Personal Service Companies (Select Committee Report)

Lord Stewartby Excerpts

Tuesday 17th June 2014 Lords Chamber

[Lord Stewartby (Con)]

My Lords, I do not know whether it was my timing that went wrong, but it enables me to take a slightly more detached view about proceedings over the past couple of hours. I have crossed out most of my speech anyway, so that is no problem.

What is left is a whole area of vagueness. There is very little in the way of action taken. You get the feeling that somehow people thought that, if they let things happen, that would be all right. However, a little while ago I checked through the nature of this issue and it raised a question in my mind as to what the people who are running the bodies think they are trying to do. A lady professor from Oxford remarked, “If you don’t know what you’re trying to do, you are not necessarily going to be very successful”. It is that sort of attitude that I felt had spread through a lot of our deliberations.

We all know that the arrangements for the way things work mean that it is quite difficult sometimes to get straightforward answers to straightforward questions, but we took that to some sort of an extreme. Whenever these issues came up, I asked myself what the authorities were trying to achieve. Did they want to have more of these companies or fewer, or did they not mind either way? This is a culture that spreads through a lot of the areas that we have been discussing this evening. I think that the whole show lacks not only direction but any sort of impetus. I do not think that it is possible just from observing what happened in the cases that we looked at to know whether the authorities actually have any objectives of their own. Do they stop and think whether they are doing what a reasonable person might do? I did not get very far ahead with my little investigations on that front, but I do not think that you will get a well organised and efficient body if its objectives are so vague. How would we know whether we had done a good job if we did not know what we were meant to be doing? It sounds rather asinine because it is such a simple issue.

If you take it in the round, covering all the areas that we have been looking at, you would find quite a lot of comments about what people did but not why they did it, or whether they were pleased with having done it, or however you would like to express it. I would ask that my late contribution to this discussion should not merely be filed away in a corner, because big changes are needed in the structure of management in a lot of the areas that we have been talking about. This is the wrong end of the debate to set off with a lot of new ideas—they are certainly not personal to me—but I hope that perhaps I have spent a bit of time trying to judge what would happen in an ideal world. It would not be quite like the world that we have in this area and there is a huge opportunity for improvement. It is necessary because a lot of what we were looking at is almost incomprehensible unless you are a specialist or expert in the field. I leave with the committee the thought that we could be a little less inert when we tackle these areas and I hope that that will come without too much delay.

Financial Services (Banking Reform) Bill

Lord Stewartby Excerpts

Tuesday 8th October 2013 Lords Chamber

[Lord Forsyth of Drumlean]

I did not say that I necessarily accepted the Government's conclusion: I was merely testing the Government on the logic of their own position.

[Lord Stewartby (Con)]

My Lords, I came in this afternoon hoping for enlightenment. I received much more and varied judgment expressed from all corners of the House. But the one thing that everything leads to is an assumption that the ring-fence will not work and I am afraid to say that I agree. I do not say that with any satisfaction. A lot of time and effort has been put into this by very well-informed people, but it is against the ethos of the institutions and the markets in which they operate.

To say that we are going forward as an experiment is merely an attempt to sum up where we have got to in this afternoon's debate. We cannot just leave it like that. If there is generally—not just in this House but in a more widespread way—fundamental doubt about whether something as important as this will work, we have to assess whether we are bound to follow that structure. All I have heard so far leads me to think that ring-fencing is not workable. We ought to accept that situation as soon as possible. I leave it to others to follow more logically what I have rather stumblingly set out.

Financial Services (Banking Reform) Bill

Lord Stewartby Excerpts

Wednesday 24th July 2013 Lords Chamber

[Lord Stewartby]

My Lords, when I came into the Chamber this afternoon I was nervous because I would have to make a confession, that I do not really understand large tracts of the Bill. I thought that I had better be honest about that. My noble friend Lord Higgins has put his finger on the spot—this is nothing that can be sorted out by fine words. There is an awful lot of verbiage in the Bill. There are pages and pages of elements designed to go wholesale into the record of other Acts. That is not a workable way of dealing with this sort of technical and difficult material. We have to acknowledge that. A great deal still remains to be done on this legislation. I have no doubt that many amendments will be tabled, but it is easy to lose track of them all. There are so many—so many are fundamental, and so many adjust other ones—that you do not get a clear run at it. My nervousness about coming in this afternoon is somewhat eased by having got that off my chest.

