Financial Services Bill

Debate between Lord Liddle and Lord De Mauley

Tuesday 10th July 2012 Lords Chamber

[Lord Liddle]

My Lords, that was a very interesting exchange between my noble friends Lord Davies and Lord Myners on the crucial question of how these matters should operate. I would like to add a point in favour of my noble friend’s amendment on the basis of work I have done on how the new European system is operating. I had a conversation in Brussels recently with André Sapir, who is on the board of the European Systemic Risk Board, about the role of independent economic expertise in assessing systemic risk. On that board, the independent economists have made a decision that they will not rely on the internal expertise of the European Central Bank, precisely for the reason that the noble Lord, Lord Eatwell, said. We are operating in a very uncertain world and no one really knows what the right road map is. What we need is the maximum amount of well informed, independent expertise on these matters. I feel very strongly that this amendment should be supported.

[Lord De Mauley]

My Lords, before I start on the amendment, I shall say in response to the noble Lord, Lord Davies of Stamford, that the deputy governor for financial stability is a very fine and highly respected deputy governor. As the noble Lord, Lord Myners, said, it is for the Treasury Select Committee to assess what he said yesterday.

Turning to Amendment 89, it would create an advisory panel with a two-fold brief: first, to advise the FPC on systemic risks to financial stability; and, secondly, to assess and report upon the effectiveness of the FPC in assessing systemic risks to financial stability, the macroprudential tools provided by the Treasury to the FPC and the actions taken by the FPC. The membership of the panel would include the deputy governor for financial stability and a number of external members appointed by the Treasury, drawn from a range of relevant professions, including academia.

The Bill already creates, in the FPC, a committee on which the deputy governor for financial stability sits, together with external members, some of whom may indeed be academics. The noble Lord, Lord Eatwell, was good enough to compliment the external members of the interim FPC. Let me give some details of the specific expertise of the current external members to give a flavour. Alastair Clark has, in addition to extensive real-life experience, degrees from Cambridge and the LSE and is an honorary visiting professor at the Cass Business School. Robert Jenkins, who the noble Lord, Lord Myners, referred to, not only has extensive experience of trading and asset management but is also an adjunct professor at the London Business School. Donald Kohn, in addition to extensive experience in financial regulation in the US also has academic experience. Michael Cohrs has experience at senior level in the private sector in investment banking but is also a Harvard MBA and an adjunct professor at Beijing University. We want, and we have, multifaceted people. We agree with the noble Lord regarding the need for extensive broad experience, including academic experience, but we do not think this needs to be set down in legislation.

UK Industry: International Competitiveness

Debate between Lord Liddle and Lord De Mauley

Thursday 5th July 2012 Lords Chamber

[Lord Liddle]

My Lords, it is a great pleasure to follow the noble Lord, Lord Jenkin of Roding, in his introduction to this debate. He brings to the subject much ministerial and business expertise, and it is greatly to his credit that he has shown a sustained interest in these questions throughout his public life. He said a lot about export promotion with which I agree. We probably share an analysis of the British competitiveness problem, which is that it is a complete myth that we are a post-industrial nation. We have many highly competitive businesses; the challenge we face is that we do not have enough of them. We need far more and the question is how we get far more. I shall focus my remarks on how the public policy framework can help, and also talk briefly about the questions of the exchange rate and our commitment to Europe and the single market, which is of central importance to this area.

On the kind of supply-side policies needed, again, I suspect that there is a wide measure of consensus in this House. I picked up on some remarks of my great and noble friend Lord Mandelson, based on his ministerial experience in the previous Government. Speaking to one of the excellent meetings of the All-Party Parliamentary Group on Rebalancing the British Economy, interestingly, he praised some of the record of Conservative Governments in the 1980s in promoting aerospace, biotech, pharma and Japanese inward investment in the car industry, which we often forget. He then talked about our increasing love affair, as a nation, with financial services. He said nothing against financial services, but noted that this love affair became a mindless infatuation, since when all we have seen are what he described as “peashooter initiatives” to deal with the need for rebalancing our economy back to production. The question is how we can transform this succession of peashooter initiatives into what the Prime Minister would doubtless describe as a big bazooka.

