendments that would have that Bill reviewed in a couple of years when one can begin to distinguish reality from supposition. I therefore favour reviews, but—and it is an important but—a review, as my noble friend Lord Flight said, must not begin with any presuppositions as to its outcome. If I may use a rather vulgar card-playing metaphor, one must not play with a loaded deck. Listening to some of the arguments so far, I formed the impression that these amendments could lead to a loaded deck because of the implicit power of the review to trigger separation without further primary legislation and therefore to introduce radical change without serious parliamentary consideration. As I read it, this would be the result of the House accepting Amendment 196. I think that this implication—and, of course, it is an implication—will weigh heavily on the banks and their executives and, as a result, be by no means to the advantage of the financial services industry specifically or the United Kingdom generally.
It is an oft-repeated truism that financial markets hate uncertainty. Perhaps I may offer at a rather lower level an example from my experience of what I mean. I was for a number of years a chairman of a network of independent financial advisers. For a prolonged period, the IFA sector suffered in the shadow of the uncertainty caused by the drawn-out processes of the retail distribution review. I have absolutely no doubt that the savings regime of this country, a very important part of our body politic, was set back by this elongated debate. I feel the same may be true for the banking sector if these amendments are passed.
Further, I am not quite clear how this approach will impose discipline, unless it is intended that some could suffer full separation and others would not. I have not yet heard that suggested by the noble Lord, Lord Eatwell, although I may have misunderstood him. If I, as a good guy, obey the ring-fence but am treated in exactly the same way as my competitor, a bad guy who has jumped the ring-fence, what incentive is there for me to follow the prescribed path?
My second area of concern can best be summed up by the well rehearsed argument that generals always plan to fight battles that are like the ones of the last war. Of course, we have discovered egregious examples of corporate and personal behaviour that took place in the period leading up to 2008, but it is by no means clear, to me at least, that ring-fencing or not ring-fencing will have any relevance to solving the next financial crisis—and, if history tells us anything, one will be along in due time.
Having listened to the arguments, I am forced to the conclusion that there should be a review but that it should be a review without preconceptions, and that, in any case, to trigger a move to full separation on the basis of secondary legislation, of which the ability of this House to scrutinise and amend is in my view woefully weak, would not be the right way to proceed.
Lord Lea of Crondall (Lab)
My Lords, there are a lot of very interesting propositions in this group. Am I right in thinking that what is in due course printed in Hansard will be one amendment which is moved, with other amendments not printed because they are part of a single group? If so, how can one proceed with that?
Lord Phillips of Sudbury (LD)
My Lords, surely there is no more important issue in relation to this banking situation than whether to go with ring-fencing or with separation—we have had that very clearly debated today. The noble Baroness, Lady Cohen of Pimlico, raised an issue in relation to that, which my noble friend the Minister placed some emphasis on in responding earlier, as he did at the last stage of this debate—namely, to state that the cost of total separation would be exorbitant. The noble Baroness rightly made the riposte that the cost of policing the ring-fence will not be a one-off, as the cost of a separation would be; the cost will be year after year. The task of the regulators in policing a ring-fencing arrangement will be intensely difficult. It is easy to jibe at the regulators, but we may underestimate the extreme difficulty of doing a thorough job in this field, where you have a single holding company and two companies under it. I take the point made vividly by the noble Lord, Lord Lawson of Blaby, about cultural contamination that can easily infect a group, such as the one that the ring-fenced company will be part of.
I hope that my noble friend will feel able to accept Amendment 5. We are all speculating madly. To have a review of how this has gone, and to look at it coolly, objectively and professionally in the period prescribed, must make absolute sense. Frankly, it is not worth taking the risk of not having such a review. The cost of getting this wrong will be insupportable. We are apt to underestimate, in what has happened over the past five years, the cost to this country in all sorts of non-financial ways. We must not let it happen again. The review that Amendment 5 proposes must be prudent, sensible and ultimately economical.
Banking: Lending
Lord Lea of Crondall Excerpts(10 years, 10 months ago)
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Lord Newby
My Lords, that was clearly a major contributory factor. However, I refer noble Lords to the review undertaken by Sir Andrew Large for RBS, which found that the bank had failed to meet its own lending standards, had risk-averse staff and took longer to process applications than other banks, and that its treatment of customers in financial distress had led to major negative perceptions of the bank. The bank is now, at long last, moving to tackle many of those issues, but the failures in the way that RBS ran its business were a major contributory factor to its failure in recent years to lend to SMEs the amounts it set itself in its target.
Lord Lea of Crondall (Lab)
My Lords, does the Minister not accept that his characterisation is grossly inaccurate, and that in the past few years the huge fall in output in the western capitalist economies—I use that term advisedly—was due to the way in which Lehman Brothers and others at that time were able to cause that financial bubble and cause output to fall 10% below trend right across the western world? Simply to say that it was the fault of the Labour Government is ludicrous.
Lord Newby
My Lords, I may be mistaken but I do not think that I said it was the fault of the Labour Government.
Sterling: Exchange Rate
Lord Lea of Crondall Excerpts(11 years, 3 months ago)
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Lord Newby
My Lords, it is a tool of limited use but that does not mean it is of no use at all. Obviously, you cannot have over a prolonged period all countries devaluing or competitive devaluation becomes a race to the bottom. The Governor of the Bank of England and the MPC would argue and have argued that without that devaluation our trade position would have been worse than it has been.
Lord Lea of Crondall
My Lords, is not the truth that the price devaluation of sterling can hardly be zero and that saying that price does not matter in export markets would make a nonsense of the whole argument about competitiveness? Would it not be more true to say—here I echo my noble friend Lord Peston—that when it comes to our manufacturing in particular exports, where the ratio of visible trade is 2:5 against us, we must have a policy on both sides? We must be competitive in price, which might require the pound to go down further, on that argument, but we must also give a massive shift of economic priority towards manufacturing as against the financial services industry.
Lord Newby
My Lords, the Government have been clear from the start that we want a shift away from financial services towards manufacturing. To a certain extent, that is happening. For example, we had an export surplus in cars last year for the first time in nearly 40 years.
Queen’s Speech
Lord Lea of Crondall Excerpts(11 years, 4 months ago)
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Lord Lea of Crondall
My Lords, as the first speaker from these Benches following the outstanding maiden speech of the noble Baroness, Lady Lane-Fox of Soho, I add that, as someone who has always been in difficulty in working my computer, let alone shopping online, I stand in awe of anyone in that line of business. Perhaps I can get some private tuition.
I welcome the role that the Bishops are taking on as the only territorial representatives in this House, as well as now having the financial expertise of the most reverend Primate the Archbishop of Canterbury, in both cases indicating a relationship to real people in real communities.
I wish also to refer to the highly political 16-minute speech of the noble Lord, Lord Forsyth. No attempt was made by the Whips on the government Benches to remind him that eight minutes had been advised. It was a 16-minute speech, and I trust that the government Chief Whip will now confirm that we can all have 16 minutes, especially in our case, as my noble friend Lord Bhattacharyya seems to have disappeared.
Lord Forsyth of Drumlean
My Lords, I am most grateful to the noble Lord. I think that I was interrupted, and also no time limit has been specified for this debate.
