Financial Services (Banking Reform) Bill

Debate between Lord Phillips of Sudbury and Lord Higgins

Monday 9th December 2013 Lords Chamber

[Lord Higgins (Con)]

My Lords, I thought the noble Lord, Lord Turnbull, was going to come in. I welcome these clauses, although these four new clauses add even greater length to the Bill in addition to the amendments that have been made. The rate at which this Bill has been growing has been quite extraordinary, and we shall have to wait and see how it ends up. I remain rather concerned at the way in which drafting has taken place. My noble friend might consider whether it would be appropriate to have some form of consolidation Act bringing together this and previous legislation. If the legislation is to be understood by bankers, or indeed by anyone, it will be necessary to correlate the various provisions which will exist after we have completed our debate. We have four new clauses at Third Reading, which is subject to tight rules.

I have merely one or two points. I am glad the ideas put forward by Mr Paul Volcker in the context of proprietary trading have been recognised as important. I have had many interesting exchanges with him, both as a Minister and as chairman of the Treasury Select Committee, and indeed in relation to the Claims Resolution Tribunal for Dormant Accounts in Switzerland, a quite different thing. He has been wise in all that he has said, but the problem is putting wise ideas into legislation.

As my noble friend has just said, if the Financial Times in the past few days is anything to go by the American legislation is going to be over 1,000 pages, while over here we are going to have a review and then a review of the review. This is going to take some time. Meanwhile the American legislation may be in place. What are we doing to co-ordinate the approach? This is an international matter. There are British banks operating in America and American banks that operate here. It would create considerable difficulties were the rules in one country to differ significantly from those in the other. A degree of international co-operation as soon as possible will be important if, as we all want, we are to ensure that proprietary trading does not carry both the risk to which my noble friend Lord Lawson referred and dangers in general to the banking system.

[Lord Phillips of Sudbury (LD)]

My Lords, I ask whether the independent review under Amendment 3 is on the same basis as the review carried out by the PRA under Amendment 2. Amendment 2 specifically refers to the risk factors that proprietary trading embraces, but there is no reference to that in Amendment 3 with regard to the independent review of proprietary trading. Is the second, independent review to be undertaken on a wider basis than the PRA review? Will it be able to look at some of the broader cultural aspects of proprietary trading by banks? I hope that question is not too late in the day for the Minister.

Financial Services (Banking Reform) Bill

Debate between Lord Phillips of Sudbury and Lord Higgins

Wednesday 27th November 2013 Lords Chamber

[Lord Phillips of Sudbury]

Yes.

I want to see, and I think that this may commend itself to the House, a cool look at just what the consequences are beyond the merely financial—you can scarcely use “merely” in terms of the numbers concerned. In Committee, I tried to remember a quote from John Maynard Keynes in 1936, when this type of trade was trivial when compared with today. He stated in his great book, The General Theory of Employment, Interest and Money:

“When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done”.

How pre-eminently true that is. The noble Lord, Lord Turner of Ecchinswell, made the bold but timeless statement when he was head of the FSA that a great deal—I am not sure that he did not say the majority—of what the City now does is socially useless, because, sadly, only a tiny proportion of these gaming trades has any commercial purpose whatever. They are pure gambling. It is not that they are buying forward raw supplies for some manufacturer to even out the ebb and flow of world prices in whatever commodity or mineral it is—nothing to do with it; it is pure, unalloyed gambling.

[Lord Higgins (Con)]

My Lords, I am trying to follow my noble friend’s argument. Precisely what contract is he describing as a gaming contract?

[Lord Phillips of Sudbury]

I will do my best to explain. Let us consider Merrill Lynch. It cornered, it is estimated, 50% to 80% of the world’s copper in a series of purchases last year, I think it was. That was pure gaming. It was not to satisfy any of its customer needs; it saw potentially vast gains in moving into the world copper market and simply buying it up. Can you imagine: 50% to 80% of all the world’s copper was purchased? That was pure gaming. In fact, I think that it went wrong and was part of the collapse, but I would not lay my life on that.