I have looked at banking legislation in some considerable detail for 25 or 30 years. Although I have often found the whole performance difficult to follow, I have never met anything quite as complicated and unmanageable as the present Bill. It is not an advantage to say that the ring-fence issue will be with us perhaps rather more strongly than it has been so far. Personally, I think the two cultures are incompatible. We need a change of culture—that is absolutely fine and other noble Lords have mentioned that. You do not have the same sort of mental processes going on if you run a retail bank as against an investment bank. We kid ourselves if we do not face up to that. The whole scene has become structurally complex with whole new architectures put in place. For obvious reasons, there has not been an opportunity to examine most of them in careful detail—as there needs to be. There is a lot of work ahead on this Bill. Some of that work will be very technical. Again, one has to face up to that. A lot of it will need detailed attention.

I take one particular example: the Prudential Regulation Authority. What is it trying to do? In the literature of this complex subject over the past three or four years, there is an almost continuous confusion between regulation and supervision. They are not separated in the minds of many people—practitioners, commentators and others—so we start from a very difficult and unbalanced situation. Regulation is—funnily enough, because that is what the Latin word means—about making rules and using the structures to construct this new architecture. But it is not just a question of terminology. If you start going at a problem and you are mentally confused between regulation and supervision, you are not going to get to a sensible answer. I fear that this is what has happened with quite a lot of what we were looking at before.

My noble friend Lord Higgins’ comment about a three-dimensional jigsaw was very good, because that is exactly what happens. We almost have to cut the Bill up and lay it in different quarters so that you know to what it is referring. That was a vivid way of describing it.

Many more issues need delving into. Does the FCA, the Financial Conduct Authority, receive supervision charges? Does it do most or all of the supervision and the criteria for that? What is actually meant does not come out of the text. I had assumed that it was a fairly simple issue, but I am not at all sure that it is. This is typical of the sort of thing which brings misunderstanding. After all, if people do not understand the difference between regulation and supervision, they are hardly going to get it right, because a whole lot depends on what is put into the assumptions. I do not think that we have so far had any serious comment on this. There are those who deal with this sort of matter all the time, but they have not come up with any serious reactions about supervision. You have to look through pages and pages of paperwork on this sort of thing before you can even find the word, whereas regulation is lightly talked of, as if it were the answer to all our problems, and yet it is based on an incomplete understanding of the tools.

Are people who have not worked in—or had a full experience of—financial markets, which cover the retail end of business life, likely to be people whose judgment will be satisfactory and reliable when they look at the particular issues which these bodies throw up? It is no great discovery to say that the PRA, the FCA and the FPC added together should cover the whole of the territory that we are addressing, but they do not entirely do so. It leaves me wondering about what happens inside the businesses themselves, because all these changes have undoubtedly created an enhanced role for the audit committees of insurance companies and banks and so on.

The difficulty of finding the right people to operate as private sector employees ends up with a doubt as to whether one was actually getting the right skills to handle these very difficult issues. This throws a greater responsibility on audit committees and auditors, internal and external, but they do not seem to have got their heads together to find out why it was that such appallingly made business was put together by people who were not fully experienced in part of the area where they were meant to operate. After all, how deep should an audit committee dig into the material without getting to the point where it is second-guessing senior management? Those are two different roles. We keep coming up with the fact that there are too many loose ends for it to be easy to understand what is really going on. There are huge discrepancies between published accounts of large companies and the outcome of what has happened once people have recognised the bad debts and what they do to a balance sheet.

That is plenty from me and I am sorry that so much of it was vague and imprecise, but I attribute a little bit of that to the material and not to others here today. My colleagues and other noble Lords have been very patient.