Lord Lea of Crondall
There is an advisory limit of eight minutes. I inquired and that was stated. I do not know whether anyone would like to confirm that that is the case.
Lord Wallace of Saltaire
My Lords, as the question has been raised, the Chief Whip gave the advice that if Members were to keep their remarks to eight minutes we would finish at 10 o’clock. I am advised that it is traditional in debates on the Queen’s Speech not to enforce the advisory rule, so it is entirely open to noble Lords still to be here at one o’clock in the morning if they so wish. However, if anyone were to go on for a very long period, I dare say that noble Lords would have ways of making their feelings on this known.
Lord Lea of Crondall
My Lords, I have no wish to produce the result whereby people are here at one o’clock in the morning. I simply say that I hope no one thinks that there is any discourtesy if, in the light of what has been said, one does not stick to eight minutes.
As my noble friend Lord Eatwell pointed out in his magisterial analysis of the short term, austerity will not improve our tax revenues, nor will it reduce our tax expenditures. There are perhaps three timescales over which one can analyse economic prospects: short, medium and long, by which I mean for the short term possibly three to four years, for the medium term 10 to 15 years, and for the longer term perhaps 20 to 30 years. The post-war architecture of the world economy—Bretton Woods and so on—goes back no less than 70 years. The IMF and the World Bank were the main institutions created at that time. Surprisingly—it is hard to think that it is true—the European Union in all its manifestations now goes back for the best part of 50 years. It is partly in view of the extraordinarily peremptory and dismissive speeches made by the noble Lords, Lord Forsyth and Lord Lawson, in recent days that I will concentrate on the second and third of those timescales.
Their recipe for leaving the European Union and indeed for the future of the nation as a whole is, in my view, catastrophic. It is going down an ideological road and is far from an objective analysis of our economy and our place in the world. It is also as far removed from pragmatism and empiricism as something that went on in the Labour Party in the 1980s, and that is where the Conservative Party will wind up if they follow that line. In the short term, it will be, as I said, catastrophic. Figures published today by the TUC, which has done some analysis of the statistics of the International Monetary Fund, suggest that by 2017 our per capita income in Britain will have increased by precisely 0.0%. I know it sounds extraordinary that a figure should be as precise as that but it works out that our living standards, our per capita income, in Britain will have risen by precisely 0.0% since 2008. Given the vast increase in the quantum of the top 1% and, indeed, 10%, that explains the deep cut in living standards for the median and the vast majority of the British people who, not surprisingly, are angry and disorientated as a result, and are prepared more readily to listen to sophists such as Mr Farage and others nearer to home.
I acknowledge that the EU as a whole has not had a very much better record, although perhaps I may draw attention to the fact that per capita incomes in the same series in Germany and Sweden—two examples of northern Europe—will both be projected to have risen by 10% in this period, a point to which I will return. In passing, I will also mention that on a couple of occasions I have asked my noble friend Lord Eatwell a rhetorical question about how we will pay for this, that and the other without increasing the deficit. The noble Lord, Lord Forsyth, says that we have to get on urgently with filling up the potholes. Perhaps he will pay for it himself but I assume that it will come out of public expenditure.
What is the bigger economic picture that we face in this country? Just to put the numbers another way, the loss of output in these 10 years below our earlier potential of roughly 2% growth per annum comes out at some extraordinary numbers. If you look at the cumulative loss against that trend, by the year 2017 it will work out at some £3 trillion—£3,000 billion. It will not be £30 billion or £300 billion but £3,000 billion. People can work it out for themselves. The noble Lord, Lord Forsyth, is looking puzzled but if he does a bit of mental arithmetic he will find that that is in the right ball park. I know he does not have time to work all that out in the time of my speech but perhaps later he will realise that my figures are accurate. We are talking about figures that are worse than the slump in the 1930s after the parallel banking crisis of 1929, from which we only recovered the full scale of our potential during the late 1930s and the Second World War, as, of course, did Germany and the United States.
As to my own prescription or views regarding these matters, I do not begin by wanting to be orthodox in terms of Labour Party policy. I do not think that that is the role that one is necessarily here to play. I am generally orthodox but I just should like to draw attention to one or two features of the trade deficit. It is not that we cannot grow our economy in the European Union. If the EU per se is the reason for some incompatibility because of so-called red tape, how is it that Germany, despite absorbing a very weak East German economy over the past 20 years, has a GDP per head of 121—if we put EU equals 100—while ours is 109?
Germany, of course, which relies much more than we do on something as old fashioned as manufacturing, is rarely mentioned by the new ideologues. They seem to think that there is something magic about the City of London. For every £2-worth of goods or services—in the statistics they come to the same thing—we now export, we import £5-worth. This is, in part, to do with our exchange rate. Of course we cannot go on devaluing the pound without our living standards falling. However, if we want to regain our competitiveness, I could argue at the same level of abstraction as the noble Lords, Lord Forsyth and Lord Lawson, who think they are brilliant economists—I do not think that I am a brilliant economist but at least I can see the fallacies in what they are saying—but what is wrong with saying that although we are now stable at 85p to a euro we would be more competitive at parity with the euro? That is a devaluation of 15%. With the growth of our educational system and our whole industrial policy, perhaps that would ensure that we stay, for once, at parity with the euro.
I do not anticipate great enthusiasm for what I have just said but is it not a fact that our trade deficit is a fundamental issue both within the European Union and outside it? Simply asserting that we have got to trade with the rest of the world in no way addresses that fundamental question. As for the European side of growth, that, too, goes back to Lehman Brothers five years ago. It is not as if the whole of the European slow growth was created within the European Union.
The other point which needs to be put to these new iconoclasts is whether they would stay in the European Economic Area along with Switzerland, Norway and Iceland. There is plenty of red tape in the European Economic Area. We signed the EFTA treaty in Stockholm leading up to its creation in 1960 and there have been rules on state aid and so on. The noble Lord who referred to the acquis, the noble Lord, Lord Spicer, who is not in his place, is correct in that if we were a member only of EFTA we would be following all of the acquis without having a seat or a vote at the decision-making table. Would he be happy to be in that position? He has given no clue as to the scenario we would be expected to vote for if he had his way.
The third and final fallacy—I am still three minutes off my 16 minutes—concerns relying on the City of London. The noble Lord seems to want to have it both ways. Either it is the centre of Europe’s financial system and dependent on our being part of the EU for its strength, or it will somehow have a comparative advantage in its own right without our being part of the European Union. The noble Lord must have missed the speeches by leading officials in China, the United States and elsewhere, who have said that of course our share of world investment would be considerably at risk if we were to leave the European Union.
In conclusion, “Stop the world, I want to get off” is a policy which I am sure the British people, when they are told the truth—we are told that we have to get them to understand the truth, but that is a bit difficult when the Murdochs, the Daily Telegraph, Daily Mail and so on do not allow them to know it because for the most part they censor it—will reject. On the state of British public opinion, I shall read out three or four statistics taken from a new survey produced by YouGov/The Fabian Society looking at the attitudes of the younger generation, those aged between 18 and 34. They were asked:
“How convincing or unconvincing do you find the following statements in favour of the European Union? … It has given people the freedom to travel, work and live in other EU countries”.
