Financial Services Bill

Debate between Lord McFall of Alcluith and Lord Peston

Monday 8th October 2012 Lords Chamber

[Lord McFall of Alcluith]

My Lords, I will be brief and precise on Amendments 148, 149 and 174 which require consultation by the Treasury on draft orders. Clause 7(3) provides for parliamentary control in relation to the proposed orders under Section 22 of the Financial Services and Markets Act 2000 and proposed new sub-paragraph (2) says that no order should be made before Parliament unless approved by resolution of each House. Given the complexity of the Financial Services Bill and the capacity for muddle and wrong-headedness by all Governments over the past years, I think there is a case for enlarging the consultation.

In the 1990s, we were in Opposition in the House of Commons and recommended pre-legislative scrutiny. A number of Ministers took up the concept and it worked. I remember being involved in a three-clause Bill in Scotland that related to raves—clubs where young people found themselves dehydrated and where a number of lives were lost. The main clause in that Bill was Clause 2. We did pre-legislative scrutiny and visited many areas of Scotland. We came back and the then Minister, the noble Lord, Lord Selkirk of Douglas, said that the Government had reflected on the matter and that Clause 2 would be removed and redrafted. The lesson is that politicians can frequently get things wrong. Why do we not get this right by taking a little bit more time and extending the consultation? That is the thrust of this amendment.

[Lord Peston]

My Lords, I am a bit puzzled about the wording in the relevant paragraph. Of course, I agree with what my noble friend says about consultation. However, can the Minister explain why the word “would” appears in line 5 rather than “should”? Even if the Treasury thinks the order would have the described effect, it must certainly believe that it should have the effect. What is the point of the order if it does not achieve what it is trying to achieve? I am a bit puzzled about the word “would”. My noble friend’s amendment would make much more sense if “should” were inserted instead of “would”.

That leads me to my attempt to get my mind around what would actually happen in this case. It is immensely difficult because the provision substitutes material in this Bill for material in legislation that we do not have before us, which is always a problem. However, if we ask ourselves, “When would any of this order-making process occur?”, presumably the answer would be that it would occur when various outside bodies say that this matter is not being regulated, but must be regulated. In other words, what precedes the consultation is the fact that it is not certain at all that the Treasury would take the initiative in this. It is the acting body and is therefore the one that has to act when it comes to producing the orders.

Therefore, the built-in logic behind the entire new paragraph is the consultation process. Indeed, it is also part of the spirit of the age. One can go further and say that not merely is consultation part of the spirit of the age, but that interested bodies would undoubtedly be aware of these orders. Even if the Treasury does not consult them, those bodies will ensure that the Treasury knows what they think because they will get in touch with the Treasury and say either, “What you are doing is a good thing and we would like to support you”, or, “You do not know what you are doing and you ought to do it in a different way”. What my noble friend is putting forward helps the Bill to become much more sensible in practical terms, and it would become a fortiori more sensible if we were allowed to amend the language by inserting “should” for “would”. I think that would make infinitely more sense.

Financial Services Bill

Debate between Lord McFall of Alcluith and Lord Peston

Tuesday 26th June 2012 Lords Chamber

[Lord McFall of Alcluith]

My Lords, this is the most important Bill to have come from the coalition. We are expected to right the wrongs of the financial service and have that in place for the next 20, 30 or 40 years. This Bill has been tacked on to the Financial Services and Markets Act, which is why there is such complexity and why it is wrong. The Governor of the Bank of England himself said in June 2011:

“We are losing the simplicity and the ability to have a cleaner debate about the new framework. Certainly the Government rejected our”—

the Bank of England’s—

“request to have a new Bill and the argument that they gave, understandably, was that at the cost of some complexity we could ensure that all the provisions that were appropriate could be put into an amended FSMA and it would be a faster way of doing it”.

He went on, with some understatement:

“I think we have seen the complexity”.

If the comments of noble Lords today are anything to go by, we have not seen anything yet as a result of that. The governor went on:

“I am not quite sure whether we have avoided delay”.

Going back to the crisis of 2007 and 2008, the main issues were complexity, the question of who was in charge and transparency. We are making them worse, rather than better. We are moving from a tripartite system to a quadripartite system. When we ask exactly who is in charge—the deadly question that no one could answer at the time of the financial crisis—it will be equally hard to give a decent answer as a result of this Bill.