Public Service Pensions Bill

Lord Stewartby Excerpts

Monday 21st January 2013 Lords Chamber

[Lord Naseby]

My Lords, in moving the amendment, I must declare an interest as a trustee of the Parliamentary Contributory Pension Fund and as its only active pensioner within the membership of the fund.

The amendment relates to Clause 31—Parliamentary and other pension schemes: pension age. The clause amends Schedule 6 to the Constitutional Reform and Governance Act 2010, to which I shall hereafter refer as CRAG, by inserting a new paragraph 29A, “Pension age”, into that schedule. It is an enabling measure, not a requirement, as was made clear in the Commons. It enables IPSA, in relation to MPs and the officeholders within its remit, and the Minister for the Civil Service, in relation to the ministerial scheme, to introduce for future benefits a provision whereby “normal pension age” within these schemes will rise automatically with changes in the state pension age.

The PCPF trustees take no issue with the measure itself. As statutory consultees under CRAG, it will be for the trustees another day to debate with IPSA/the MCS the detail as to how such a provision may be implemented for the future. However, we are concerned that the drafting creates ambiguity in the legislation governing the PCPF such that it potentially undermines existing protections afforded to PCPF members in a way that we doubt Parliament intends.

It is important to understand the background. The legislative framework of the PCPF was overhauled by CRAG and is governed by that Act. There was extensive debate at the time of the passage of CRAG about the need to ensure that the accrued rights of PCPF members were appropriately protected in legislation. That was particularly important given that the setting of MPs’ future pension provision was by that Act being transferred to an independent body in IPSA. The legislation appropriately prescribed the boundaries of its powers.

Those boundaries, set out in Schedule 6 to CRAG, were described as follows:

“My aim is to ensure that the statutory safeguards afforded to members of other occupational pension schemes broadly apply to the parliamentary scheme. As with statutory protection for pension schemes elsewhere, amendment 74”—

the government amendment—

“would put a double lock on any provision adversely changing accrued pension rights. It would first be necessary for the trustees to consent to the scheme making such provision and, secondly, each member would have to give his or her informed consent to any changes to accrued rights”.—[Official Report, Commons, 2/3/10; col. 854.]

The details of those boundaries can be found in paragraph 19, “Protection of accrued rights” and paragraph 20, “Meaning of accrued right”, in Schedule 6 to CRAG. These provide, at paragraph 19(2), that:

“The new scheme must not make any provision in relation to an accrued right which puts (or might put) a person in a worse position than the person would have been in apart from the provision”.

Paragraph 20(2) says that the term “accrued right” means,

“a right (including a contingent right) or entitlement to or in respect of a pension or future pension payable out of the Fund”—

the PCPF—

“which has accrued in respect of service before the provision comes into force”.

The protection does not apply if the PCPF trustees consent to the making of the provision and informed individual member consent requirements are met.

Our concern, as PCPF trustees, is that the clause as drafted risks going beyond the narrow scope to which the Government referred. It is important that this does not happen because the structure of the clause means that it disapplies the accrued rights protection in CRAG and the so-called “double lock” enshrined in CRAG would not exist at all. At its most simple, the difficulty with the clause is that it will import language into CRAG that is inconsistent with the drafting that is there already. With inconsistency comes ambiguity and that risks undermining the double lock that currently exists. The clause fails, for instance, to speak of the removal of the protection as applying only in respect of service after it comes into force, this being the critical aspect of the existing CRAG protection.

I have two questions for my noble friend on the Front Bench. First, what comfort can he provide that the carve-out will not undermine the existing CRAG protections other than to introduce an enabling provision to allow IPSA or the MCS, as appropriate, to tie future service benefits to an NPA that uprates in line with changes to SPA? Secondly, can he confirm that the wording in Clause 31,

“(as well as other benefits)”,

does not extend the application of the carve-out to any benefits other than relevant accrued benefits? I realise that the second question has some technical dimension to it, to which I shall briefly refer. It arises from the wording currently in Clause 31 by way of proposed new paragraph 29A(1) to Schedule 6 of CRAG. It provides that the carve-out from accrued rights protections, to enable the introduction of an NPA that uprates automatically with changes to SPA, is limited. It will apply only to “relevant accrued benefits”. Defined at the proposed new paragraph 29A(3)(d) to Schedule 6 to CRAG, they are benefits accrued after the coming into force of that SPA link—that is, future service benefits. However, the Bill refers to the carve-out applying to,

“relevant accrued benefits (as well as other benefits)”.

