Barnett Formula
Lord Teverson Excerpts(10 years, 11 months ago)
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Lord Teverson (LD)
My Lords, I note that the noble Lord, Lord Wigley, asked that political parties include a needs-based formula in their manifestos. I somehow suspect that they will not be on the front pages or among the first six pledges—or three or however many pledges we choose—because this is one of those subjects that has become all too difficult, which is why this temporary situation has lasted for three decades. It certainly needs to be changed but, having said that, what is the difference that such a change would make in England? It would be an extra 4%, which I am sure would be very much welcomed by local authorities but is not a big difference. It is rather an obscure issue for the electorate, which does not make it any less important, but most people would probably interpret it as something to do with the financing of one of the more obscure London boroughs, rather than attribute it to one of our noble colleagues here.
I should like to move on and ask: what should really be done if the situation gets a little more difficult? A needs-based formula would certainly be better. I am slightly sceptical about an independent commission but the European Union manages rather objectively to distribute structural funds, so it may be that this sort of thing can happen even within a political environment. Two areas are even more important than this, one of which is the rural/urban divide that, unfortunately, my Government have so far not been able to mend much, if at all, during their period in office. I remind noble Lords that rural areas pay higher tax bills, get some 52% less in government grants, and have fewer public services because they are more difficult to deliver there. That is one of the fundamental areas, which, if we keep a similar form of local government finance to what we have now, needs to be fixed very quickly and thoroughly.
The other area that has been mentioned by other noble Lords, which is equally if not more important, is that we need to do something far more basic than changing the Barnett formula: we need to increase substantially the taxation that is raised locally. Rather than mess around with the Barnett formula, we need to start to implement a much greater degree of localism. Clearly, we have got rid of a lot of ring-fencing over the past few years. We have got rid of capping, although we have replaced that with other ways of restraining local expenditure. We have taken away barriers stopping local authorities from raising revenues in all sorts of ways. I welcome that, which came from one of the Government’s early initiatives under localism. However, over the medium term we need to move financing from 5% towards 20%, and hopefully in the longer term far higher, so that we have much more local accountability and democracy, and better local decision-making. Within Europe we are the most centralised state as far as taxation is concerned, certainly among the major states. That needs to change. We need to change the rural/urban divide. If we can do all that, then I would support my noble friend Lord Shipley in changing the Barnett formula as well.
Taxation: Tax Collection
Lord Teverson Excerpts(11 years, 4 months ago)
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Lord Teverson
To ask Her Majesty’s Government what action they intend to take to increase the collection of tax revenue following Apple’s zero return for United Kingdom corporation tax.
Lord Newby
My Lords, I am unable to comment on the tax affairs of individual companies, as doing so would be a breach of taxpayer confidentiality. Tax avoidance by multinational enterprises is an issue that requires co-ordinated global action. The UK is committed to supporting multilateral action through the G20 and the OECD. The OECD will present an action plan for tackling these issues to the G20 later this month.
Lord Teverson
My Lords, I thank my noble friend the Minister for that reply. What conversations are the Government having with the Republic of Ireland to prevent footloose and stateless subsidiaries paying derisory levels of corporation tax in its domain? I come back to my fundamental question. Is it right that my wife’s small printing business last year paid its full dues of £22,000 of corporation tax, when Apple, with a turnover in the UK of £1 billion, paid absolutely nothing?
Lord Newby
My Lords, the noble Lord raises an important point. Eighty-four per cent of Apple’s non-US operating income was booked by an Irish subsidiary that was not tax-resident anywhere and paid tax at a rate of 0.05%. That is clearly unacceptable and is why the G20 will look at the issue later this month. It will be presented with a report from the OECD that suggests not only what action is needed but sets deadlines for taking it and makes proposals on the resources that are going to be needed to implement the new rules.
Economy: Sustainable Jobs
Lord Teverson Excerpts(11 years, 5 months ago)
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Lord Teverson
My Lords, I was at the final two debates last night, one of which was about small and medium-sized enterprises and exports. Many noble Lords commented that language was one of the challenges for small and medium-sized businesses in exporting. One of the most difficult areas of language, with which Google Translate would never deal, is sayings or colloquialisms. One of the first I ever learnt was, “To every cloud there is a silver lining”. I want to talk about the cloud, and then I will talk about the silver lining.