That is what is wrong with the Bill. It needs the utmost scrutiny in this Chamber. The other Chamber debated the Bill for 43 hours and 28 minutes. However, the Financial Services and Markets Act was debated for 89 hours and 59 minutes—more than double the time. As a result, the Treasury Committee says, in its frustration, in the first paragraph of its report, that it is now over to the House of Lords to change the Bill. Why does it say that? It says so because Clauses 80 to 103 and Schedules 17 to 21 were not debated due to a lack of time for the programme Motion. We need time for, and simplicity in, the Bill but we are getting complexity. That is the issue that has brought the noble Baroness, Lady Noakes, and me together. We are very clear: give us that simplicity, not complexity. The audience that is looking at this from outside may then understand that we have the best interests of the financial services and the country at heart, and we may get a decent Bill out of this.

[Lord Peston]

My Lords, I told the Minister that I would ask him a question but I forgot to ask it. I hope I will be allowed to ask it before he replies. Its origin is in my getting lost in the Bill. I was in the Public Bill Office and pointed to something on the page—a number, a letter and another number—and said, “I cannot find it”. They flicked the pages over and said to me, “What you need is a Keeling schedule”. I had never heard of a Keeling schedule so I rang the Treasury and asked one of the noble Lord’s assistants what it was. I gather from talking to the Minister earlier that he now knows what it is. I should like him to tell your Lordships’ House what it is and where we can get one, since I gather that it will enable us to find things.

--- Later in debate ---

[Lord McFall of Alcluith]

My Lords, the aim of the exercise is contained in the Treasury Committee report, which said that an amendment was tabled on Report in the other place but that because of “insufficient time” the Minister did not give an answer. This amendment is to elicit an answer. I suggest that the Minister should think again on this issue.

The noble Baroness, Lady Kramer, said that there is a role for Parliament. If Parliament feels excluded, that does not augur well for the stability of the system. I understand that giving a veto to a parliamentary committee is a bold measure, so I understand the concerns being expressed. The noble Lord, Lord Turnbull, made the point that the Treasury Committee could make a recommendation and the House could look at it. There has to be either a formal or an informal way of including Parliament in this. My noble friend Lord Peston said that if the Governor of the Bank of England left, he would leave the country.

[Lord Peston]

I meant fired.

[Lord McFall of Alcluith]

If he was fired, that would happen. I bring not an exact parallel to the Committee’s attention. A number of months ago, comments were made by members of the present Treasury Committee about the chief executive of the Financial Services Authority. They felt that he was responsible for the demise of the Royal Bank of Scotland. A few weeks later the chief executive, Hector Sands, left. I do not know whether there was a causal relationship. I pointed out to Members of the Committee that if the environment in the other place is charged, it can have unforeseen consequences. Parliament therefore has to be considered.

[Lord Peston]

My Lords, perhaps I may interrupt as I misunderstood. In my judgment as an economist, the chairman of the Monetary Policy Committee is quite capable of doing some things via that committee that could destroy the whole economy of this country. However, as far as I can see, the rules are that he cannot be fired for that. He can be fired for going bankrupt and one or two other things, but there is no way he can be fired for making a mess of economic policy. I am pretty sure the Bank of England Act does not allow him to be fired for the reasons that my noble friend is raising. If we were asked if we could get him fired for a wrong policy, fine, but it is my understanding that the rules for firing a governor do not include a wrong policy. You may say that is a bit irrational but I am pretty sure that I am right.

[Lord McFall of Alcluith]

The rules do not include wrong policy and I never suggested that they did, but what I am saying is if there is a charged atmosphere in Parliament and there could be a scapegoat, perhaps the governor or a future governor would leave as a result of that. We must be mindful of that situation and I gave a parallel, if not an exact one, of what happened a few weeks ago on that particular issue. We also have the governor now being appointed for eight years. That was adopted after being suggested by the Treasury Committee and no one has commented on it in this Chamber. I think it is something which needs much more reflection from the Government.

The noble Lord, Lord Burns, spoke about the chairmanship of the court. I would suggest to the noble Baroness, Lady Wheatcroft, that this is a big challenge to the Bank of England, which at the moment is not perceived to have that challenge. That aspect of challenge is really important. I could give noble Lords an example from my time on the Treasury Committee. No names, but I was approached by the representatives of a number of non-executives during the financial crisis and asked if I would see them. They wanted to tell me about the situation on the board of their company and explain why no change was affected by them; my answer was, “Absolutely not. You’re on your own. If you’re a non-executive and you cannot challenge, you should not be on the board. You should leave the board as a result of that”. The aspect of challenge still resonates and we need that. It is the issue that the noble Baroness, Lady Kramer, was pointing to and the Minister needs to reflect on it.

The noble Lord, Lord Flight—if I can wake him up, no, I do not think I can—made the point about Mervyn King and economics teaching. He made the distinction that it was the economics teaching that was bad and not the present governor’s teaching—