The concern is that the additional words in parenthesis could be read as suggesting that the carve-out applies to all benefits, not just to “relevant accrued benefits”.

Having proposed this quite complicated amendment, I hope that nevertheless the Minister will be able to clarify the position and indeed give comfort to me and the other trustees. I beg to move.

[Lord Stewartby]

My Lords, I support my noble friend, who has explained this technical area very skilfully. Like him, I have to declare an interest as a member of the parliamentary fund and I was a trustee for several years. The great advantage of that is that one does not come to the details of this sort of provision completely unsighted. However, it is a very complicated Bill. As the noble Lord, Lord Eatwell, mentioned, it contains a lot of areas of uncertainty. The same point about ambiguity in drafting was made by my noble friend Lord Naseby. All I want to do is help support the case made by my noble friend and underline every point at which accrued rights are involved. That is a very sensitive area. When the Bill is finally tidied up, special efforts must be made to ensure that accrued rights are dealt with as if they were sacrosanct. I believe they are, but that must be what happens in practice. With those few words, I support my noble friend and hope that the Committee will be sympathetic to the case he put so clearly.

Financial Services Bill

Lord Stewartby Excerpts

Monday 26th November 2012 Lords Chamber

[Lord Stewartby]

My Lords, I must be very brief and I shall speak only once. I want to say something in support of my noble friend Lord Flight, who made a very strong case. I have never been able to understand why financial advisers alone have no longstop for their potential liability in future years. I hope that this opportunity of having legislation which is relevant can be taken to set that right.

[Lord Peston]

Perhaps I could just ask my question now, please. When the noble Lord, Lord Flight, talked about financial advisers, was he talking only about people who advise and receive a payment for their advice, or does his amendment cover those who give advice without payment?

Financial Services Bill

Lord Stewartby Excerpts

Monday 8th October 2012 Lords Chamber

[Lord Peston]

My Lords, the noble Lord has introduced his amendment as a probing amendment, which I take to mean that it is meant to be educative. My natural tendency is to agree with him, but I have great difficulty in that I do not have the faintest idea what he is talking about. In particular, I do not know what crowd funding is. The amendment says it should have,

“the meaning given in section 417”,

but there is no Section 417 in any of the documents that I have. It would help me enormously if he could extend my education and tell me what this is all about.

[Lord Stewartby]

My Lords, I, too, would like some assistance from my noble friend. It is not easy to understand, in large parts of this Bill, what it is trying to get at. I raise this under discussion of Clause 6 because that is what permits the transfer of regulation of consumer and small business credit from the Office of Fair Trading to the new Financial Conduct Authority.

I have had an approach about this from the Finance & Leasing Association. They told me that they do not seek an amendment to the Bill, rather a commitment by the Government to a sensible timetable, to ensure the Government get the rules right and avoid the loss of important consumer protections. This is because the Government have set a very ambitious target date of April 2014 for the creation of a new regime for credit regulation. They propose a twin-track approach which will include a slimmed-down version of the Consumer Credit Act with enhanced powers. The Government say they want to transfer as much as possible of the CCA and associated OFT guidance into this new rule book by April 2014. However the detail of the new rule book will not be consulted on until the second half of 2013, and the final rules will only be available in March 2014. This makes the implementation of an April 2014 date virtually impossible. I would be grateful for enlightenment and assistance from my noble friend.