Some 60% found it “fairly convincing”. Perhaps I should send an e-mail to the noble Lord, Lord Lawson, in France saying that I hope he is happy that that has enabled him to live there.
“The EU has agreed common standards of workers’ rights, consumer protection and played an important role in guaranteeing the social rights of individual citizens”.
The response showed that 48% found that statement “fairly” or “very” convincing against 15% who did not.
“Co-operation between EU countries is the best way to tackle the big issues of our time, like climate change, the global financial crisis and international terrorism”.
Some 49% said yes, while 18% said no.
“The EU has helped keep peace in western Europe since the second world war”.
Some 47% agreed and 17% did not.
Perhaps I may say in my final sentence that, so far as peace in the world is concerned, it is essential that Germany, France and ourselves are in the same Europe with a common defence approach vis-à-vis the rest of the world. That point will become clearer and clearer as this debate continues.
Lord Bilimoria
My Lords, the gracious Speech said a lot of really good things: build a stronger economy so that the United Kingdom could compete and succeed in the world; strengthen Britain’s economic competitiveness; ensure that interest rates are kept low and that people who work hard are properly rewarded; invest in infrastructure—I could go on. It is terrific.
However, when I was making my maiden speech, as the noble Baroness, Lady Lane-Fox, did today, in the same debate on the economy, I was advised, “Don’t worry about what’s in the gracious Speech; you can speak about things that are not in the gracious Speech”. I congratulate the noble Baroness on an excellent maiden speech. I am delighted to have a fellow entrepreneur in the House, and on the Cross Benches too. She spoke passionately about online inclusiveness, and I am sure that from now on all Peers will be online. Of course, we already are.
What is missing? What has been picked up in a huge way is Europe. The noble Lord, Lord Forsyth, said that to him this was like Groundhog Day—déjà vu. I am not going to go into that topic. Europe is going to go on for a long time. The eurozone crisis has not gone away. There are regular lulls before the storm, but that storm is still about to come and it will be a perfect storm. I believe that we need to start with a clean sheet of paper and renegotiate our position in Europe. I say every day, “Thank God we are not in the euro”.
As an economy, we may have lost our triple-A rating but our interest rates are low and our inflation is relatively low. However, although we have avoided a triple dip, we are bumping along the bottom. We need to generate growth. What worries me is the Government’s priorities in achieving this. Why did we waste so much time pushing through employees giving up their rights for shares? This was against the will of business. It was twice sent back by the House of Lords to the House of Commons. It has gone through in a watered-down way. The lesson that I have learnt from this is that I could see very clearly that the Government had not consulted business properly first or listened to it. One of my favourite sayings in business is that good judgment comes from experience and experience comes from bad judgment. Will the Minister confirm that the Government have learnt from this mistake?
Lord Lea of Crondall
If the noble Lord will forgive me—this is a slightly sensitive subject—in regretting that noble Lords did not press their amendment, he may just be reminded that it was a Cross-Bencher, the noble Lord, Lord Pannick, who had put up an excellent performance on the first two occasions, who withdrew the amendment.
Lord Bilimoria
The noble Lord, Lord Pannick, did an excellent job, and the noble Lord is absolutely right. Will the Government accept, learn and consult business more in future?
The spending review is about to come along. Are the Government on target, given that, as the noble Lord, Lord Forsyth, said, our borrowings are increasing and will double to £1.5 trillion? We have to bring government expenditure as a proportion of GDP down. Is there a target of 40% of GDP for government spending? Could the Minister confirm that?
With regard to priorities, immigration has reared its head again. I am really worried about this. The gracious Speech mentions dealing with illegal immigration, the bad immigration that harms our country, and yes, we need to deal with that. Unfortunately, though, the signals that are being sent out, reinforced by highlighting immigration in the gracious Speech, are about discouraging and deterring the immigration that we benefit from. The number of Indian students has gone down by more than 40,000. In fact, recently we had a former head of immigration from Australia in the UK, and he said that every day in Australia they pray and thank God for the existence of the UK Border Agency. It has been proven unfit for purpose; that is why it is being dismantled. We are harming our competitiveness. If students do not come here, they go to Australia, Canada and the United States. It is one of our biggest strengths. We need to send out a very clear signal that we want immigration to benefit this country and that we appreciate the good immigration that has benefited it.
On infrastructure and High Speed 2, the noble Lord, Lord Forsyth, hesitated, but in his fantastic speech moving the Motion for an humble Address, the noble Lord, Lord Lang, spoke about High Speed 2 being a good investment in infrastructure from which our grandchildren will benefit. It is high speed being delivered at slow speed. Will the Minister confirm exactly when this project will be completed? It is an example of long-term thinking, which is great. The Minister spoke about Crossrail. I congratulate the Government on Crossrail. It is a fantastic initiative, started by the previous Government, which will benefit our economy, but nobody has spoken about Heathrow and the desperate need to improve our air services. We need that third runway at Heathrow. Why are the Government just postponing it?
What about a balanced economy? There is nothing in the gracious Speech about a balanced economy. When I am asked about my business, I say with pride that first and foremost we are manufacturers. Are the Government keen on promoting manufacturing? What are they going to do about that? We should be maximising our competitive strengths.
The tourism industry brings more than £115 billion to this economy. Expanding Heathrow would help tourism, but the most photographed building in the world is the Eiffel Tower. The second most photographed building in the world is our wonderful Palace of Westminster. The reason it is second is because we are not in the Schengen scheme for visas. There are so many people, particularly from China, who come to Europe, come as far as the channel, but do not come to the UK because a Schengen via for 25 countries is cheaper than a UK and Ireland visa. We should join Schengen. Anyone who has a Schengen visa should be able to come into this country. The reason we do not join Schengen is that we are worried about our border security. I have just spoken about the UK Border Agency. Why are the Government continually postponing imposing exit checks at our borders? They need to be brought in soon. We know who is coming into our country, but we do not know who is leaving. We need to have those exit checks. Will the Minister inform us of when they are going to be introduced?
Another of our competitive strengths is higher education, but there was not one mention of it in the gracious Speech. Earlier this month it was mentioned in this House that the University of Cambridge has achieved more Nobel Prizes than any other university. That is something of which we should be proud. That is in spite of the fact that we spend less as a proportion of GDP on R&D and innovation than the OECD or the European Union. We spend half the proportion of GDP on R&D that South Korea spends. When it comes to higher education funding, overall we spend less as a proportion of GDP than the EU average or the OECD average and way below countries such as the United States. Why is it that the United States always bounces back quickly? Why is it so competitive? Why is it so productive? Why it is so innovative? It is because it invests more than we do as a proportion of GDP in innovation and higher education. Why do the Government not do more of this?
Will the Minister confirm that we are going to be promoting clusters? There are three big clusters in the world: Silicon Valley, Boston-Cambridge in Massachusetts and Cambridge in the UK. We need to promote more clusters. Birmingham, for example, is a prime location for a manufacturing cluster. Will the Government promote clusters more proactively?
