Budget Resolutions and Economic Situation

Lord Tyrie Excerpts

Wednesday 19th March 2014 Commons Chamber

[Mr Andrew Tyrie (Chichester) (Con)]

It is my job to take away the political punchbowl, just as the party was just getting going. What we have just heard is the most difficult speech that anybody has to make in the House of Commons, and I am sure we will all read it with interest.

First, I should like to say a few words in a personal capacity about what has been announced on savings. They look extremely interesting and long-term reforms. For a start, the ISA reform is resonant of PEPs; that goes right back to the beginning, as those introduced the savings allowance. It was a tremendous idea. I am really pleased that the cash and equity ISAs have been merged and that we have raised the cap. The Treasury Committee will have to look at the provisions. I hope I will not have to come to the House and say that it has a different view.

Getting rid of the defined contribution rules that force people into annuities is a tremendous achievement—a very far-sighted announcement. The last Labour Government were also looking at that for a while, but they could not find a way to do it. This Chancellor has found a way to do it, and we should commend him for that.

Before I say a few words about some of the other measures in the light of past Treasury Committee recommendations, I should like to say a few personal words about the deficit. When the Chancellor set out his initial Budget judgment on behalf of the new coalition, many thought that the coalition would collapse—that the political strains of implementing spending cuts would be too great and shake the coalition Government apart. Well, the opposite has been the case. The coalition has stuck with it and the deficit reduction plan has become the cement of the coalition.

Both sides deserve credit for the fact that the coalition is still going and dealing with the deficit. Particular credit goes to the Liberal Democrats. If I may say so—I hope they do not mind—I never thought they had it in ’em. But they have, and they have stuck with it.

[Mr John Redwood (Wokingham) (Con)]

Will my hon. Friend give way?

--- Later in debate ---

[Mr Tyrie]

May I make a bit of progress?

The deficit is down from the stratospherically high figure of 11% of gross domestic product to just below 7%, and next year it is forecast to fall to 5%, as we have just heard announced by the Office for Budget Responsibility. The consolidation is already significant. It has been achieved despite a massive external shock which was not built into the forecast four years ago and which I do not think the Chancellor mentioned—the eurozone crisis and the economic stagnation in our largest export markets. It was primarily that crisis that forced the deficit reduction plan to fall behind schedule. The key question for the Government a couple of years ago was whether to relax fiscal policy sharply in response to the almost 4% loss of forecast GDP, most of which was a consequence of the eurozone crisis.

Rightly, in my view, the Government showed considerable flexibility within the overall framework, in two important ways. First, they authorised the Bank of England broadly to double the quantitative easing programme; and secondly, equally importantly, the so-called economic stabilisers—the falls in tax receipts and rises in public expenditure that come with lower growth—were allowed to kick in.

To give an idea of the importance of the stabilisers and QE on policy, it is worth reminding ourselves of the numbers. Since the election, an additional £175 billion has been put into the economy through QE and £140 billion has been put in through the automatic stabilisers. The latter figure is based on Institute for Fiscal Studies estimates; no one knows exactly, but it is of that order of magnitude. These are very large numbers. That showed flexibility by the Government.

[Mr Redwood]

Does my hon. Friend agree that the Government’s flexibility included putting public spending up every year in cash terms over the period and relying on higher tax receipts to get the deficit down, which is how they maintained political agreement to the policy?

[Mr Tyrie]

I do not know about the political agreement point, but of course the effects of the stabilisers operate on both the tax and the spending sides. I think the Government were right to do what they did.

The Government have also been right to see off calls fundamentally to alter fiscal policy by sharply relaxing deficit reduction and increasing public spending. One of the main reasons it was important that they did not listen to those calls is that credibility in fiscal policy is hard won. It is built up over time—over many years—and it can easily be squandered. The Government resisted that temptation.

I will say a few words about the historical context. Looking to the 1930s, when stagnation set in and the agony was prolonged, partly because automatic stabilisers were suppressed and partly because far from engaging in QE, the then coalition Government did exactly the opposite: they lengthened the maturity of the debt and sucked money out of the economy. That is why the 1930s were so painful.

Now that we have a recovery, some are complaining that it is not the one we ordered. They complain that the recovery is consumer-led or uneven across sectors, regions and income groups. Well, of course it is. All recoveries of any value trigger a reallocation of resources, and therefore all recoveries change the shape of the economy. A recovery rarely takes root where the jobs were lost or the firms failed; it was ever thus and it will be the same this time. As the Chancellor stressed in his speech, jobs are being created at a record rate, but we cannot expect those jobs to be in exactly the same places as the jobs lost in the downswing. I am confident that, as in all previous recoveries, if we can sustain this recovery—and even if it is uneven, as it will be—it will, in time, deepen and spread through the whole economy. The figures for previous upswings support that.