[Lord Barnett]

My Lords, I always like to be enlightened. I agree with my noble friend and I have a tendency to agree with the noble Lord, Lord Sharkey. However on this occasion I do not. I must apologise to the Committee. This matter is no doubt explained somewhere in the huge volume of papers we received at the outset, including the two volumes of the Bill. I must have missed it. I thought I was relatively assiduous in looking at this Bill. No doubt the noble Lord, Lord Sassoon, will tell us where it is. I am sure the officials with whom the Government generally agree—although not on every subject in the world, I understand, and sometimes they even prosecute or suspend them—must have explained what the noble Lord has failed to tell us. I hope either the noble Lord himself or the noble Lord, Lord Sassoon, will explain it more fully. I for one do not understand it.

Financial Services Bill

Lord Stewartby Excerpts

Wednesday 18th July 2012 Lords Chamber

[Lord Stewartby]

A brief point of order: the screen has got stuck.

[Lord Hodgson of Astley Abbotts]

My Lords, my noble friend has moved a very interesting amendment. We may be in danger of confusing two issues. The noble Baroness referred to impenetrable language. I quite accept that, but that is a question not of financial literacy but of improving the form in which the communication is made. To try and deal with financial literacy is a much narrower issue than impenetrable language. I support her entirely, but I would also add the form and content. How often do we get a letter from our credit card company saying that it is going to amend the terms in which the credit card is offered? It is four pages of closely packed print and what do we do but drop it straight in the waste paper basket. However, the company has complied with the requirement. In those cases, the famous phrases “less is more”—less information, better focused—is what we should be all about.

That is an important point though not exactly what my noble friend was driving at. I think my noble friend was driving at something designed to deal with people at an earlier stage of their life. In particular, it has relevance to Amendment 104C, in the names of the noble Lords, Lord Peston and Lord Barnett, about the unavoidability of some risk. One of the issues that has somehow got about in the world is that we can actually insulate people from risk. When we have financial literacy lessons, we need to emphasise to everybody that there is no product anywhere that does not carry some level of risk. I am looking forward to hearing the two noble Lords on this issue in a few minutes. I have only one question on my noble friend’s amendment. Who pays for all this?

Financial Services Bill

Lord Stewartby Excerpts

Tuesday 10th July 2012 Lords Chamber

[Lord Peston]

My Lords, I was hoping that the noble Lord, Lord Flight, would speak at much greater length on this matter, because I find this whole section of the Bill very difficult to understand. The notes on clauses—I do not know whether noble Lords have bothered to take a copy—are about the worst I have seen in my life. They simply repeat the clauses, with no explanation whatever. Therefore, I would like to ask, via the Minister—I am not sure how one does this in Committee —whether the central point here is to deal with an emergency where the emergency is such that you cannot wait? The noble Lord, Lord Flight, has not given us an example. I have had great difficulty thinking of one. Perhaps he could tell me later what particular sort of emergency he has in mind. The great stock market crash of 1929 is a relevant event from the point of view of financial instability. I am sure the noble Lord, Lord Flight, knows that Irving Fisher, then the world’s greatest economist, said at the time that there was no danger whatever of the stock market crashing, it would go on rising considerably.

If that situation repeats itself, our intervention would be too late. That is the problem. The real point is, technically, whether we could ever be early enough. Therefore, I just want to make sure that I fully understand what the noble Lord, Lord Flight, is saying, when he recommends this amendment, which otherwise sounds fairly sensible to me.

[Lord Stewartby]

My Lords, I would like to add a word to what the noble Lord, Lord Peston, has said, in particular to ask my noble friend Lord Flight about the frequency with which this situation is likely to happen. Would it be an exceptionally rare event, because that may affect the way in which one approaches it?

[Lord Flight]

My Lords, I was simply making the point that if this power is used, and as a check against its improper use, there should be the requirement to explain why.