The noble Lord, Lord McFall, spoke about the financial sector. I remember speaking in the debates about Northern Rock. That was six years ago. The nationalisation of Northern Rock was rushed through in six months. It has taken us six years to get to reforming our banking system. That is scary. I am very hopeful, and I congratulate the Government on appointing Mark Carney, a Canadian, to come in and head our Bank of England. Can the Government confirm that, apart from inflation targeting, they will now encourage the Bank of England to also have nominal GDP growth targeting as well? On SMEs, which other noble Lords have spoken about, I keep hearing that they cannot raise finance. In fact, I have heard that the enterprise finance guarantee scheme loans are falling. Can the Minister confirm that? They should be increasing at times like this, when businesses desperately need finance.
On a positive note, I am delighted with the efforts that the Government are putting in through UK Trade and Investment to promote British businesses doing business abroad. I am delighted to hear that the UK India Business Council, which is funded by UK Trade and Investment and of which I am the founding chair, is now to be opening up within India. The British high commission in India has opened up two new deputy high commissions in Hyderabad and Chandigarh and will increase the number of people on the ground helping to promote British business in India. This is fantastic. As the noble Lord, Lord Forsyth, concluded, we must promote and encourage our businesses not just in doing business with Europe, but in doing business with the emerging markets such as India—the BRIC nations.
The Government are doing a fantastic job through their marketing campaign, “Great Britain”. The “Great Britain” campaign tries to promote Britain with confidence aboard. I suggest that we need a “Great Britain” campaign to promote Britain within Britain. We do not appreciate enough the amazing strengths that we have as a country. We have the best of the best in the world in just about every field you could imagine, whether it is the creative industries or the legal and accounting professions, and manufacturing including beer, automobiles and aerospace, as well as sport, film and theatre. Our universities are, along with America’s, the best in the world. London is the greatest of the world’s great cities. I could go on.
We may be bumping along the bottom as an economy, but we should never take for granted the amazing strengths that I wish the Government would get behind—strengths which we should spread with confidence throughout our country. Then we will be able to generate growth with confidence.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham)
My Lords, I am probably the only person in the Chamber who sat and listened to every single one of the speeches made today. It is with some lack of confidence that I say I will be able to respond to all the points that were made. I will do my best. It may require me gabbling a bit but I will provide as many responses as I can. This has been an important and good debate. I always enjoy the Queen’s Speech debate because it is very wide-ranging—I apologise to the noble Lord, Lord Patten—and we get a whole lot of views.
In his opening speech—many, many hours ago—my noble friend Lord Deighton laid out the Government’s programme for the next Session. Since then, we have had more than 40 commendable speeches, to which I will endeavour to do justice in the short time available to me. Where I have been asked direct questions, if I do not answer them I will see that a letter is sent to the noble Lord concerned.
I, too, congratulate our new noble friend, the noble Baroness, Lady Lane-Fox. Many others have complimented her on her speech, very justifiably, and I, too, would like to say how fortunate this House is to have her in our midst. She will not know this but I knew the previous Baroness Lane-Fox very well and respected her very much as a great supporter of the disabled. She was one of the first people to really put the needs of disabled people on the map, of course being disabled herself. She was a great person and I am sure that the noble Baroness will follow adequately in her shoes.
The comments started off with a sort of mish-mash of disagreement about what has happened with the economy. I found rather rich the suggestion that the Government were not doing the right thing to put it right. On a number of occasions in this House, I have gently reminded noble Lords on the other side that this deficit was not of our making. We inherited it after 13 years and now to suggest that we should borrow our way out of this situation, when we were borrowed into it, is something that will require more time for debate than I have today.
Despite the considerable efforts that have been and are being made by the Government, the country is still facing difficult economic challenges. The departments represented in today’s debate—my department, the Department for Communities and Local Government; BIS; the Department for Transport; and the Treasury—are the most involved in providing the essential measures that can assist recovery and stimulate growth.
The Government have been consistent in basing their policy on an unwavering commitment to fiscal responsibility and introducing measures aimed at ensuring that this country is one of the best places in the world to do business.
We have had many speeches on the economy, on both its strengths and its weaknesses. The Government’s key objective is to reduce the deficit, and spending consolidation is a vital part of this. Interesting speeches on this were made by the noble Lords, Lord Eatwell and Lord Empey, and the noble Baroness, Lady Wheatcroft. The Government have consistently looked to prioritise growth and enhance spending. The Chancellor announced in the Budget that the Government would increase their infrastructure spending plans by £3 billion per annum, paid for through permanent reductions in current spending. This will mean £18 billion additional investment by the end of the next Parliament.
The noble Lord, Lord Empey, suggested that individual departments and civil servants should have a duty to make savings and to understand what they were doing—I think that that is more or less what I would interpret it as. We are currently engaged with departments to identify more savings from their budgets ahead of the spending review on 26 June. There will be a zero-based review of capital to identify the highest-value-for-money growth schemes. As noble Lords have said and understand, capital growth is essential to support the growth strategy.
Public investment as a share of national income, thus GDP, will be higher on average between 2010-11 and 2020-21 than under the whole period of the previous Government despite much greater constraints on the public finances. This means that the Government will never cut capital spending to the levels planned by the previous Government, who intended to cut it by 7% more than in our plans. This would have meant £3.4 billion less investment by 2014-15.
We have made good progress on coalition agreement commitments and business plan delivery. Our focus now is on maximising the impact of our policies, particularly to achieve growth at a local and national level. That means devolving powers and responsibilities and giving business as much freedom and support as possible so that it can flourish. As my noble friend Lord Tope has pointed out, my department has been instrumental in passing funding and responsibilities to local government to help to promote business activity.
A final part of this localisation is covered by the measures announced in the gracious Speech of the local audit Bill. I shall not go into the details tonight because it looks as though we are going to have a lively time with it, but I know that we will be starting consideration of that in the next few weeks. The legislation will enable local authorities to be more independent of central government in selecting their auditors and managing their finances.
We have had a number of contributions today on transport and transport infrastructure. It is correct that we are investing more on major transport projects such as HS2 and Crossrail. Despite the strictures of my noble friend Lord Forsyth, we are investing also in local roads, rail and transport schemes. I am pleased that, in general, speeches today have supported that investment.
I was asked specific questions by the noble Lords, Lord Faulkner and Lord Bradshaw, and the noble Viscount, Lord Simon. They were all kind enough to give me advance warning of these, so I shall briefly respond to them now. The noble Lord, Lord Faulkner, asked about Crossrail having a station at Reading or Maidenhead. I know that he has recently had a written response from my noble friend Lord Attlee and that my noble friend is happy to speak to him again on this subject if he wishes. Network Rail’s Crossrail works on the Great Western main line are already under way in a number of places. However, the works at Maidenhead that might not be needed if the route was extended to Reading are not due to commence until 2016, so there is plenty of time to deal with that.
The noble Lord, Lord Bradshaw, asked about the acute shortage of railway rolling stock and whether Her Majesty’s Government would get out of the way of investment by indicating in franchise agreements a presumption of the carry-over of such stock.