These are extremely difficult issues. The cultural and ethical aspects are deep. The vast majority of people engaged in such trading are decent, good people. They are not all crooks, but the system in which they are trapped is one which, first, was at the root of the disastrous financial and banking collapse from which we are still suffering—and there is a long way yet to go. Also, we should be interested in the wider outfall. The noble Lord, Lord Lawson, coined a rather vivid phrase last night about the cultural contamination that can go on when one part of a system loses all contact with any ethical underpinning.

Let us consider what is happening in our nation at large, and the extent to which gaming is now spreading rapidly. This week, I heard of one medium-sized town that has more than 70 betting shops. In my town, they have spread like a disease. I am the first to accept that it will be a difficult set of issues to address, but taking a cool, calm look at the wider effects of what is going on in the City of London must surely be for the public benefit.

My noble friend may argue that we have review overload and that the City must be allowed to settle down and not have any further big inquiries. We have had all sorts of them, have we not? That would be a profound mistake, because, often, the more difficult the inquiry, the more important the potential outcome. This proposal has no pre-judgment. Some of my remarks in opening the debate on the amendment, and some of my assumptions, may, in the light of a deep, extended inquiry that looks at all aspects of these difficult matters, be proved wrong. As I emphasise, it would be an open-eyed inquiry.

I refer to the Kay inquiry, which was published in July 2012. Many noble Lords will remember it. John Kay undertook an interesting and important inquiry. He stated that,

“trust and confidence are not generally created by trading between anonymous agents attempting to make short term gains at each other’s expense. Trust and confidence, or their absence, are the product of the prevailing culture”.

I want a better hold on what the prevailing culture is and what part in it is played by the City of London, which is central to our economic future and our thriving.

I hope that there will be support for this proposal. Even if the Government do not like some of the detail, I hope that they will take the nub of it away and, conceivably, come back at Third Reading with their own amendment. Such a review will speak to the prevailing values of Britain today and to the spirit of our times. In a profoundly and dangerously materialistic society, surely nothing could be more material to us all than to seek to get beneath these complex and technical facts and issues, in order to understand the wider underlying effects. I beg to move.

Financial Services (Banking Reform) Bill

Debate between Lord Phillips of Sudbury and Lord Higgins

Wednesday 23rd October 2013 Lords Chamber

[Lord Phillips of Sudbury]

My Lords, I, too, support the amendment. I moved Amendment 91B at the close of our second day in Committee, which overlapped to a considerable extent with this amendment. In my amendment, I also talked about looking at the cultural as well as economic effects of this mass of gambling, as it is, within the financial markets. I hope that the Government will smile upon this; it may be that if it comes back on Report I will try to amalgamate my amendment and this one.

[Lord Higgins (Con)]

My Lords, I also support my noble friend’s amendment, but with some qualifications and a request for some clarification. The amendment simply refers to “proprietary trading by banks”; that does not distinguish between one part of a ring-fenced bank and another. The arguments on this issue are so clear that we should take a perfectly clear view that there ought to be no proprietary trading whatever by any ring-fenced bank.

There is also no real need to wait three years for such an inquiry. My noble friend referred to the Volcker rule in America; not all of us in this Chamber have Paul Volcker as a personal friend, but I have great respect for him. He is absolutely right that this should not be carrying on in the United States. Although it may be that there has been a decrease for the moment, over a period of three years the situation might change somewhat. Therefore, we could take a clearer view on this between now and Report than is set out in the amendment. As my noble friend has pointed out, this is effectively the banks’ carrying out risky trading on their own behalf—in the past, not infrequently, it was risky trading on their own behalf with clients’ money—and this, again, is a crucial point. Perhaps we should clarify that aspect of the matter, but I have not the slightest doubt that this is a move in the right direction and I hope that we can make rapid progress on it.

Financial Services (Banking Reform) Bill

Debate between Lord Phillips of Sudbury and Lord Higgins

Tuesday 15th October 2013 Lords Chamber

[Lord Higgins (Con)]

My Lords, both these amendments have much to commend them. The point that I would like to pick up regarding Amendment 43 is the position of the banks in which the taxpayer has a large holding. Having bailed out a number of banks, it is extraordinary that the Government have stood back completely from any involvement at all in what those banks are doing. In the context of competition, which we are now discussing, there is a strong case for them to set an example. This would enable at least a degree of competition to be introduced at this stage without much delay.