Financial Services Bill

Lord Stewartby Excerpts

Tuesday 10th July 2012 Lords Chamber

[Lord Eatwell]

My Lords, the development of macroprudential regulators, the instruments for introducing macroprudential regulation, is a common theme in the UK, the European Union and the United States. Different models have been developed for the institution that is to be responsible for macroprudential regulation. In our own model, the Financial Policy Committee, we see what could be called a “central bank model”, where the alternative voices being brought to the table are to be represented by the independent members of the FPC. It will fall to them to challenge Bank of England house thinking and provide alternative perspectives. There is only a very small number of external members on the FPC and finding members with the experience and skills necessary to perform the role that we demand of them is, as has already been seen, very difficult, although at the moment we have an excellent group in the shadow FPC. An alternative model, which has been adopted by the United States Financial Stability Oversight Council, pursues a more stakeholder-oriented approach in which the appropriate voices from stakeholders actually have a direct role in the organisation of macroprudential measures within the United States.

Both the central bank model that we have pursued, which also applies to the European systemic risk board, and the stakeholder model have disadvantages. The key disadvantage of our central bank model is that we do not have enough diversity of opinion or access to new research and critical assessments of FPC measures that the stakeholder model might have. The problem with the stakeholder model is that the United States may find that its Financial Stability Oversight Council becomes mired in differences of opinion from different stakeholder interests and has difficulty in pursuing the coherent macroprudential policy that is required of it.

As we know, this whole area is, as I said earlier, an experiment—or, if the Minister prefers, a project. We are dealing with areas and matters that at present are uncertain. There is little agreed analysis or clear empirical assessment of how some of these tools will actually work. We will find out. We are going to experiment. We therefore need to harvest the widest possible spectrum of analysis. The amendment proposes that there should be a financial stability advisory panel, not a panel that is intimately involved in designing and implementing the measures. Those independent voices are provided by the independent members of the FPC but they are necessarily compromised by their role in dealing with very sensitive matters as they might have conflicts of interest if they have a wider role in the financial services industry. The financial stability advisory panel could contain individuals with such conflicts of interest because they would not have a role in actually managing the macroprudential organisation of the FPC.

The amendment suggests that we have this financial stability advisory panel providing that diversity of view from academics, perhaps from members of staff of international organisations such as the Bank for International Settlements, which is making a lot of the running in the development of macroprudential tools, and potentially from others who have particular skills in the analysis of systemic risk. It will be their responsibility to provide written advice to the FPC, prepare an annual assessment of the FPC’s performance, look at the effectiveness of individual measures and assess the effectiveness of particular directions and recommendations in the context of an annual report or assessment. This cannot do anything but good. It is simply an institutionalisation of the detailed examination, the variety of voices and the consideration of effectiveness that are so necessary in providing both coherence to the FPC and its general acceptance. A panel of this sort, given the responsibilities that are set out in the amendment, would add significantly to the effectiveness of the Financial Policy Committee. I beg to move.

[Lord Stewartby]

My Lords, I was interested to hear the comments from the noble Lord, Lord Eatwell, on the nature of the work that will face the panel. It sounds like something that overlaps considerably with the Board of Banking Supervision in the late 1980s. Obviously that was working in different circumstances, but each of the bodies require, or required, people of an unusual stripe who combine a practical experience of banking, and the difficult areas that it brings with it, with a particular canniness in identifying areas where they think that things are not as they should be, particularly in cases where that is not always evident until later when events have already taken place.

Are the would-be members of the panel now shadowing the work that will be theirs in statutory form as a result of the Bill? It is terribly important to get the people involved carrying a great deal of weight and clout but at the same time having inquiring minds—something that will help us to ferret out areas that have been unsatisfactorily dealt with. I will not say more now, but I am pleased that some of the reasons for having a panel such as this—20 years ago or more it was called the Board of Banking Supervision, or the BoBS—have been recognised as important in today’s different but difficult circumstances.

Financial Services Bill

Lord Stewartby Excerpts

Tuesday 3rd July 2012 Lords Chamber

[Lord Stewartby]

My Lords, I well remember the debates that we had all those years ago on the Monetary Policy Committee, and how many objectives could be added to the central one. This is a bit of a nostalgic occasion, because we are going through different subject matter but the same basic problems. I start from the point that the more of these extras you have, the more confusing they are likely to become for those who have to identify them and classify them under a heading—for example, “You’ve got a bit of employment here, and perhaps supply of finance. How is that getting on in our calculations?”. Those who attempt to allocate specific ingredients under these headings will fairly quickly find themselves with a lot of practical problems.