The Government’s rail Command Paper stated that bidders should not be fettered in their future use of rolling stock and should have more market freedom. That was endorsed by the industry’s rolling stock strategy, published in February 2013. The Government already make use, where appropriate, of Section 54 of the Railways Act, under which we can require a new operator to take on the previous operator’s rolling stock.
Finally, the noble Viscount, Lord Simon, was concerned about young drivers’ road safety. We are intent on reducing the number of accidents involving young drivers. That is a top priority and we have already taken steps to make the driving test more realistic by introducing independent driving and stopping the publication of test routes. A Green Paper considering a range of options for improving the safety of newly qualified drivers will be published later in the spring.
My noble friend Lord Forsyth asked about the modernisation of transport, to which I have just referred. We are undertaking the biggest modernisation programme for the railways since the Victorian era. We are working with local authorities and businesses to target investment where it is most needed, and we have established the independent Airports Commission to make recommendations on how to safeguard future international aviation capacity. The noble Lord, Lord Bilimoria, asked about that. Sir Howard Davies will be delivering a shortlist of credible proposals by the end of this year. He will also identify ways in which we can make better use of existing capacity and, as part of his final report in summer 2015, the commission will provide materials to support the Government in preparing a national policy statement.
We have of course made a commitment to HS2, which I am glad was largely supported by speakers from around the House. We believe that that will change the economic geography of the nation. The noble Lord, Lord Bilimoria, also asked us about timescales. I can tell him that we aim to produce a paving Bill this year. The target for Royal Assent to the paving Bill is November this year. The hybrid Bill for phase 1 will be introduced by the end of 2013, with 2015 the target for Royal Assent. We expect that the hybrid Bill for phase 2 will be introduced in 2018. Construction of phase 1 will start in 2017 and construction of phase 2 will start in the mid-2020s. We hope to have the first line open in 2026.
The general support for HS2 is a great help. The noble Lord, Lord Faulkner, gave stirring support for it. I agree with him that it is not just about high speed. It will unlock the enormous potential opportunities that cities including Birmingham, Manchester and Leeds have to offer, making them more attractive places to locate and do business. HS2 will bring jobs on the railway to the cities that it will serve. HS2 Ltd estimates that about 9,000 jobs will be created to construct the new London-Birmingham route, with a further 1,500 permanent jobs created in operations and maintenance. All in all, it is something to look forward to and support. However, we have not just been working on HS2. We have also been investing in other railway and road structures in an ongoing programme to ensure that it is not just new lines that are supported but current ones.
We know that at least 90% of businesses are small and medium-sized enterprises and that they have not found it easy to access finance in the past few years, so we have created a business bank, which will deploy £1 billion of additional capital to address gaps in the supply of finance to small and medium-sized enterprises. That will enable them to access loans and give them certainty to bid for contracts both within this country and beyond. We are providing further help by reducing corporation tax from 28% to 20% by April 2015. In addition, we will be providing a £2,000 contribution towards employers’ national insurance contributions if they take on extra staff and so help the unemployment situation, which my noble friend Lord Sheikh welcomed.
My own department has been at the forefront of promoting infrastructure support, which, as other noble Lords have said, is important to the future of the economy. Creating the right conditions for increasing infrastructure projects is essential to stimulate growth, particularly through the construction industry, so we are building on an existing commitment to an £11 billion housing investment in this spending review. In this year’s Budget, a further housing package totalling £5.4 billion was announced. The noble Lord, Lord Eatwell, suggested that there should be more concentration on new housing. I remind him that we have recently launched an equity loan scheme for help to buy, and that will provide £3.5 billion of investment, focusing on new-build home ownership. It will also boost construction. That has been well received and well taken up.
We have introduced a mortgage guarantee scheme from January 2014 to provide guarantees to support £130 billion of high loan-to-value mortgages. We are undertaking a build-to-rent scheme, the funding for which has expanded from £200 million to £1 billion, to support the development of more new homes. The affordable homes guarantee programme doubled the support for a further 15,000 new affordable homes in England by 2015, and we have the right to buy.
The noble Lord, Lord Shipley, and I disagree that none of this will generate more housing and boost construction. It will, and that is what we are aiming for. However, it involves a huge investment of money in both housing and construction.
The Government published our full response to the Heseltine review in March 2013, confirming that 81 out of 89 recommendations had been accepted in full or in part, including the creation of a single local growth fund. The size of the pot has not yet been agreed but it will encompass quite a lot of other pots.
The Government have also established 24 enterprise zones, and those are creating jobs as we speak. The right reverend Prelate the Bishop of Birmingham rightly pointed out how Birmingham was doing, particularly with the city deals. Birmingham clearly has a good future and is working extremely hard to ensure that it is at the top of the tree and ready to take on any responsibilities to come its way. It is estimated that the first wave of city deals will create 175,000 jobs over the next 20 years and 37,000 new apprenticeships.
In addition to the Autumn Statement, 2012 saw the announcement of government investment of an additional £980 million in schools in England by the end of the Parliament, the funding for 100 new academies and free schools. All these promote growth and investment.
The noble Lord, Lord Bilimoria, made a passionate plea for more pressure on trade, including selling the UK in the UK. The Government are encouraging investment in exports as a route to a more balanced economy, and we have set out our ambitions to increase total annual UK exports from £488 billion in 2011 to £1 trillion by 2020.
My noble friend Lord Sheikh and the noble Lord, Lord Bilimoria, promoted the need to pursue trade with Africa as well as with India and China. We understand the need to extend that, and I know that my noble friend Lord Deighton will be taking notice of that.
Lord Lea of Crondall
The Minister has mentioned Africa and China. Does she recall that a number of noble Lords have mentioned Europe? Does she think that it makes no difference to the prospects for investment in Britain if we have one hand on the door handle to exit from the European Union?
Baroness Hanham
I was not ignoring Europe. I was speaking directly to the points that were made about India and Africa. Of course our trade with Europe is extremely important, both imports and exports. I do not think anybody is going to want to unbalance that. The noble Lord’s point is well made and I was not trying to underestimate its importance. Trade with the rest of the world is also extremely important.
In January 2013, the Government introduced a one-in, two-out system of deregulation whereby no new regulation is introduced unless it is offset by deregulation of twice the equivalent value. That will be part of the discussions we will be having later when the deregulation Bill comes forward.
I have a sheaf of papers here and about two minutes to deal with them. The noble Lord, Lord Eatwell, spoke about the banking reform Bill. The Government are going to give careful consideration to the recommendations made by the Parliamentary Commission on Banking Standards, including those it makes in its final report. We will consider tabling amendments to the Bill when and if appropriate. The Government have committed to ensure that both Houses will have enough opportunity to consider and debate any amendments tabled.
The noble Lord, Lord Bilimoria, asked about promoting trade beyond Europe. UKTI is working with the Foreign Office and applying a range of criteria to prioritise its focus on emerging and high-growth markets.
The noble Lord, Lord McFall, and the noble Baroness, Lady Kramer, asked about the break-up and sale of RBS and other banks. The government shareholdings in RBS and Lloyds Banking Group are managed on a commercial and arm’s-length basis. UKFI works closely with those banks to assure itself of their approach to strategy. Its objectives are to create value for money for the taxpayer and to devise and execute a strategy for realising it in an orderly and active way over time.