The crucial question now, though, will be whether we can sustain the deficit reduction plan. A threat to deficit reduction will come from siren voices who say, “With the recovery under way, we can go back to spending money we haven’t got.” We are already hearing that. We need to remind ourselves that we are still spending about £7 for every £6 we collect in tax. It is true that we are in better shape, but with a deficit of about 6.6% of GDP, as the Chancellor announced today, we will remain vulnerable to economic shocks unless we do more to tackle it.

Another risk to deficit reduction is one of simple arithmetic caused by ring-fencing—something that the Treasury Committee has flagged up on several occasions. It will become increasingly difficult to find cuts to an ever-shrinking share of non-ring-fenced departmental spending. In other words, with ring-fencing of nearly half departmental expenditure, finding these savings will get tougher year by year. The Chancellor has argued, rightly, that polling evidence shows that that ring-fencing reflects public preferences. I think that is true for health and education, but it is not supported in the area of overseas aid. Spending on aid has risen by over a third in real terms and will rise even more because it is linked to GDP. Politics always points to ever-more ring-fencing; economics to less. Eventually, ring-fencing will have to be revisited, however difficult it is for all political parties.

Perhaps I should say a little about the risks—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order.

Oral Answers to Questions

Lord Tyrie Excerpts

Tuesday 28th January 2014 Commons Chamber

[Mr Osborne]

The revelations by Tomlinson shocked everyone, and the business practices of RBS, including Ulster bank, are now under the microscope. Of course, these revelations would not have come to light if we had not asked Tomlinson to do his work and had not published the Tomlinson report.

We are particularly aware of the challenge in Northern Ireland, with the weakness of the Northern Ireland banking system—affected by what has happened in the Republic and the fact that RBS is such an important player through Ulster bank—and we are in constant discussion with the Northern Ireland authorities. I know that my hon. Friend the Financial Secretary is talking to the Northern Ireland Executive about precisely what we can do to help to protect the Northern Ireland economy, as RBS implements its bad bank plan.

[Mr Andrew Tyrie (Chichester) (Con)]

The Prime Minister said yesterday:

“I am a tax-cutting Tory”.

So am I. Does the Chancellor agree that, when resources allow, cuts in tax are the best possible tonic that the Government can provide to small businesses? Does he further agree that the best spur to incentives for small businesses is to cut the marginal rates of corporation and personal tax as soon as he can?

[Mr Osborne]

I am a low-tax Conservative as well, and I hope that I am in good company on the Government side of the House. We have made reductions in tax. The small companies tax rate was due to go up to 22% under the Budget plans voted on by the Labour party, but we have reversed that and reduced it to 20%. We are now of course bringing the main headline rate of corporation tax down to 20% as well, and getting rid of the complicated taper. That is all further evidence to support the ambition of reducing marginal tax rates for businesses.

Financial Services (Banking Reform) Bill

Lord Tyrie Excerpts

Wednesday 11th December 2013 Commons Chamber

[Sajid Javid]

As I discuss the issue I will provide more information on how the measure could work, and perhaps the hon. Lady will judge for herself, given the situation she has in mind, whether the measure would have acted as a deterrent, and whether a prosecution could have taken place.

[Mr Andrew Tyrie (Chichester) (Con)]

First, I think it would be inappropriate to try to assess the impact of the proposed legislation on any specific case that has passed, and secondly, we are trying to devise legislation that will work for the future. I completely endorse what my hon. Friend the Member for Wyre Forest (Mark Garnier) has just said. We must emphasise that we expect a change and improvement in behaviour as a consequence of much more considerable risks and responsibilities being placed on those individuals than currently pertain with the approved persons regime and system of regulation.

[Sajid Javid]

I thank my hon. Friend for his comments. As Chair of the Parliamentary Commission on Banking Standards, he helps to explain the commission’s reasoning, which the Government share.

The introduction of this offence means that, as we have heard, in future those who bring down their bank by making thoroughly unreasonable decisions can be held accountable for their actions, which, as we saw in the recent financial crisis, can lead to severe economic disruption and considerable loss for taxpayers. In line with the commission’s recommendations, the new offence will be applicable only to individuals who are covered by the senior managers regime I mentioned earlier. Senior managers could be liable if they take a decision that leads to the failure of the bank, or if they fail to take steps available to them to prevent such a decision from being taken.

The offence will apply to behaviour that falls far below the standard that could reasonably be expected of a person in their position—that is similar, for example, to the test applied in corporate manslaughter. Importantly, the offence will apply to senior managers in banks, building societies and investment firms, and be subject to PRA supervision. That reflects concerns expressed by their lordships that the failure of systemic investment firms could lead to similar adverse consequences for financial stability, and that the taxpayer may have to bail out a collapsed retail bank. The maximum sentence for the new offence will be seven years in prison, and/or an unlimited fine. That reflects the seriousness that the Government, and society more broadly, place on ensuring that our financial institutions are managed in a way that does not recklessly endanger the economy or the public purse.