The cloud is literal: it is carbon emissions. It causes global warming and is a real issue. Now that we have passed 400 parts per million in carbon emissions and are moving towards higher temperatures, we have, as noble Lords know, the retreating polar ice caps and sea levels going up some 3 millimetres every year. It is carrying on. I was obviously delighted by my noble friend’s pronouncement about investment this morning, but I was even more ecstatic about President Obama’s recent pronouncement about the United States restarting its global and national engagement on climate change and global warming, particularly on restricting American coal emissions and making a major contribution to the reduction in global carbon emissions.
I say that because that agenda is being restated globally. Although we think of China as one of the world’s greatest polluters, it is a major agenda item there. I hope, particularly with the involvement of the United States, that the world will move forward on that. However, there is still a cloud up there that threatens our planet, our lifestyle and our economy into the long term.
What is the silver lining? It is clearly that this offers opportunities to us as a nation, uniquely, to take advantage of the technologies and how the way in which we live needs to change. As someone who often speaks on energy and climate change, that is why I supported the coalition so strongly when it was formed and the coalition agreement was authored: we were to be the greenest Government ever. I agree that we have struggled with that. We are still there and are still moving forward, but that aim and the policies arising from it—I will go through some of those—are the major reasons why we can look forward to growth beyond our recent track record and that of other European nations. Over the past couple of years, growth in green industries has been at around 2.5% per annum, while we have had relatively difficult economic performance elsewhere. Jobs have gone up in that area as well.
Green jobs and growth will really help us in three main areas, and they are not always the ones that we think about; we sometimes think about investment in wind farms and that sort of area, but I will come back to that. One of the key areas is competitiveness. We often hear about how shale gas has reduced energy costs in the United States and about how, because of that, US industry has become more competitive. However, that is an economy that thrives on energy inefficiency. That is the background to the power of the United States: wasteful carbon emissions and energy use making it the great manufacturing and industrial nation that it was.
In this country we have a very different model for potential energy efficiency. For the long term, we can perhaps reduce energy costs for business through the lower gas prices that we are yet to see from any shale gas development, but clearly we can ensure that we can do so through energy efficiency. That is why the programmes that the Government have brought forward, particularly the Green Deal, are important for our future not just for our homes but for businesses as well.
That initiative has only just started. The Government have been absolutely right to make sure that the programme has had a fairly soft start so that we learn, as that process goes forward, that it does not rely on public expenditure, making it future-proof against budgets and Chancellors of whatever colour taking decisions. Once that investment programme works, it has the benefit not only of relieving fuel poverty and reducing fuel bills but of making our industry more competitive and producing a large number of real jobs in the semi-skilled area, which are so important, as well as the skilled areas as we move through the long term to the future.
I think that we have made the right decision on energy-intensive industries, although I was somewhat iffy about this at the time. I have to admit that we risk increasing carbon and energy costs and offshoring energy-intensive industries. By doing that, we just shift those emissions geographically from the UK, where there is relatively better environmental regulation, to other economies where perhaps that is not the case. Therefore I welcome a transition for those industries, and it has to be a transition until we have a much more level playing field across the rest of the world.
Moving on from competitiveness, we come to investment. In the green economy, we have, as my noble friend the Minister has already announced, a huge programme of potentially £100 billion for energy investment. Much of that will be very highly skilled work, which will be local and will produce local jobs and local skills. We have to make sure that we get the current Energy Bill on to the statute book and make some of the detail better than it is at the moment, but we have a real focus on making sure that that happens.
In Sunderland in the north-east—I will probably defer to my noble friend Lord Shipley on this, as he knows that area better—Nissan has been producing Leaf electric cars since April this year. It is the only plant in Europe to do so, and provides some £450 million of investment and 500 extra jobs. In addition, we have a number of potential wind farm sites. In Scotland we have AREVA, where we hope to have another 750 jobs. We will see if those arrive. This is all about making sure that the industry has confidence in the green economy.