My noble friend Lord Forsyth suggested that quantitative easing has exaggerated the liabilities of pension funds because of low interest rates. We recognise that quantitative easing is a major tool designed to affect the economy as a whole to meet the 2% inflation target over the medium term. Over 2011-12, companies with defined pension schemes have seen their scheme deficits more than double from around £100 billion to £250 billion, but the recent fall in gilt yields cannot be ascribed to quantitative easing alone. Factors such as flight to safety from the eurozone also have an impact.
EU: Eurozone Financial Transaction Tax
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Lord Newby
My Lords, the noble Baroness will recall that in 2011 the French Government proposed such a tax at a global level in G20 and there was widespread opposition to it from, among others, the US, China, Australia and Canada. Sadly, there is nowhere near a global consensus on whether such a tax is a good idea, and, equally, there is no consensus, even within the EU, about where the money should go. The French were, and are, keen that at least part of the proceeds should go to development aid, but the Germans, for example, propose that any receipts from the FTT should simply go into the central tax pot.
Lord Lea of Crondall
Given the behavioural crisis in many of the financial institutions in recent years, would the Government not be well advised to discuss the merits of such taxation around Europe, rather than reacting like Pavlov’s dog to anything just because it comes from Brussels?
Lord Newby
My Lords, we are engaged in discussions on this tax as it could have significant impacts not just on the City but across the EU. While the Government are not opposed in principle to a global FTT, with the lack of consensus on such a thing and faced with a proposal which we think could be damaging not just to the UK but to Europe as a whole, we are rather sceptical about it.
Economy: Growth
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Lord Forsyth of Drumlean
My Lords, it is a pleasure to follow the noble Lord, Lord Mitchell. I just wonder whether he is a little overenthusiastic in his belief in the Government’s ability to pick winners, especially in the IT sector. As I recall, billions were lost in the health service and elsewhere through IT projects that were not properly sourced and not subject to the disciplines of the marketplace—projects that arise from people spending other people’s money. It is also a great pleasure to welcome the noble Lord, Lord Deighton, to the Front Bench.
I have been surprised that, so far in the debate, people have concentrated on the deficit rather than the debt. The noble Lord’s predecessor, the noble Lord, Lord Sassoon—whom we miss so much—was subject to regular questioning from me, asking why we continue to refer to reducing the deficit and not the debt, when, of course, the deficit is simply the rate at which the debt is increasing. I never got a satisfactory answer to that. Therefore I ask the noble Lord, in briefing himself into his department, to look at the ComRes ITV poll that was carried out just before Christmas—which may have got lost in the tinsel and bright lights of the Christmas period—where people were asked whether they thought that over the course of this Parliament the Government were going to increase the debt by £600 billion, reduce it by £600 billion, or leave it much as it is. Only 6% got the right answer, which is that the debt will increase by £600 billion. I regard that as a really serious problem, because if you are asking people in the country to make sacrifices and to realise that Governments face difficult choices, first you have to make them aware of the extent of the problem. I really do not think it helps for politicians—from whichever party—to shy away from explaining just how serious a problem we have.
The problem, in short, is that the state is growing and the economy is shrinking. The latest OECD figures show that state spending has now gone up to 49% of our GDP. That is an extraordinary amount. I used to define communist or socialist states as states where the Government spent 50% of the GDP. In the year 2000, when Gordon Brown was Chancellor of the Exchequer, the Government spent 37% of GDP. I am sorry that the noble Lord who said that it is ridiculous to talk about a massive Keynesian boom is not in his place, because I must point out that there has been an astronomical increase in the share of our GDP that is being spent by the Government. Out there in the country, real wages and living standards are falling. The first thing that we have to explain is that we have been living beyond our means. We have been spending about 10% more than we earn and we have been saving nothing. We need to save about 10%. Now 10 plus 10 is 20%, so to put that right, living standards are going to fall by 20% unless we can get growth. It should come as no surprise that this has come about.
The national debt is now 70% and rising. It rose by £15 billion last month alone. I know that we are all supposed to take the line that the Chancellor has cut the deficit by 25%, but the truth is that he met the target last year only by putting in Billy Bunter's postal order, which is the £3.5 billion that will come from the 4G spectrum sale—money that we do not have now and will come around only once—and by throwing in the proceeds from the interest on the bonds that have been purchased by the Bank of England printing money.
We are engaged in a completely new scheme of quantitative easing, which has been done on a stupendous scale. We are now relying on the interest on that money that we have created to say that we are closing the debt cycle. I am profoundly concerned by that. Every time I ask an economist or someone I respect about this, I find it very difficult to get the kind of reassurance to which the country is entitled.
On the Government's policy, if you ask a Minister what they think will happen to the growth in the economy in the next 12 months, they will say, “We are not responsible for that. We have an independent body called the OBR”. But the OBR has been consistently wrong in all its forecasts. My noble friend Lord Lamont said quite rightly that all forecasters are consistently wrong. But it is worrying to say the least that this independent body that Ministers now rely on has been so far off the mark.
The truth is that the Government are stuck in a Bermuda Triangle. We have low growth, which means that the Government cannot make cuts in spending, and we have high spending, which is preventing us from getting the growth that we need. People may have forgotten this, but much is due to the efforts that were made by my noble friends Lord Lamont and Lord Baker, my noble and learned friend Lord Howe and others in the 1980s in making supply-side reforms and changes to the trade union law; the changes to our labour market policies. That is why employment has not gone up in this dreadful recession. Workers are now able to make arrangements with their employers to be flexible in the teeth of economic adversity.
The Government have made some mistakes, and we should admit to those mistakes. The noble Lord, Lord Eatwell, sent me a note to say that he had to leave the Chamber so I know that he will read this in Hansard, but it was sheer bare-faced cheek for him to argue for capital expenditure, which is right, and against the Government’s capital expenditure cuts, when the mistake that the Government made was to implement Alistair Darling's cuts in capital expenditure but actually reduce what was planned by Alistair Darling. The point is well made. Capital spending is required and we need further supply-side changes.
My noble friend Lord Wolfson made the key point in this debate. You have to look at the return on the money, and, on the whole, Governments are not very good at picking winners. Therefore, to choose a well-known liberal's favourite phrase, if you leave the money in the pockets of the people to fructify, you will get far more growth and far more for your money than if it is decided by committees in Whitehall with one eye to the next election. An example of that is this high-speed train. The high-speed train is the ideal political project. It is absolutely fantastic. It enables a Government to say that they are spending a large amount on infrastructure. It has a visionary appeal about it. And, of course, the planning, the implementation and the execution are so far ahead, you do not have to spend a single penny on it. In doing so, it creates all kinds of difficulties for the local economy and the blighting of property and so on. I would rather see the money being spent now on improving our transport structure and looking, as my noble friend Lord Wolfson said, at issues like road pricing and others that will help to make the changes necessary to get our economy to grow.
