EU Committee: Alternative Investment Fund Managers

Lord Newby Excerpts

Tuesday 6th July 2010 Lords Chamber

[Lord Newby]

My Lords, I congratulate the noble Baroness, Lady Cohen, and her committee on producing such a clear and thoughtful report on an extremely esoteric but vital area for the UK.

The report highlights a number of areas where anyone, at least in this country, who has looked at the draft directive is in agreement. First, there is agreement that alternative investment funds did not cause the financial crisis, but equally, given their scale and size, there was a need to regulate alternative investment fund managers on an EU-wide basis. This is now accepted within the industry.

However, the proposals have major shortcomings from a UK financial services sector perspective. We have seen in recent months frantic attempts by the industry and government to make the proposals more palatable to UK interests. I do not intend to detail the shortcomings in the current text. The noble Baroness and the noble Lord, Lord Woolmer, have done that extremely well, but I should like to discuss the broader question of why we find such unsatisfactory detail in these proposals and how we should attempt to avoid this situation when future proposals come forward.

The problems flow in some part at least from the UK’s at best schizophrenic approach to EU initiatives in general. The predominant mentality of previous British Governments—not just the last one—has been to stand back or positively oppose many initiatives which are of vital concern to the UK. When it has become clear that a policy is to be adopted, we have none the less fought a series of rearguard actions at EU level to minimise the damage to UK interests of these initiatives, as we see them. This has been a debilitating and wearisome approach, but when applied to the financial services industry it borders on madness. London is the predominant financial centre in the EU and it is clearly in our national interests that it remains so. There has been much discussion, during and since the election, of the need to rebalance the economy, but the way to do that is not by humbling and bringing down the financial services sector but by building up other sectors. The figure quoted by the noble Baroness of 40,000 people employed in this sector, which is a relatively small subset of the financial services sector as a whole, gives some idea of the importance of the sector to the UK economy.

If we look at the attitude of the previous Government, we saw in Gordon Brown an approach which in my view, in terms of achieving the best deal for the UK in Europe, was almost completely misguided. It comprised an attitude of patronising disdain and an unwillingness to show the common courtesy of attending meetings to their conclusion, if attending them at all, with the inevitable outcome that those who were patronised and ignored were disinclined to be helpful to British interests when considering specific proposals that came forward. I strongly urge this Government to take a different approach.

I do not support the idea that was floated before the election, but not so far pursued, of posting a Treasury Minister permanently to Brussels. This would isolate them from events at home and deny them the joys of having to explain themselves and the Government to Parliament. No other EU member state, as far as I am aware, does that—and for a good reason. There needs to be a continued link between the domestic ministry and Brussels. However, Treasury Ministers should spend much more time in Brussels and also, just as importantly, should do the rounds and visit their opposite numbers in their own countries to discuss on a one-to-one basis what we believe is the sensible way forward on proposals like this. For example, during the Swedish presidency, the noble Lord, Lord Myners, did just that. We need to be in a position where we know our opposite numbers better, at an earlier stage, because the value of that kind of charm offensive in an international body such as the EU cannot be overestimated. I realise that this is very time-consuming, but diplomacy—which to a considerable extent is what we are talking about—is a time-consuming business.

I also think that the Government need to review not the quality but the quantity and seniority of officials dealing with European financial matters. It has been a constant theme of debates during my time in your Lordships' House that, while individual officials are extremely bright and work very hard, they are trying to do too much and very often they are not at a level of seniority where their voices carry as much clout as they should. I realise, of course, that in an era of cuts, talking about strengthening anything by putting in more resources is a difficult proposition to make. However, making sure the financial services industry is not hobbled is such an important economic necessity for the UK that I hope the noble Lord will feel emboldened to make representations in that direction.

It is also important, as the Foreign Secretary pointed out last week, that we make sure that we get more of our best civil servants working in EU institutions. The value of this has been well understood for many years by a number of other member states—the French and the Irish in particular spring to mind—but we have been woefully neglectful in this area, and it has been reflected subsequently in the policy documents that have flowed from the EU.

In the months ahead, Treasury Ministers will necessarily be in a defensive mode on this directive, mitigating the potential damage that it might cause. However, for the sake of the UK financial services sector and the British economy, they need to get onto the front foot, think ahead and get in first so that when the first drafts of future directives in this area appear, they will more broadly reflect UK interests than has so often been the case in the past, and has been in the directive that we are discussing tonight.