Apart from investment and competitiveness, we will make this business work only if we have the skills in the economy to drive it forward. This requires two things. The first is certainty about government policy. The Government have not always been hugely successful in that between the Department of Energy and Climate Change and the Treasury. It is much better now, given the deals that have been done and the road map that we have before us. In addition, we require investment and skills. That is why the Government’s target, particularly in BIS, to increase investment in apprenticeships is really the right way forward. We have a great opportunity there.
I conclude by quoting John Cridland, who I think has already been mentioned once this morning. He said:
“it is easy to understand why some people are fearful that ‘going green’ might further dent the economic recovery. For me, this is a false debate”.
He goes on to say:
“tackling head-on the critical challenges of energy security, affordability and climate change … isn’t a lofty ideal to aspire to—there is a hard-nosed economic argument that moving to a low-carbon economy can drive significant business investment and create many new jobs across the country”.
I think that is the fundamental view of this Government in their growth and economic strategy, and they must keep to it. We will have in the end not only the greenest economy but one of the most successful economies, not just in Europe but in the world.
Financial Services Bill
Lord Teverson Excerpts(12 years, 1 month ago)
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Lord Teverson
“(5A) In making any provision of the scheme under subsection (3), the relevant regulator must so far as practicable establish classes of authorised person on which levies may be imposed such that the claims that are likely to be made in respect of that class of person share a close affinity.
(5B) For these purposes, a claim shares a close affinity with another claim if both the nature of the services or activities and the type of financial instruments in relation to which the claims arise exhibit a high degree of similarity.”
Lord Teverson
I can see that everybody wants to discuss the Statements on Europe and the potential independence of Scotland, so I will try to be brief. However, I say to the noble Lord, Lord Peston, that I have heard of the deposit guarantee schemes directive as well as the investor compensation schemes directive, both of which the Commission published in 2010 but neither of which has got anywhere very much since last year. The two directives have held up much thought around the financial services compensation service.
In this amendment I am trying to put into primary legislation a key principle regarding the close affinity of organisations which must help to compensate when other organisations have gone into liquidation or cannot meet their obligations to their customers. I am also putting down two tests: the first concerns the similarity of the service and the second the similarity of the financial instrument. Many Members will be aware of the history of this in that the Financial Services Compensation Scheme does make levies. In fact, in the fund management area it can ask for up to £270 million with 30 days’ notice, and indeed last year £233 million was called up, which is estimated to be 4% of the turnover of the total sector. Those of us who have worked in business will know that if you suddenly take 4% of your turnover out of the business, through a statutory note or the equivalent of a tax or a notice, it can hugely affect your business. The largest problem was Keydata resulting in a quarter of a billion pounds’ compensation having to be found, and it was a major problem. There have been a dozen smaller cases, and in the past five years there has been £600 million compensation involving investment intermediaries. In those cases of failure the overwhelming burden fell on the fund managers and independent financial advisers, who paid for the damage of what often were issues from spread betting, unquoted shares and life settlement portfolios. In practice there was a lack of affinity. There is also a question of what happens when regulators themselves have not been as good as they should be in ensuring regulated and authorised persons have worked responsibly in the past.
Lord Newby
My Lords, this amendment seeks to remove the possibility of any element of cross-subsidy between different classes of authorised firms. We do not feel that it is either necessary or helpful. We do not consider that the practice of allowing some cross-subsidies between classes is inherently wrong, and nor should it be prohibited in every case. Not only does the potential for cross-subsidy help ensure a sustainable scheme with lower levy thresholds, but it helps to ensure that the compensation supports consumer confidence in the financial services sector as a whole, by limiting the risk that compensation claims cannot be met. If the scheme has insufficient funds to pay out claims to policyholders of a failed insurer, bank customers are unlikely to have confidence that the scheme will be able to pay out if their bank fails.
As I have already stated, the decision on how the FSCS is funded is best made by the regulators and implemented through their rules. In particular, it is the regulators who understand what is appropriate and affordable by different classes of firms and so are best placed to determine when, or indeed if, cross-subsidisation is appropriate. I equally accept, however, that there is a need for proportionality in the different classes of firms that are expected to contribute. I am well aware, for example, that in the past the building society sector has felt that it has had to pay a disproportionate burden.