--- Later in debate ---

[Cathy Jamieson]

Once again, my hon. Friend is absolutely correct. The general public expected the industry to show some humility and make every effort not only to repay the taxpayer, where appropriate, but to reflect on its actions, perhaps take the view that this culture was now outdated and move on and operate differently.

The general public’s concern will not be alleviated by the latest list of scandals. We have had LIBOR, EURIBOR, PPI—payment protection insurance—forex, yen LIBOR—the list seems to go on and on. Almost every day, every week, every month, something else is being put into the public domain. We have recently heard concerns about lending from RBS, with businesses having gone into administration. It is right and proper, of course, that these issues are investigated. We continue to talk about these issues, but however much we will things to change, people are concerned that if the bankers do not accept that their culture has to change, we will just continue to talk and put legislation in place, but without the messages having got through. I believe that the general public are particularly concerned about that.

As I said, we believe that the amendment unsuccessfully launched in the other place should remain in the Bill. I am disappointed that the Government have chosen to disagree with it and want to strike it out. I do not expect the Minister to change his view at this stage. I am sure he will revert to the position held in Committee, which was to disagree with us on this matter.

[Mr Tyrie]

Before addressing the amendments in the group, I would like to say a few words—this is the only and last opportunity to do so—about the work of the Parliamentary Commission on Banking Standards. The task that Parliament set it was

“to consider and report on: professional standards and culture of the UK banking sector, taking account of regulatory and competition investigations into the LIBOR rate-setting process”

and on

“lessons to be learned about corporate governance, transparency and conflicts of interest, and their implications for regulation and for Government policy…and to make recommendations for legislative and other actions.”

That was a very large canvas. The backdrop was a profound collapse of trust in parts of the banking sector—triggered by, among other things, deep lapses in banking standards.

We should bear it in mind, however, that the banks were only partly responsible for all these problems, and that the commission’s proposals represent only part of the solution. On the first point, responsibility for the problem also lies with regulators, central banks, Governments, auditors, risk-rating agencies and consumers, both retail and wholesale, who over-borrowed. They all need to take their share of the responsibility.

On the second point—finding the solutions—the Banking Commission’s proposals need to be set alongside both reforms to the regulatory structure, such as the creation of the Prudential Regulatory Authority and the Financial Conduct Authority after the abolition of the Financial Services Authority, and the structural reform of the banks, as proposed by Sir John Vickers.

I doubt whether the Government or the man who led the regulatory changes, Sir John Vickers—or indeed any member of the Banking Commission—thinks that, even taking together all the proposals we have put forward, we can solve everything. In any case, many on the commission were sceptical about the extent to which culture can be changed by legislation—a point made from the Front Bench earlier this afternoon. Legislation can, however, play an important role by incentivising good behaviour and penalising bad. Nevertheless, we concluded that, if fully implemented, our proposals should put us in a better place to protect taxpayers and the country from systemic risk and to protect consumers from lapses in standards.

As the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) said a few moments ago, there will continue to be regulatory failures, so only with the exercise of judgment and a good deal of vigilance are even these proposals likely to make a big difference in the long run. Our job today is narrower—to complete the task of making sure that those responsible for exercising that vigilance have the statutory tools to do the job.

--- Later in debate ---

[Cathy Jamieson]

The hon. Gentleman mentioned proprietary trading. Is he now satisfied that the Government’s recent actions take account of all the commission’s recommendations?

[Mr Tyrie]

Broadly, yes. Given that I am already stretching things a little in my opening remarks, I will try to deal with prop trading at the most appropriate parts of my speech—but the short answer is, as I say, broadly yes.

The commissioners met yesterday to discuss progress. We believe that the Government have converted the lion’s share of the Banking Commission’s recommendations into statutory action, where required. It is worth listing what has changed. The following amendments have been made to the Bill in order to implement our recommendations: electrification of the ring fence has been considerably improved since Commons Report stage; an independent review of the ring fence, which can consider the full separation of the banking industry, has been introduced; the Banking Commission’s recommendations on prop trading, which we just discussed, have, for the most part, been implemented; the proposals for the senior managers regime have been improved; a certification or licensing regime has been added to the Bill; a proper definition of a bank—the Bill’s definition was defective when it left this place, and it was a major lacuna—has been added to the Bill; the PRA has acquired a competition objective to complement that of the FCA; and audit requirements have been tightened for systemically important firms.