Again and again we hear complaints from both sides of this House about the banks not lending money to small businesses. I want to ask my noble friend, who I know has a background in banking and will be turning a fresh eye to this matter: how are the banks supposed to lend money to small businesses when at the same time they are being asked to increase the amount of capital that they have in order to support the lending that they have got? How are the banks supposed to find the money to lend to new businesses when they are being asked at the same time not to foreclose on mortgages and to try and keep businesses going? How are the banks supposed to find the money when there are companies—many of them now—substantial public companies, zombie companies, that are simply kept alive by low interest rates and by the banks not wishing to consolidate the loans on their balance sheets.
Of course, we are very conscious of the banking crisis and the impact that it had on our economy, but are we now not in danger of fighting the last war? Should we not be adopting a counter-cyclical approach to the capital requirements on banks in order to solve the problem? Frankly, producing lots of government schemes is not the answer. Better to have banks making commercial decisions with the balance sheet flexibility to be able to lend to these small businesses. This was a point that my noble friend Lord Lamont touched upon in his excellent speech.
How are the banks supposed to operate when the regulators, as a regulatory requirement, are requiring them to take Government gilts? We all know what is going to happen to Government gilts as the interest rates go up and quantitative easing unwinds. What is going to happen then to the losses being made as a result?
The reason that we are becalmed as a country is because the tax burden has become unbearably high. I am not here making a plea on behalf of people who pay high marginal rates of tax. If you earn between £8,105 and £42,475, taking the income tax and the national insurance payments that you and your employer has to pay, it is no less than 40.25% of earnings. Is it any wonder that we see so many part-time jobs, not full-time jobs? The costs of labour are unbearably high because of the burden of taxation.
For those on the other side who say it is all about tax dodgers and finding rich people, the top 1% of taxpayers now provide 24% of all the income tax but only 10.8% of the income. That is why the tax burden is now hitting people on low incomes and hitting them hard.
Indeed, I had the pleasure of chairing the tax commission for the Chancellor while we were in opposition. I remember that we agreed that we needed lower, fairer, flatter, simpler taxes. What are we doing? According to the TaxPayers’ Alliance—an excellent body—we have created 299 separate tax increases and 119 reductions. Whatever happened to that great crusade to have a simpler, flatter, fairer tax system? I tell you this: if we do that, the revenues will go up and the deficit will go down.
I welcome the rise in thresholds. The Liberals claim the credit as their policy. I see my noble friend is nodding with enthusiasm. I refer him to the speeches made while we were on the Benches opposite by the noble Lord, Lord Saatchi. It was also one of our recommendations in the tax commission report in 2006. My cautious right honourable friend the Chancellor felt that our programme of tax changes, which would have amounted to £25 billion, was more than could possibly be afforded in a Parliament where borrowing now goes up by £15 billion every month.
On quantitative easing, I would like my noble friend to explain exactly how it will be unwound. The Bank of England made gains on the gilts which have been bought through this process of about £60 billion a year ago. What is the value today? What will happen when interest rates go up? How will that gap be closed?
My noble friend Lord Wolfson is a grand and successful retailer and I echo what he said about planning. Perhaps the House will allow me one indulgence. My eldest daughter has just started her own business and opened a shop on the King’s Road in the worst possible circumstances of recession. Kensington and Chelsea is a Tory council but it took eight weeks to give her planning permission to put her name above the door—eight weeks while she was unable to trade and while it charged her rates for the privilege of waiting on it to give planning permission. It should be utterly impossible to operate in this way in the difficult circumstances that we have in the marketplace now. We have heard from my noble friend Lord Wolfson of the experiences of big businesses. At least he will have some clever people in his department who will be able to take on the planners. If you are setting up your own business, there is only you. In all the speeches we make about deregulation and supply side reforms, let us get down to the detail that is preventing businesses expanding and growing.
I have said that the economy appears to be becalmed. If you are becalmed, you need a wind of change, and that will come from reducing costs to businesses and reducing costly regulation. I have some sympathy with what the noble Lord said about reducing the cost of national insurance. We should stop thinking of new schemes that make life more difficult for business, such as changing the rules on paternity leave or introducing 1% pension schemes. I read in today’s Times that all businesses are to be asked to produce information on the ethnicity of their employees when they want to be out there selling to customers and winning exports.
What is going on in this country when, since 2008, our currency has been depreciating and our exports have gone up by 1% while exports in Germany, France and Holland have gone up by 9%? What is going on? Why are we not more successful in our export efforts?
On energy costs, what are we thinking of? By adding to the cost of energy on business, all we are doing is importing carbon from China, and China is lending the money to enable us to run a deficit while our businesses are disadvantaged as a result.
Lord Lea of Crondall
The noble Lord mentioned that we are devaluing the pound but nothing is happening. Why is that? Does he think that devaluation no longer works?
Lord Forsyth of Drumlean
I have been saying for the past 15 minutes that we need to create an environment in which our businesses can go out and sell and are encouraged to do so. I was not making a particular point about devaluation: I was saying that we are more competitive as a result of the falling value of the pound relative to other currencies.
To conclude, my advice to my noble friend is to say to his right honourable friend the Chancellor of the Exchequer that no U-turn is necessary but a touch on the tiller is required.
FSA Investigation into LIBOR
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FSA Investigation into LIBOR
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Lord Sassoon
My Lords, on the first point made by the noble Lord, Lord Empey, as I have said, other banks are being looked at by the relevant supervisory authorities here and in other countries. All that is ongoing. I very much endorse what the noble Lord has to say about the profession taking responsibility. If the banking industry wants to be thought of as a profession, clearly it should think about how it re-establishes professional standards. I speak as a chairman of the ifs School of Finance, the former Institute of Bankers, so I feel very strongly about that and believe that the profession needs to think about it very clearly.
I am not aware of public authorities being involved. I can be pretty clear that no public body is involved in any way in the LIBOR-setting regime and therefore in what we are discussing this afternoon.
Lord Lea of Crondall
My Lords, would the noble Lord remind us of the basis of company law? In whose interests are the banks supposed to be operating? Is it, in some sense, the public interest, the customer’s interest, the worker’s interest? Whose interest is being served by the banks? Is he satisfied that there is now a general perception in this country that it is not like that at all and that the banks are operating in the interest of some people at the top of the banks?
Lord Sassoon
My Lords, I think the issue here is that, whatever the law says about the way in which the banks have to operate, the behaviour that has been exposed in this case is that of naked greed, and that is completely unacceptable whatever the legal framework. It is at heart an ethical question as much as anything else, as I see it, and is quite independent of the legal framework around it. Whatever the requirements of the boards vis-à-vis shareholders and other parties, at the heart of this—as has been exposed very clearly by these extraordinary e-mails—were individuals behaving in a most extraordinary way.
Financial Services Bill
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Baroness Valentine
I declare that I am chief executive of London First, a not-for-profit business membership organisation, whose members are drawn from a wide range of business sectors, including banking, insurance and professional services firms, and their customers
Over centuries and through several crises, the UK has built a global reputation as a safe and honest place in which to do business. Its financial sector is seen to offer a deep pool of knowledge and expertise that is, arguably, unrivalled. Businesses value this expertise and the ability to harness it to their own requirements. These can be as diverse as raising capital, structuring and financing mergers and acquisitions, or hedging against price fluctuations in their raw materials. These are essential services for businesses. Therefore, in developing the framework for regulating the financial sector, we must take into account the likely impact on not only the financial institutions themselves but, perhaps more importantly, their clients.