However, as I have mentioned, the FSA is consulting on how the FSCS will be funded, although in broad terms, as the noble Lord, Lord Teverson, said, both the PRA and the FCA will have rule-making responsibility for the scheme. The PRA will make rules for deposit takers and insurance providers and the FCA will make compensation rules for all other types of financial activity covered by the scheme.
The best way to deal with the specific issue raised by my noble friend is via the FSA’s consultation on the draft scheme, which I mentioned earlier. It is ongoing—it has several weeks left to go—and it is the best way now of ensuring that the scheme we end up with is the best possible scheme for all the different classes of firms which will be covered by it. On that basis, I ask my noble friend to withdraw his amendment.
Lord Teverson
My Lords, I thank the Minister for his reply. Obviously I am somewhat disappointed. Clearly the consultation is an area in which the sector and I will participate but there is a real issue around justice and equity in this sector and how the scheme will work. I shall perhaps take the opportunity to speak to him further between now and Report, but, in the mean time, I beg leave to withdraw the amendment.
Financial Services Bill
Lord Teverson Excerpts(12 years, 4 months ago)
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Lord Teverson
My Lords, I shall speak to the amendments in my name and that of my noble friend Lady—
Lord Teverson
My apologies to my noble friend Lady Kramer. I am thinking ahead and getting too far ahead in my own mind.
Amendments 144C, 144D, 144E, 147D and 147E refer to Schedule 3 and are very much in the area of the annual duties of the FCA and the PRA to make public their actions over the previous year. Apart from producing annual accounts, three methods of accountability are mentioned in Schedule 3. There is the annual report, which is the responsibility of both the FCA and the PRA; there is a public annual meeting for the conduct authority, but not for the PRA; and there is a consultation process for the PRA on the annual report that is followed by a further report by the PRA on that consultation. It seems to me that all three processes are not only admirable but essential for the full accountability of these important and key organisations both to the industry and the public.
My amendments would put the same responsibilities on both those organisations so that the FCA will also have a consultation process on its report, and a report on that, and the PRA would also have an annual public meeting. I note with interest the Minister’s remarks about one size not necessarily fitting both these organisations because they are very different. Clearly their responsibilities, actions and how they work are different but, in terms of their responsibilities to the broader industry and to the public, their responsibilities are very similar. That is why I think it is important that, as in my amendment, the Prudential Regulation Authority should have an annual public meeting. Again, the reasons seem to me to be pretty straightforward. Although the PRA has a relatively limited clientele compared with the FCA, its work, as we have seen through the financial crises of the past few years, is very relevant to the remainder of the financial services industry, customers of those institutions and to all taxpayers, who at the end of the day, if the regulators of those major institutions have been ineffective, carry the can for the cost of that regulation not working. For those reasons the very admirable process of annual accountability should be reflected in both organisations. On that basis I hope that the Minister will look favourably on these amendments.
Lord Davies of Oldham
My Lords, I have little to add to this debate. I will keep my remarks very brief, but they are remarks of some cheer. I never thought that I would from this Dispatch Box congratulate the noble Lord, Lord Flight, on an amendment, but I very much approve of his Amendment 130B, and the precision with which he spoke, as well as the noble Baroness, Lady Noakes, who has made such a contribution to our proceedings today.
Lord Teverson
My Lords, I understand that argument about the PRA and a public meeting, but it seems to me that all of us that are in public bodies, in politics or whatever, know that there is nothing that makes you feel more accountable than knowing that you have to face an audience face to face once a year and people can turn up and ask you live questions. That is why corporate annual general meetings are not perfect, but at least they can be effective in that way and be quite focusing for the board of that company, or, in this case the members of the prudential regulation authority. It seems to me that since prudential regulation is so important to the financial health of the country, it would be a good thing for that reason.
Lord Sassoon
I well understand my noble friend’s argument. It is, of course, far from the case that the PRA and the Bank of England will be able to hide from direct questioning of what they do because I am sure that they will be in front of the Treasury Committee much more frequently than annually, under the full spotlight of television cameras and so on. It is not like a normal corporate situation in which the board may be able to hide away from that sort of scrutiny except annually. There will be very regular public challenge, principally through the Treasury Committee, and I can only repeat that it would have been the simple, easy answer to just put both requirements on both the successor bodies, but I come back to the underlying point: we must remember that we are creating two bodies that have to be, in very many respects, different from what we have with the FSA at the moment. If it is merely shifting the chairs around, we need not be spending the many hours that we are spending over the Bill.