Furthermore, a good number of undertakings and assurances have been given in response to specific recommendations. Most importantly perhaps, the bank will almost certainly be given the Financial Policy Committee responsibility for the leverage ratio, and the Government have said that they will legislate to that effect after a review. We would otherwise have had to wait until 2017-18 to have that considered.

[Mr Love]

Will the hon. Gentleman give way?

[Mr Tyrie]

I give way to my fellow commissioner.

[Mr Love]

How long does the hon. Gentleman think the handing of control over the leverage ratio to the Bank of England will take? Time is moving on, and we need to get there sooner rather than later.

[Mr Tyrie]

I have pressed the Bank of England on that issue with my Treasury Select Committee hat on. A subsequent exchange of letters between the Governor and the Chancellor makes it pretty clear that by the end of next year the issue will be resolved and responsibility will lie with the Bank. Indeed, I think that for anything else to happen, given that exchange of letters, would be considered extraordinary, unless the review came up with some major obstacle that no one had previously spotted.

Another important assurance has been given in respect of so-called special measures. We proposed the establishment of an intermediate tool between enforcement at one end of the spectrum and day-to-day supervision at the other, which regulators could use to keep an eye on banks and help to improve standards. The Americans have something of the kind, which is known as a memorandum of understanding. The Government said that the statutory underpinning that we proposed would not be necessary, but the regulators have now announced that they will produce a full and detailed guidance note after consultation, which will set out how the new tool will be created and administered.

[Emily Thornberry]

I am listening with great interest to the hon. Gentleman. As he may know, the United States operates a regime called the deferred prosecution agreement, under which an institution accepts that it has committed an offence and agrees to pay a large fine on the understanding that it will not be prosecuted. Part of the deal is that the institution must allow auditors in, and must change its behaviour. Is there a similarity between the DPA structure and the structure the hon. Gentleman is describing?

[Mr Tyrie]

In some cases, the “deal”, as the hon. Lady called it, is accompanied by a memorandum of understanding, in order to achieve exactly the result that we intend by means of special measures. However, the primary purpose of special measures is to provide a tool that need not lead to escalation and full enforcement. That is a step back from the example given by the hon. Lady.

We were also assured that there would be a review of the system of enforcement decision making, which is currently very unsatisfactory. We had proposed that the regulatory decisions committee should be separated further from the enforcement division of the Financial Conduct Authority and given statutory autonomy in relation to its decisions. The Government did not accept that proposal, but they did accept the need for the issue to be re-examined and the need for a fresh and independent pair of eyes to look at each enforcement action before it proceeds, and a review is now to be carried out.

The important issue of remuneration was raised, later in her remarks, by the hon. Member for Kilmarnock and Loudoun. The PRA has committed itself to aligning the maturity of the rewards for bankers with the maturity of the risks that they have incurred. That is crucial. It is the collecting and taking of bonuses in return for the creation and selling of a new financial instrument or tool when, although the full risks will not mature for many years, the individuals concerned have had the money in advance that has created so many misaligned incentives and so much poor behaviour. Those individuals need to know, even several years later, that there may be a clawback, or, better still in most cases, that their bonuses are deferred. They need to know that the product had better be robust enough to survive the test of time before they start selling it.

Let me now mention a few measures that the commission did not succeed in inserting in the Bill. I shall not describe any of them in detail—although I note that when I have tried to deal briefly with the measures that I have described so far, Members have intervened to ask me about a number of them.

Both the Select Committee and the commission concluded that the governance of the Bank of England was still in a mess, and would have to be sorted out. The Bank of England still has no board worthy of the name, and the cross-cutting lines of responsibility and accountability between various new institutions are, to put it mildly, very confused. One of the most senior people in the Bank told me recently that he thought the situation was like the Schleswig-Holstein question: the former Governor probably understood it, and one other guy had forgotten it—and the third was this person himself, whose name I had better not reveal on the Floor of the House.

We also failed to achieve change with our proposal to abolish United Kingdom Financial Investments Ltd. UKFI has been exposed as a fig leaf: it seems to be of very little practical use. The Labour Government’s intention in introducing it was good, but when the Government want to intervene directly in the activities of institutions they simply do so, and UKFI does not seem to be performing the “buffer” function that was intended for it.

We argued that the regulator should have a duty to compensate whistleblowers who had been disadvantaged by their firms. There are still risks, at least perceived risks, for whistleblowers, which will tend to deter them. It is a remarkable feature of the current crisis that there has been so little whistleblowing, and I am not yet convinced that we have managed to sort the matter out.

[Cathy Jamieson]

Will the hon. Gentleman give way?

[Mr Tyrie]

I will give way again, but I do want to get on to the amendments.