For business, the price, range and availability of financial products and services will be contributory factors in achieving economic recovery and maintaining international competitiveness. With this in mind, I join other noble Lords in expressing concern that the proposed objective of the Financial Policy Committee is solely to focus on ensuring financial stability. This objective should, I believe, be complemented with a duty to foster an environment in which the financial sector can continue to support economic development—for example, by helping to ensure a stable supply of credit.
When we look at other national regulators or central banks, we see that they are often given similarly balanced objectives. For example, in the US the Federal Reserve maintains the goals of maximum employment, stable prices and “moderate” long-term interest rates. The Reserve Bank of Australia has both its social and its economic purposes clearly defined in law. Its job is to ensure that its monetary and banking policy contributes to,
“the economic prosperity and welfare of the people of Australia”.
Closer to home, as other noble Lords have noted, the Bank of England’s own Monetary Policy Committee includes in its objectives the aim of supporting the Government’s,
“objectives for growth and employment”,
albeit, as the noble Lord, Lord Barnett, notes, as a subsidiary objective.
Financial stability must, of course, be a core objective of the regulatory system—it is a precondition of economic well-being—but it should not be the only criterion against which we measure success and, indeed, we should not be seeking financial stability at the cost of economic development. If we do so, we risk hard-wiring a bias towards conservatism into the new regulatory architecture. We have to recognise that innovation is part of what will keep us at the cutting edge of global markets. Without it, the economy will continue to be stifled.
At a time when our economy is in a double-dip recession with an anticipated slow and bumpy road to recovery ahead, all aspects of the regulatory framework, including financial regulation, should be designed and implemented in support of growth. I cannot see why this approach is not relevant for the Financial Policy Committee and, in his closing remarks today, I would welcome some explanation from the Minister of the rationale for adopting such a narrow brief.
I further note that the Government have established a Regulatory Policy Committee to ensure that any new regulation meets the principles of good regulation. There is a strong argument for bringing the FPC and its sister bodies within its scope.
My second concern relates to the approach that the UK is taking towards integration with the new European regulatory framework and the need for those working with the new European bodies, on the UK’s behalf, to have relevant market experience and expertise.
Increasingly, the regulation and supervision of financial services is driven by decisions taken outside our Parliament at a European or G20 level. This is right if we are to ensure a consistent approach to supervising global institutions, but it seems strange that the proposed UK framework does not correspond to the recently established European framework. We appear to be developing a new imperial system while the rest of Europe consolidates a metric one.
The UK already punches below its weight in voting terms. Despite having more than 35% of the European wholesale financial markets, under qualified majority voting we have fewer than 15% of the votes on decisions governing those markets. British nationals occupy only 5% of the posts in the Commission, even though we make up 12% of the population, and that proportion is falling. At a time when the so-called Anglo-Saxon model of financial services faces considerable suspicion from some quarters, for the UK to be so under-represented is worrying. My fear is compounded by the general lack of experience of truly international financial markets among those responsible for regulation and supervision in the new European regulators. It is essential that Britain’s regulators offer a coherent voice that can provide these new institutions with the expert guidance and insight they will need to fulfil their functions without damaging the very markets they have been established to protect.
Lord Lea of Crondall
I am most interested in the point that the noble Baroness has just made about whether we have the right number of people in Brussels, Frankfurt or wherever. Is that the view of her constituency in the City of London and, if so, what are the members of that constituency doing about it?
Baroness Valentine
I could give a long answer to that. I do not believe that industrial representatives from the City are necessarily welcome in the European supervisory bodies, and that creates a complication in dealing with that particular issue. I think that they would be happy to put forward people but you have to be clear that the Chinese walls are there. I am not sure whether that answers the noble Lord’s point.
I welcome the Government’s creation of an international co-ordinating committee to present issues and concerns from the UK regulatory bodies. However, I believe that its effectiveness and credibility would be enhanced by mandating a secretariat made up of individuals who have experience of the international markets and have worked in international organisations. This would be a significant step towards ensuring that the UK’s contribution to EU financial regulation was proportionate to the importance of the financial sector to our economy, and would send a clear signal that the Government recognised that contribution.
Last week the chairman of the Treasury Select Committee commented that this Bill was,
“the most important overhaul of financial regulation ever undertaken in this country … It is crucial that we get it right”.
I could not agree more.
Despite laying claim to be the birthplace of modern football, it is many years since any of our national teams have been dominant on the field—as I fear the French may well be demonstrating this evening. I do not know the score.
Euro Area Crisis: EUC Report
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Lord Marlesford
My goodness, the noble Lord is certainly a speculator.
If Germany is prepared to pay not the cost of bailing out Greece but the cost of redeeming the Greek euro debt which already exists, we have to think of something better than going into a Mickey Mouse currency such as the drachma. The solution would be for Greece to leave the euro area but to continue to use the euro. There are plenty of examples from past economic crises, such as Latin America using the dollar and Yugoslavia using the deutschmark after Tito died. The whole point is that using the euro with a new central bank for Greece would impose a discipline on the central bank and on Greece. Like anyone else, it would be possible for it to use only the currency that it could afford. It would not have any relation or connection with the European Central Bank. It would be paddling its own canoe but it might well have to have some help from the IMF. However, it might well produce a remarkable resurgence. Indeed, a noble Lord talked about the possibility of financing certain projects with eurobonds. This might be very possible if people could see sound opportunities in Greece and they knew that the currency being used was a proper international currency. I think that that would be a real help.
Lord Lea of Crondall
The noble Lord has painted a fascinating scenario, but how does he get out from under the problem he referred to whereby, in a sense, the demagogues fail to acknowledge that the real fall in living standards would be a lot greater in the drachma devaluation scenario than in the internal devaluation of taking more medicine in the eurozone?
Lord Marlesford
When Sub-Committee A looked at the bailout, we saw again and again that the figures produced as necessary to prevent a catastrophe became ever greater by magnitudes. There is the old cliché about “A billion here and a billion there—you are talking serious money”; we almost reached the stage where it was “A trillion here and a trillion there”. If the prospects are for bailout, and that just continues, whatever happens and however much worse it gets, it has been fairly conclusively proved that people will take advantage of a bailout. It is human nature. It was the present governor of the Bank who said that if there is a run on the bank, the sensible thing is to join it. Therefore, if the bank is prepared to bail you out, the sensible thing is to accept the money.
My solution is that you impose a requirement to earn the euros—but with some help through the IMF, eurobonds, or eurobond investments—and you are thus able to rebuild your economy. I do not see, from the point of view of people living in Greece, that there is much difference between perhaps starting off with saying, “We are going to recreate the drachma; and the drachma is equal to a euro”, and then finding that the next day it is worth only half a euro, or, as the noble Lord, who likes speculating on these matters, might think, the drachma would soon be worth only a quarter of the euro. It would be a great deal better to recognise that the flexibility of having to have the euros with which to buy and pay for things would itself generate a reality that, I believe, is lacking.