Eurozone
Lord Teverson Excerpts(12 years, 4 months ago)
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Lord Sassoon
I realise that I walked straight into this one. Now is not the time for an in/out referendum on Europe. Once Europe has settled all the matters that we have talked about, we can look at our relationship with Europe in the round. As for referenda on other matters, the legislation is starting in another place today and, no doubt, it will get here in due course.
Lord Teverson
Given that the eurozone is very likely to survive in a position very similar to its position at the minute and that it will probably move forward to a banking union and closer economic and fiscal union, what strategic preparations are the Government making in the longer term to make sure that Britain is not marginalised once we get through the existing crisis, however long it takes?
Lord Sassoon
My Lords, I think the most important thing is that we continue to be, as we are, constructively at the heart of all the discussions on these matters. As I have already said, there have been some significant achievements, as evidenced in the conclusions of the June Council, and that is the basis on which we have to continue our discussions. I would not think about it in the contingency planning terms that my noble friend portrays. We are there at the heart of the discussions and are continuing to focus our partners on growth and the completion of the single market.
European Union Committee: Multiannual Financial Framework
Lord Teverson Excerpts(12 years, 5 months ago)
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Lord Teverson
My Lords, I will echo one or two of the points made my noble friend Lord Dykes. Although we are sometimes very critical of EU finances we should remind ourselves that we have a ceiling of around 1% of GDP—I think that it is 1.23% at the moment. We have to have a balanced budget. We look seven years ahead and maybe five would be better. We have a strong and frustratingly active audit process that seems to give the rest of the organisation a bad name, but it is very thorough. If many member states copied that model, or perhaps even if we did in some areas, we might not be where are at the moment.
My own committee, now called the External Affairs Sub-Committee—a name easier to understand than it used to be—was pleased with most of the way that heading 4 on external affairs was looked at. We agreed with the Government in seeing this as an area where Europe was particularly important; in that cliché, it added value on a global scale. There were important roles that it was fulfilling.
An area which has generally been seen as an EU success in the past—certainly over the past two decades—is its exercise of soft power, driving and motivating the instinct of other European states which want to shed the shackles of central economies or dictatorial regimes and to join the body politic of Europe and the European Union. It thereby reinforces the commitment to both social democracy in terms of economy, liberal democracy, politics and trade, and to an open and outward-looking global view. It has been very successful in that area. Under this process, some €70 billion is expected to be spent on the external affairs area, which is a relatively modest part of the almost €1 trillion which is being talked about for this seven-year period. That €70 billion is spent on development policy and all the things that have to be done in helping pre-accession candidate nations move towards membership. As we learnt in some of the recent accessions, we have to ensure that things such as energy, border control, civil administration, corruption and organised crime are set right before new member states join. It is spent on partnership programmes, particularly in the east but also in the Mediterranean—our own are close to home—through to humanitarian aid and all the stability initiatives, development and nuclear safety.
One area of interest, although not a large area of the budget, was a particular instrument for Greenland. That seemed quite strange at the time, but I am sure that under Arctic policy, Greenland is going to become even more important.
The European budget, through different mechanisms, tends to pay for civil missions of CSDP, although not on the whole the military planning procedures. It pays for civilian missions as well. That is part of the EU outside its borders.
Where did we have some criticism? I am grateful to those who have mentioned the European External Action Service. That did not come under our purview because it is in administration. The External Action Service is relatively new; it came out of the Lisbon treaty. It is a major conduit through which the EU relates to the rest of the world. Its remit runs from trade through to all sorts of other issues, and high priority matters for the European Union. Yet its budget within this process is hidden within administration. Where it was in the accounting perhaps did not matter so much, but we felt strongly that, as an effectively separate institution, it ought to be separated out and we ought to be able to appraise it.
We were also quite surprised that there seemed to be what we would know as contingency lines throughout heading 4. Although we understand that flexibility is important in this area, the Commission and the External Action Service rightly point out that we cannot predict the number of natural disasters, for which Europe contributes important humanitarian assistance to the rest of the world, or what they will be over the coming one, two or three years. We do not know where political issues, like helping Libya get back to stability, will arise from year to year. The flexibility in there is right, but the contingency areas perhaps add a little too much fuzziness to how the budget is assembled.