[Cathy Jamieson]

I thank the hon. Gentleman for his generosity. The question of whistleblowers was raised in a Labour amendment in Committee. Does the hon. Gentleman think that the Government must return to it in the future?

[Mr Tyrie]

I think that, in the first instance, it is the job of regulators to advise us—we shall see whether they do—and that it is the job of Parliament to keep an eye on the position. The Treasury Committee will need to be vigilant.

We failed to secure the abolition of the strategic objective of the FCA, although we see no logical reason why it should remain. It seems to serve as a licence to allow the FCA to do whatever it wants, and to override its own operational objectives. We also failed to secure a statutory duty for the Governor to raise the issue of excessive lobbying by banks. It is regrettable that there is to be no statutory duty to require the production of a second set of accounts designed to identify systemic risks in the balance sheets of banks, and we will ask regulators to return to that issue.

Nevertheless, if everything is taken into account, it is clear that the commissioners in the House of Lords won the argument, and secured the lion’s share of the measures proposed by the commission. Although the group has been depleted by the loss of Baroness Kramer to the Government, the remaining four have worked assiduously and very persuasively to improve the Bill, and, on behalf of the commissioners in the House of Commons, I thank them heartily. Let me also record my appreciation of the constructive way in which Treasury Ministers have engaged with me, and with other commissioners, on these subjects in recent weeks. They have been extremely helpful, as have their officials, and that has enabled us to make rapid progress. What is more, and equally important, the Government have made clear their support for a number of measures—some of which I have mentioned—that it will be the duty of regulators to implement. As I have said, the work of the regulators, and the supervision of it, will be at least as important as the statute itself

That brings me to the statute itself, and to the amendments that are before us. The first major change that is proposed is the introduction of a senior managers regime. One of the commission’s central objectives was to make a reality of individual responsibility, particularly at senior levels. I lost count of the number of witnesses from failed institutions who were not prepared to take personal responsibility for what was going on in their firms. In principle this should have been the task of the approved persons regime, but it was a disaster. It failed both at ensuring that competent people were appointed and at checking up on their subsequent performance.

The commission concluded that the APR was a complex and confused mess that did not perform any of its supposed roles adequately. It had become little more than a bureaucratic, box-ticking exercise. Its unsuitability has been illustrated by the fact that it seemed to pass the recently departed chairman of the Co-op bank as fit and proper to run a bank. Another indication of its irrelevance was the fact that most of those responsible for steering our major banks on to the rocks over the past five years were not even reassessed for their suitability after those banks had failed. The APR gave us the worst of all worlds: the appearance of regulatory oversight and the reality of none.

--- Later in debate ---

[Ian Swales]

As I expected, the hon. Gentleman is making an incredibly thoughtful and powerful speech. We have used the expression “culture change” a few times in the debate today and he talked a few minutes ago about failures causing serious harm to an organisation. Does he believe the banks now pay due regard to reputational harm as well as purely financial harm?

[Mr Tyrie]

I think the banks have discovered that the scale of the damage done by the revelations and the scale of the fines that are now being imposed are systemic in implication for their institutions and that has shaken them up a lot. But I do think the culture at the top of our banks is changing. The task of our legislation is to entrench that change for a generation. We have had this crisis. The horse has bolted. What we have got to do now is devise a stable door that can keep the next horse in.

[Emily Thornberry]

Will the hon. Gentleman give way?

[Mr Tyrie]

I will this one last time, but I get a sense that Members might want me to draw to a close in a minute.

[Emily Thornberry]

The hon. Gentleman mentions LIBOR. In respect in particular of fraud, does he agree that if an individual working within an institution is behaving dishonestly for the benefit of that institution, the institution itself should be liable? If the law were to be changed to allow that, there really would be institutional change.

--- Later in debate ---

[Mr Tyrie]

The fact that an individual is found responsible should not in any way exculpate the institution from its own responsibilities. On the other hand, a key recommendation of the Banking Commission was to restore individual responsibility. To return to a situation where it is primarily the institution that carries the can for what had been a series of individual pieces of bad behaviour would be a profound mistake. There is a lot behind the exchange we have just had that I am not going to go into now, but which we thought about quite deeply on the commission. I shall now move on as there are a few more remarks I want to make about this group of amendments.

Everyone now seems to be agreed that the APR adds little or nothing, yet over the past few weeks we have discovered that the discredited APR will survive in legislation. In doing that, the regulators are perpetuating a myth that the APR affords any real protection. It will continue to apply to several groups. First, about 20,000 people in the financial services industry outside banking will still be covered, mainly in fund management and insurance.

This is unfinished business. The Banking Commission had the remit to look only at banking. It would be absurd to retain a system for one part of financial services that has so clearly failed in another. The Government and Parliament both need to encourage the regulator to look at this and do what is necessary to extend the coverage of the new regime and to remove the APR from other parts of financial services. To rely on the APR is asking for trouble.