There is a range of things that the Government could do, building on what the Labour Government tried to do towards the end of their term, particularly in 2010. There is the expansion of technology transfer institutions, the Hauser report, and the need to improve our record in Britain in transforming our excellent, world-class research into commercially successful innovation, which we are not nearly so good at. There is a need for public intervention to provide finance for growing small and medium-sized firms. This is an imperative in today’s environment, in which the banking system is not able to fulfil its proper function: we need a British investment bank. We need a proper infrastructure plan. The Government have made nods in this direction, but they are having difficulty in mobilising the pension funds and private finance that they had hoped for. The truth is that, unless the Government offer guarantees that limit the risks for such investors, we are not likely to get private money into public infrastructure in a big way.

We need to do more on skills. We know that employers, of their own initiative, will not raise skill levels: there is a market failure here. The Government are trying to expand apprenticeships, but their record is very mixed and there is great debate about whether the expansion is a genuine expansion of real apprenticeships that lead to opportunities for technician training going right up the skill ladder. That is what we need and I wonder whether we are getting it. We need action to improve the quality of management. Here is a tremendous role for the post-1992 universities—of one of which, the University of Cumbria, I am director. We need the universities to engage with businesses in raising the quality of management and their workforces. We need to build on our public strengths, which have important competition advantages and where the public role is absolutely crucial, such as the universities in attracting students from overseas, our medicine and our culture.

I am not arguing for big government in order to address these questions, but you must have active government. You particularly have to have an active Government with a strategic sense of how they will develop the sectors where we have the best chance of being competitive. This is particularly important in public procurement. You cannot just have centralised government. You must have effective machinery for action at regional and local level. This is where the decision to abolish the regional development agencies was destructive. In my own area, Cumbria, there is now no effective machinery for promoting regional economic development.

I, for one, look forward to the review by the noble Lord, Lord Heseltine, of the growth agenda. At the moment, for all the talk, I see little sign of the Government upgrading their efforts beyond what my noble friend Lord Mandelson described as these “pea-shooter initiatives”. Indeed, to make a slightly political point, I am bemused about the debate in the other place on growth, which all seems to be about deregulation and tax cuts. No one wants regulation for its own sake. No one believes in taxes for their own sake. But the problems of the British economy do not lie in a lack of flexibility in the labour markets, or in taxation being too high. We have a more flexible labour market, in many respects, than the United States. I find all this talk about the Beecroft report totally bemusing. It is a sub-Thatcherite agenda of deregulation, which is the wrong strategy for the British economy. We have to compete on the basis of skill. We cannot compete on the basis of deregulation. We need a national consensus on the kind of industrial policy we are going to need. It is depressing that we are still a long way from that.

I have just a few remarks to make on the exchange rate and Europe. On the exchange rate, the Government should be thinking about why the devaluation that we saw in 2008 has done so little to improve our trade balance and industrial performance. What conclusions do we draw from this? One conclusion is that the exchange rate does not matter very much in the modern world, with the integration of global supply chains and all the rest. That would be an error. One of the mistakes that we made over the past 20 years was treating the exchange rate as a residual. The exchange rate went up a great deal at the end of the 1990s. The pressure of a high exchange rate was one of the reasons why our manufacturing had problems over the past decade. Although this was good for productivity—the productivity numbers went up a lot—it squeezed the size of the sector more than it should have been squeezed. So the post-1992 framework of our economic policy will have to be rethought anyway in the light of the crisis. We should be thinking about whether we can give a more central role to exchange rate stability in the management of the economy, and how we would go about that. Are the Government thinking on these lines?

On Europe, all this chatter about an in/out referendum might well have serious economic consequences, which no one seems to take into account in the rather heated political debate. How would British business feel, including the people who have invested in Britain, if we were no longer part of the EU, or if we remained in the European Economic Area with no say in shaping the rules of EU governance? Do we seriously think that if there was a prospect of Britain coming out of an active and central role in the European Union that inward investors would continue to look at investment in the UK?

[Lord De Mauley]

My Lords—

[Lord Liddle]

I have 12 minutes.

I am not trying to make a political point. However, the question of Britain’s role in Europe cannot be decided on the basis of party-political positioning, or of populism and ignorance. We need business to take an active role in this debate. What I would like to hear from the Government is what they are doing to consult business about its view about Britain’s role in the European Union in future, and what the real costs of playing around with our economic future might be. This raises very serious issues for the future of growth and jobs in Britain.