That leads me to say that I am probably a bit more cynical than sceptical than most noble Lords here today. There is a tendency to be overexpansive in economic policy-making, because Governments tend to be optimistic, and are therefore more likely to err on the side of overcooking than undercooking. Their focus also tends to be short-term rather than long-term. It is very difficult to feed in long-term assessments of this when it takes a good while for the implications of individual policies to be evident. I am, therefore, at the cautious end of this argument, and we ought to be very careful about not loading the process with too many objectives.

We should definitely say that nothing should conflict with growth or whatever we want, but it is different when one puts it in a negative rather than a positive way. You can add any number of “promoting”, “contributing”, “having regards to” and so forth, but the fact that there are all these different explanations illustrate that it is not a precise science. To treat it as though it were would be a recipe for difficulty and internal conflict. I may, therefore, be in a minority of one about this, but most of what has been said this afternoon comes from a starting point that itself is questionable.

[Lord Sassoon]

My Lords, the Government have always been clear that the Financial Policy Committee, as the body responsible for ensuring the stability and safety of the financial sector as a whole, must have financial stability as its primary focus. That is our starting point. However, we have been equally clear that the FPC must balance the pursuit of its primary objective for financial stability with the wider impact of its actions.

In our February 2011 consultation document the Government spoke of the need to,

“build the balance between financial stability and sustainable economic growth”,

into the FPC’s objectives. In addition, my right honourable friend the Chancellor made clear, when giving evidence to the Treasury Select Committee almost exactly a year ago, that we do not seek “the stability of the graveyard”. Our first shot at achieving this symmetry within the FPC’s framework was the creation of an economic growth “brake” for the FPC. The provision set out in subsection (4) of new Section 9C prevents the FPC from taking action that would significantly adversely affect the ability of the financial sector to contribute to medium- or long-term economic growth in all cases, regardless of the strength of the financial stability rationale. That is a very strong backstop provision.

However, the Government have listened to calls, both in another place and in our Second Reading debate in this House, for the FPC to be given a positive duty to support economic growth. In response to those calls, government Amendment 35A amends the Bill to give the FPC a secondary objective to support,

“the economic policy of Her Majesty’s Government, including its objectives for growth and employment”.

As many noble Lords are aware, this wording is identical to that used in the MPC’s secondary objective.

The noble Lord, Lord Eatwell, has used similar wording in his Amendment 34, but in the form of “having regard” rather than a secondary objective. I believe that in this case a secondary objective is more appropriate—more purposive, in the words of my noble friend Lord Hodgson of Astley Abbots—than “having regard”. We mean to be purposive here. The Government’s intention is to require the FPC to seek proactively to support economic growth. For this, you need an objective, not simply “having regard”.

Some noble Lords have questioned how such an objective bites in the context of the MPC. I am very glad that the noble Lord, Lord Barnett, is at last starting to get answers to his questions from the noble Lord, Lord O’Donnell, who is much more expert in these things than I am, and long may he continue to keep the noble Lord, Lord Barnett, supplied with explanations. In my inadequate way, I shall attempt to give one or two examples; first, of how the new secondary objective will impact on the FPC’s decision-making. I do not want to get sidetracked too much on the MPC but I will make one or two remarks to suggest that similar wording has impacted on the MPC as well. It is most important to think about the FPC, because that is what we are talking about here.

Let us imagine that the FPC takes action, such as imposing additional capital requirements, during the upturn of the cycle, when systemic risks are building up and financial stability concerns are heightened. If the situation changes—for example, the expansion subsides and the financial stability risks reduce—the secondary objective for economic growth will incentivise the FPC to remove those additional capital requirements in order to free up money for lending to the real economy. This effect will work in tandem with the new requirement for the Bank to review previous actions, which we will discuss in due course.