It is also regrettable that the APR will remain in a few isolated pockets within the banking industry. This is because the APR will continue to apply to firms’ LIBOR submitters and to persons with anti-money laundering responsibilities in banks. This amounts, I gather, to only a few dozen people, but I think it would be far better if we removed what amounts to “triple running”. We will have three layers: the senior persons regime, now called the senior managers regime, licensing, now called certification, and the APR in the case of these people. The extra APR layer confers no extra protection, but adds bureaucracy and creates a business cost. There will be plenty of scope for legal wrangling in the event of a regulatory failure, given the great scope for confusion, and for an equal measure of recrimination by regulators who will say they were asked to do too much by Parliament. Banks will have a point when they complain about that. For all those reasons, I hope that the Government will come back to this issue and remove the APR from banking entirely in due course.

The Banking Commission’s proposals do not guarantee better standards. Much will depend on the judgment of regulators and the common sense of the banks, but identifying responsibility for key roles offers a much better prospect of higher standards than does retaining the APR. The commissioners are delighted that our proposals on this are now going to be put on the statute book.

[Mr Speaker]

The hon. Gentleman’s speech is characterised, as always, by a combination of scholarship and erudition. May I just inquire whether we are now nearer to the end of his speech than to the beginning?

[Mr Tyrie]

I can give you a firm assurance, Mr Speaker, that I am coming very close to the end of my remarks. Indeed, I am no closer than I would have been before that intervention, unless I had been told to sit down, because I really am almost at the end.

I just want to say a word about the Opposition amendment before I sit down. It draws on a number of the Banking Commission’s proposals and, by seeking to put it on the face of the Bill, the Opposition have contributed something by forcing the Government to think again about their rejection of our proposals on licensing. The amendment was therefore probably worth while. However, the Government have now thought again and are implementing our proposals.

There are two aspects of Lords amendment 41 that would make me cautious about supporting it. The first is it would require regulators to pre-approve all people covered by licensing—or what is now going to be called certification. I fear that would risk recreating many of the problems we had with the APR—the box-ticking bureaucratic culture that we are trying to get rid of.

My other concern with the amendment is that it appears to mix up licensing with the professionalisation of the banking industry. It would be imprudent to link professionalisation to licensing too closely. Licensing needs to happen now. Professionalisation is not a substitute for it. Even if banking is something that could acquire the characteristics of a profession—which many people are not yet convinced of—it would, as the commission reported, take a generation to build that sense of a professional standard.

For those reasons, although I strongly sympathise with the intent of the Opposition amendment, it is not a Banking Commission proposal and I shall not be supporting it. The House could do better by implementing the commission’s proposals, which are now embodied in Government amendments.

[Several hon. Members]

rose—

--- Later in debate ---

[Mr Tyrie]

The question the hon. Lady should ask herself is that if she were a banker, would she be prepared to take the risk?

[Emily Thornberry]

There are other things that can be done, and I shall briefly touch on some of them. May I begin with the difficulties that exist in relation to this offence? Under the Bill, it would be an offence for a senior manager recklessly to take a decision. I appreciate that some of the additional 175 pages that have been added to the 35-page Bill have been to backfill exactly what a senior manager is and how they will be defined. That is clearly an improvement, and it is unfortunate that it was even suggested that the Bill would be sufficient in its original form. One must remember that even if a definition of senior manager is now one with which we can all be happy, there have been banks that have been brought down by people other than senior managers. Nick Leeson from Barings bank comes to mind, as does the £2 billion that was lost to UBS by Kweku Adoboli.

[Emily Thornberry]

The point is that he was not a senior manager and he brought down a bank. This measure will not solve the problem of banks being brought down. An offence of reckless banking that will apply only to senior managers is not by itself sufficient, which is why I want to go on to say what I think should be done instead.

[Mr Tyrie]

I think the hon. Lady is misunderstanding the intentions of each bit of legislative change. The primary purpose of this measure is to change bankers’ behaviour. It is not primarily to protect banks from being brought down. That task lies with ring-fencing and a range of other proposals, particularly with all the structures being constructed around bail-in and resolution. It does not lie with the criminal offence.

[Emily Thornberry]

With respect, I am even more confused than before. What is the point of bringing in an offence that will change the behaviour of bankers, but will not, by itself, defend the banks? As I understand it, if the behaviour that we seek to stop is reckless banking, the reason that it should be criminalised is in order to stop banks failing and the financial system crashing.