The other area that has been mentioned by noble Lords is the European Development Fund, which is not the total development budget of the European Union but that which is used within what I think of as the African, Caribbean and Pacific countries. That lies outside this framework. Clearly, to a business or any other organisation, that makes no sense whatever. Unfortunately, I am told that the calculations show that if it fell within the framework, it would not help the UK’s budget contribution, which is a shame. However, I am sure that there ought to be some way around that. We need to bring that area in and include it as part of the overall external policy.
As the External Affairs Sub-Committee, we were happy that this went in the right direction and that Europe’s role in the broader world was recognised as being important. We are at one with the Government in understanding that, although it must happen in a way that is cost-effective. Certainly, over the period, the total spending of the External Action Service should not grow, despite some of the start-up costs.
I shall make one or two further comments as an individual Member of this House, as opposed to as chairman of the sub-committee. First, on regional policy, I am lucky to come from a part of the United Kingdom that benefits greatly from convergence funding, although we should like not to be in that position. Unfortunately, it looks as though Cornwall and the Isles of Scilly will again qualify for convergence funding in the next period that we will look at. It is important that regions graduate out of this area of state-welfare benefit drip. It is a shame that that has not happened, perhaps because of the way that the economy works at the moment. However, I feel strongly that, in the longer term, we should not move to excluding certain developed states from convergence funding or cohesion funding.
Why is that? The European Union—particularly the Commission, which is in charge of these programmes —tends to be far more objective than national Governments over who should receive these funds. I am certain that if my part of the world had not fallen within the European Commission’s definition of a NUTS 2 region—of GDP per inhabitant being less than 75% of the EU average—it would never have received the aid that it needs to become a thriving economy in the future. That objectivity is important and it should not depend on which member state your region happens to be in. Spreading the rest of the cohesion funding very thinly, even over transitional areas, is wrong. Transition should be of a sort whereby you move from being a convergence area to being a normal area and are helped over a period.
I hope my noble friend Lord Carter will forgive me but I have always been very sceptical about international fisheries agreements. They are far better than they used to be; they are now called fisheries partnership agreements and there are 16 of them. On the whole, they are an excuse to get rid of European fleets from someone else’s waters, where states that are even less able to protect their waters than we are have been completely fished out. The money goes towards helping those fishing communities to look after themselves, but it often does not get much further than the national capitals. While I am sure that the system is much better than it used to be, I am still very sceptical about it.
Turning to climate change, this programme ends in 2020. We have three very strong targets for carbon reduction, energy efficiency and renewable energy. Therefore, it is quite coherent that we should have a strong programme there.
Although it not an area in which I have ever been much involved, one of the greatest added-value areas of Europe ought to be its research capability, which seems to be going down in our national economies. If there is one way in which the Commission’s goals for our competitiveness, world position and employment can be fulfilled over this seven-year period, it is by having a much stronger research base. I should dearly like to see a significant proportion of this budget go to that area, to make Europe competitive in the very different world that will arrive by 2020, when this programme ends.
Financial Services Bill
Lord Teverson Excerpts(12 years, 5 months ago)
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Lord Teverson
My Lords, I was always rather in favour of the old FSMA system with the FSA as the one regulator. As the chief executive of a very minor fund management company, I knew where I was and where to refer to. When I rang up the FSA and asked it a question about how to operate my business, the fact that it felt unable to tell me in case that prejudiced the principles of regulation was not particularly useful, but the system was there and it was understandable. Nevertheless, it failed. That failure was not necessarily attributable to the fact that there was a single authority. Failure also occurred in the United States, which has multi-regulators comprising the Federal Reserve, the SEC and a number of others. It was quite clear that there was failure, particularly in macro-strategic risk, which was the one area missing—and it cost UK taxpayers £85 billion in bailing out the two banks. The National Audit Office put total UK taxpayer liabilities at £850 billion, or some £2,600 per taxpayer, in terms of exposure. That is truly a failure and it is why the system had to change.