Amendment 102 also has much to commend it. It suggests that the inquiry should look into a series of aspects with regard to banks such as the level of competition, the obstacles to it, other actions and so on. One should add to that a careful study of what the economies of scale in banking actually are, because I suspect the reality is that they do not exist to anywhere near the extent that the size of the banks at present would suggest. On the other hand, we would find that there were major diseconomies of scale, not least the enormous risks to which we have been exposed as a result of banks being the size that they are. We frequently say that they are not only too big to fail but too big to manage. It is clear that they are too big to manage, and that is a major diseconomy of scale.

If we are going to set up the kind of inquiry that the Opposition are advocating, which I would support, it needs to look at economies of scale in this context and consider whether—given that the banks seem to have been motivated as much by megalomania as by anything else—they are of an appropriate size or whether some consideration ought to be given to whether competition would be increased if they were broken up. It is curious that competition in this area has been, as far as I can see, in no way affected by this or any previous Government’s overall competition policy, which has simply not been applied here. If, as the noble Lord said just now, the major banks have probably 80% of the market—given that normally anything over 30% would be appropriate for an investigation—we need to look at that carefully.

The lack of competition is affecting two things: the supply of loans to consumers and small businesses in particular, and the price. It is clear that there is a serious lack of supply for businesses that are trying to get finance for expansion. Despite all the Government’s efforts, of which there have been a number, to increase the supply of loans to small businesses and others, the loans do not seem to be getting through to the people whom the Government would like to help.

As for the price, one has only to look at the cost of capital to banks and then at the amount that they are charging consumers to realise that the situation is lunatic. I wish my noble friend Lord Flight well because there must surely be scope for something to be done on that issue. The difference between the cost and the amount being charged is totally disproportionate. This came up earlier in Question Time, when my noble friend on the Front Bench replied that there is concern about the amount being charged by banks when compared with what is charged on payday loans and so on. A helpful and illuminating article in the press in the past few days brought out this point. I hope that one can get something done about that.

We have some way to go and noble Lords will no doubt wish to return to this matter on Report. I hope that we will then take a definite decision or, even more, that the Government will respond to the proposal for a study. However, this is only a study, and a number of other measures to which I have referred go wider than this. These measures could be taken now and have some effect on the appalling oligopolistic situation in the market at the moment.

[Lord Phillips of Sudbury (LD)]

My Lords, I, too, broadly support these two amendments. It is encouraging that every speaker so far has taken that broad point of view. As my noble friend Lord Sharkey said in opening this debate, the amendment in his name and that of the noble Lord, Lord Glasman, is a probing amendment. I hope that the noble Lord, Lord Eatwell, was advancing Amendment 102 in the same spirit. I very much hope that the Minister will say that he will take away the contributions made, so that we can come back together on Report with an amendment that answers some of these concerns.

Perhaps the most striking statistic that we have had was that given by the noble Lord, Lord Eatwell, who said that in Germany 80% of banking is provided by local regional banks whereas here the figure is only 3%. I think that was said by the noble Lord, Lord Eatwell, or perhaps it was the noble Lord, Lord Glasman.

--- Later in debate ---

[Lord Higgins]

My Lords, my noble friend says that people have been very slow in the past, but he is now telling us that the OFT will decide whether to make a referral—not actually do anything, just make a referral—by 2015. Does it really take from now to 2015 to decide whether the banks need to be referred?

[Lord Phillips of Sudbury]

My Lords, if I may, I would add that my noble friend talked of being too slow, but in this debate several noble Lords have made the point that it is not slowness which has afflicted the large clearing banks but immorality. Whether you are talking about trying to manipulate the LIBOR rate or PPI or identity insurance—you can go on and on—there is the sheer scale, impersonality and lack of relationship or any sort of customer allegiance. I fear that these have rotted the foundations of so many of these colossal banks. Does he not therefore understand that the gist of these amendments is to try to replace that state of affairs?