There are other difficulties with this offence, which include recklessly to take a decision or to fail to prevent the taking of a decision that results in the failure of a bank. That sets a high threshold and, as has already been pointed out, it is not clear who, of those who may have behaved in a reckless way in our banks and who may have brought down the banking system before, would have been prosecuted. The Minister has not been able to assist us as to who might have been prosecuted under the offence. [Interruption.] It is unfortunate that the Minister is distracted at the moment, but the point I am making is important, and I hope that he will be in a position to address it.

It is difficult to prove that aspect of the offence, and prosecuting it would be a risky undertaking for the prosecuting authorities who will be expected to invest public money in prosecuting such matters. There is no point in putting something in legislation that can be discussed on doorsteps but will never be used to prosecute. We have seen the Serious Fraud Office struggle with high-profile, high-risk prosecutions. Too often such prosecutions end in shambles because of the behaviour of the Government, which have cut the SFO’s funding from £53 million in 2008 to £30 million by the end of this Parliament. Differences can be made to the behaviour not only of banks but of businesses generally. May I just add that of course I support Labour’s position on a stringent licensing regime for bankers, the imposition of a fiduciary duty of care on financial-sector staff for clients and customers and its call for a dedicated financial crime unit. In a moment, I will move on to what will work better, but before I do that, I give way.

--- Later in debate ---

[Sajid Javid]

My hon. Friend will know that the Government have introduced many initiatives to increase competition in the banking sector. Just today we heard that Tesco Bank will enter the current account market next year, creating hundreds of jobs in Scotland. That is welcome news, and other innovations such as current account switching also help to engender more competition. I do not think any of us know what the situation might look like in the future, but I am sure a future Government will take that into account in 2020, and beyond, and see whether any further measures are required.

[Mr Tyrie]

The Treasury Committee and the Banking Commission are extremely grateful that the lion’s share of the proposals on competition have been implemented. We think that will be a step forward, and the Treasury Committee has been pretty active in that field for more than three years. As I alluded to earlier, one recommendation has not been acted on by the Government, and I would be grateful if the Minister explained why. Perhaps it can be best summarised in this way: what additional benefit is conferred by the FCA’s strategic objective that is not provided for through the operational objectives of the FCA?

[Sajid Javid]

My hon. Friend will know that the FCA currently has an objective to promote competition, and I know that he supports that. The Government have accepted the recommendation from the commission to give this secondary objective to the PRA, so those two objectives for the key regulators—the FCA and the PRA—will make a difference. If my hon. Friend has some further suggestions for the future, I will certainly take a closer look at them.

The FCA’s consumer panel, which represents the interests of consumers, is well placed to communicate its views to the PRA, and in the other place the Opposition have called for a role for the FCA’s consumer panel. Following constructive debates in the other place, I am pleased that the Government have been able to include amendment 156, which delivers the Government’s commitment to ensure that the FCA’s consumer panel can provide its views to the PRA effectively. This was warmly welcomed on both sides in the other place and by the chair of the consumer panel.

The amendments will simplify day-to-day operations for building societies, other banks and all the other entities that I have mentioned. They will enable banks and other institutions to compete on a more level playing field and improve things as suggested in the Bill and by the commission and others. I commend them to the House.

--- Later in debate ---

[Cathy Jamieson]

The specific examples that I cited had been reported to me, but I understand that in many instances high charges are applied even if people slip into an unauthorised overdraft for a very short period.

Let me ask the Minister another question. In a letter to the Minister, Martin Wheatley said:

“In designing the cap we will, as far as possible, seek to minimise potential avoidance measures. It is possible for firms located in other EEA Member States to provide a payday lending service through the internet to UK consumers within the Electronic Commerce Directive. This is not something that the FCA can mitigate.”

What assessment has the Minister made of the extent of that problem, and what can be done to reduce that? As we take things forward, it will be important that we do not simply move people from one payday lending system on to something else that could be equally difficult.

I want to say a few words about the relationship between the banks and the payday lending sector, and to focus on the question of the banks lending to the payday lenders. During the consideration of the Bill in the other place, Lord Mitchell raised this issue, and his understanding was that Barclays lent Wonga over £250 million. When he investigated that further, he discovered that the sum was apparently much higher. He raised concerns about the mission and the guiding principles of the bank and asked whether lending money to the payday lenders so they can then lend it at higher rates to people who need loans is the right thing for the banks to be doing. That raises the question of what the banks’ responsibilities are to those on lower incomes, and also the issue of the banks’ relationships with the credit unions, for example.

I feel that we must press the amendments we have tabled to a Division. I hear what the Minister has said and I have heard the comments and concerns raised by the FCA about the timetable, but I think it is reasonable to press for this to be done as quickly as possible. The Minister has said that January 2015 is the backstop date—the latest point when it could happen. I think it is reasonable for us to bring that forward and to press the amendments on data sharing to a Division.