There are four areas of importance. One is a stable financial sector. Because that sector in the UK is important and because, if things go wrong, there are such large gearing and multiplier effects in terms of bailing out, we also need a stable economic system in this country. It is also important, however, that we have a successful financial sector. Although I would agree as much as anyone else that we need to make sure that other sectors of our economy are equally successful, the financial services economy accounts for some 10% or 11% of GDP and employs 1 million people. That is not just in London; even in my own region of the south-west the sector is important, and we need to ensure that it remains competitive.
An area on which I wish to concentrate is the need to make sure that there is full competition in the sector. That is not the case in the retail banking sector—an issue mentioned strongly by my noble friend Lord Flight, and to which I shall return. The fourth important issue is the international area, not just regarding competitiveness but, given everything that is going on in the eurozone at the moment, including European banking and financial regulation. We need to make sure that our interests there are protected and that we work together with Europe to our mutual benefit.
In terms of stability, we have moved from twin peak to triple peak or, as my noble friend Lady Kramer said, there may be a small range of mountains in terms of the different regulatory bodies. However, I very much welcome the Financial Policy Committee, which has become part of this architecture. It nevertheless has one of the most difficult tasks in terms of what it needs to achieve and in recognising the problems as they come along. I am a member of a pension committee for Cornwall as a local authority or collection of public bodies. There I was shown on a slide a definitive picture of Sweden, or possibly the whole of Scandinavia, and its debt cycle split between personal debt, corporate sector debt and public debt. It demonstrated how those matters needed to be, and were, managed. However, frankly, even as an economist, I saw very little of those issues in relation to the financial crisis. We heard about numbers but did not understand such things. The tools that are used in that area will be important.
The degree of independence that can be operated by the Financial Policy Committee will be difficult and, as the noble Lord, Lord Burns, said, there will be a lot of challenges regarding who has what responsibilities and the way that the tools will be used. Will we go back to the rationing of mortgages and other financial instruments that I remember in my younger days, or can we control this through interest rates? Either of those will have political costs.
Primarily, I wish to talk about competition in the retail banking sector, where there is an estimated concentration of 85% in terms of individuals and the banking market. We have the top five banks, and it was interesting to see in the Financial Times that Marks and Spencer is moving into this area, but if you look at the full picture, its banking operation is completely owned by one of the five, HSBC. That represents no more diversification than there is at the moment. We had promises from Tesco and Sainsbury’s, the multiple retailers and Virgin Money of operating fully in this sector, yet we are not able to walk into any of those organisations and obtain a current account. These accounts are all promised but they do not yet exist. As has been mentioned, we have Metro Bank and internet lending through a company called Zopa, and of course we have the mutual credit organisations that have been in existence for some time. They are not mentioned specifically in the Bill but perhaps we could use them a great deal more. We need to make sure that we are able to take down the barriers, whether they be the payment system or, to some degree, the prudential requirements, but the problem is that the competition objective is very much in the area of the Financial Conduct Authority. The Bill does not talk about market concentration but it does say that the ease with which new entrants can enter the market is part of that objective. However, it will be the PRA and not the Financial Conduct Authority that will look after retail banking.
The international aspect is important. I think that we are better at dealing with the G8 and G7 than with the EU but it is very important that we have one unified voice.
One group that I do not see mentioned at all in the Bill is the rating agencies. Personally, I think that they have a lot to answer for in terms of the grief that we have gone through as a national and international economy, and I should be interested in understanding how any future regulation there will take place, particularly within a European context. Also, the Government have not really been able to move forward on the Financial Services Compensation Scheme, where there have been a number of problems. At the moment it is seen as a rather unfair system, particularly given Keydata and other such instances. I think that we are stalling there because of European recommendations or legislation that is coming forward, but I have a question for the Minister. At what point do we say, “Okay, we can’t wait any longer. Let’s change the way that the scheme works.”?
One thing is for certain: financial regulation, like democracy, is far from perfect. There is no perfect model. I was reading the magazine of the Chartered Institute for Securities and Investment, of which I am a member. It contained an article on this Bill called “Another New Dawn”. At the end, it said that whatever system comes out of this Bill and however good it is, at some point in the future it will be perceived as a failure. Our challenge is to make sure that it is not at a cost of £850 billion, as was the case under FSMA.