Parliamentary Voting System and Constituencies Bill

Debate between Lord Phillips of Sudbury and Lord Higgins

Wednesday 16th February 2011 Lords Chamber

[Lord Higgins]

My Lords, I have not previously intervened in the debates on this Bill, although I have voted several times—in, I feel bound to say, both directions. I begin by making a procedural point. One of the most damaging things done by the previous Labour Government was to change the situation with regard to guillotining Bills. The old procedure was always that if the Government felt that there was undue delay or something was urgent, there would be a guillotine Motion debate for half a day and a vote at the end of it. This was replaced by programming, which was carried out throughout the previous Labour Government. Regrettably, it is continuing under the coalition, with the result that we will no doubt continue to have Bills arrive in this place with some parts having been very quickly considered. I very much hope that the Government will abandon programming from now on.

The reality is that the programming on this Bill has meant that debate in the other place has been severely curtailed, not least in respect of the amendments made by this House. The amendments that we are discussing today were given four hours of debate, and on this important constitutional amendment the debate lasted for 45 minutes or rather less. It is difficult to see how the other place can consider our amendments and think again in the course of a debate of that length. The fact that the other place has sent the measure back here needs to be considered in that context.

I turn to the substance of the amendment of the noble Lord, Lord Rooker, which I enthusiastically support. My view throughout my time in the House of Commons—this remains my view—is that Members of the Commons are there as representatives, not delegates. As I said to my former constituents many times, that means that I will not vote as I would vote if I knew how a majority of my constituents would vote. I will consider their views and take them into account and then I will vote having taken all that into account. A referendum strikes fundamentally at that principle. Therefore, I have always been opposed to referendums but, as the noble Lord, Lord Rooker, points out, they have always been advisory. Therefore, I am totally opposed to the idea not of an indicative referendum but of a mandatory referendum, which is what we have been considering.

I strongly supported the noble Lord, Lord Rooker, and voted in favour of his amendment in which he made the basic point that the referendum should not be mandatory. Alas, that amendment was not carried. However, as he rightly points out, the amendment he is now putting forward constitutes a compromise. Although I am totally against a mandatory referendum altogether, I certainly enthusiastically support the noble Lord’s amendment. I very much hope that your Lordships will return it to another place with a large majority. Once one has considered these issues, it seems to me that the case for having a threshold is very strong indeed.

In the very short debate that took place in another place, Mr Winnick intervened in the Minister’s speech. He asked:

“At what point below 40%—10%, 15%, or 20%—would the Government conclude that the result did not carry any credibility whatever?”.—[Official Report, Commons, 15/2/11; col. 902.]

That is the situation. We have no idea what the turnout may be, but it may be very low indeed. We may have a very small majority on a very low turnout. We will then find that the law is changed automatically on a major constitutional point without any reference back to the House of Commons whatever. I believe that that is completely and totally wrong. I shall support the noble Lord in the Division Lobbies.

[Lord Phillips of Sudbury]

My Lords, initially, I was inclined to support the amendment of the noble Lord, Lord Rooker. However, as time has gone by, I have to confess that my view has changed. I say at once that the arguments are evenly balanced—I think that many noble Lords agree with that. The noble and learned Lord, Lord Lloyd of Berwick, could have added to the strength of his already strong case by referring to the fact that the alternative vote referendum was a major plank of the manifestos of both the Liberal Democrat and Labour Parties at the recent general election.

I come back to the issue of a deterrent to voting at the forthcoming referendum, assuming that we get this Bill through. I disagree with the noble Lord, Lord Lawson; my understanding is that if we accept the amendment of the noble Lord, Lord Rooker, the probability, rather than the possibility, is that it could inadvertently act as a deterrent and a disincentive to vote. It is true to say that at many of the forthcoming local elections there will not be a 40 per cent turnout. There is no suggestion that local government comes to a halt if 40 per cent of the electorate do not turn out to vote for anybody. Indeed, the noble Lord, Lord Rooker, said that more than 40 per cent of this House voted for his amendment the first time round. But how many votes in this House reach the 40 per cent figure? What would happen if his amendment were passed and the referendum turnout was 39 per cent, with two-thirds of that 39 per cent being in favour of AV? What would then happen if the measure were to come back to this place? Noble Lords may say they can improve it, but you may not get even a 40 per cent turnout in this House.

What do the public think about a situation where we say, “We sort of trust you. This is, sort of, the decision which the public should make. But in the end, if 40 per cent of you don’t turn out, we will decide”.? There will not be a lot of understanding of that by the public, especially given that there is no more partisan issue imaginable than that of the voting system.