[Mr Tyrie]

On payday loans, I only want to make two very quick points. First, we need to be very careful that EU regulation does not drive a coach and horses through anything we might try to do domestically. I also want to reinforce the point that it is extremely important not to displace what we may disapprove of in the formal sector into the informal sector of very nasty loan shark practices. This will require a great deal of supervision and care.

[Stella Creasy]

Will the hon. Gentleman give way?

[Mr Tyrie]

If the hon. Lady will forgive me, I will not, because I promised the Chair that I will speak for only three minutes. The hon. Lady will have an opportunity to make her own speech in a moment, and she has been a doughty campaigner on this subject for some time.

I want to speak briefly about part 5 of the Bill, which is the part that creates the payments regulator. This implements a recommendation the Treasury Committee made two years ago. It is worth explaining the origins of our recommendations.

The Payments Council—which is dominated by the banks and other firms involved in the payments system—decided in 2011 to abolish the cheque, without providing any explanation of how it would provide an adequate replacement. That was a profound mistake, and the Committee decided to investigate. The justification for that decision looked pretty threadbare and the abolition also carried a considerable consumer detriment both for charities and for a lot of people who use cheques. I did 20 radio and TV interviews on this subject after the report was published. I asked each of the interviewers whether they had a chequebook; 19 of them said they did and they very much wanted to keep it. I think that brings home the value of cheques. This does not affect only the elderly; quite a large group of people want to keep some kind of paper-based transaction system for the time being.

Under pressure the Payments Council did a U-turn and cheques have been retained. The Treasury Committee also looked at how such a crass decision could have been taken in the first place. We concluded that the explanation lay with the structure of the Payments Council itself. Frankly, it has been little more than a poodle of the industry, and it certainly could not reasonably claim to act on behalf of consumers. A reasonable case can be made, however, that it is a monopoly controller of a crucial banking service. We recommended that that responsibility for the payments system be brought within the ambit of regulation, and we gave an outline of how that should be achieved. Amendments 63 to 134 would implement that central recommendation of our report. It is now up to Parliament to ensure that the FCA is much more responsive to the needs of consumers and competition, on this and a good number of other issues, than was its predecessor. I warmly welcome this part of the Bill.

[Yvonne Fovargue (Makerfield) (Lab)]

I regard payday lending as a new industry. We have heard talk about how Labour did nothing for 13 years, but in the 23 years I worked in a citizens advice bureau—I left in 2010—I did not see people with payday loans. I think we saw our first person with a payday loan in 2010. It was always the home credit industry that people came to us about. The payday loan industry—and, in particular, the way in which it targets its market—is a new thing.

I wish to speak to amendment 155, which relates to the importance of a high-cost payday lender reporting in real time to a third party. The industry is really keen to embrace new technology when it suits it to do so. It has phone apps, and it advertises on television and online. New technology is meat and drink to it. However, it is less keen to operate a real-time database. It has had two years in which to do so voluntarily, and it still cannot come to an agreement on it.

Part of the reason for that could be that the industry is not keen on guidance. A lot of our payday lenders have American ownership. When I was at a conference recently, I was harassed by some of those American owners asking me what the rules were. I started to explain the guidance, but they were not interested. They just wanted to know about the rules. If something is not written down, they do not want to do it. They do not want to be the first, or just one of a few, to do something. For that reason, this provision needs to be mandated.

The present reporting system, involving a period of 30 to 60 days, is completely inadequate for a short-term, high-cost loan. A constituent who came to see me recently had taken out 14 payday loans in a week. Yes, that was irresponsible borrowing. I could see that he had been desperate, but it was also irresponsible. The system allowed him to do it. Had the lenders had a real-time database when they agreed to those loans, we could have got them for irresponsible lending. Their excuse, however, was that they did not know how many loans he had already taken out. The lack of a database gives them an excuse to lend irresponsibly, without penalties.

We also need to consider the responsible customers who pay back their loans on time and for whom taking out a payday loan is a perfectly rational decision. Perhaps their fridge is broken and needs to be replaced urgently, and they are expecting some money at the end of the month. Taking out such a loan in those circumstances could be more sensible than going to a company such as BrightHouse. Those responsible customers get no credit for paying back on time, however, because there is no database and because it is not mandatory to report their repayment record. In fact, on occasions, they are penalised for taking out a payday loan. We need a system that will help people to build up a record of creditworthiness, to allow them to get into the mainstream credit market.

As we have heard from my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson), the present system can deter new entrants to the market. Companies tell me that they would like to get into the market, and that there is a gap for providers of loans between £500 and £1,500 taken over six months to a year at an interest rate of around 30%. However, the business risk is too great, because there would be no way of knowing whether their customers already had payday loans and when they had taken them out. Entering such a market would add to their business risk, and they also worry that raising their rates would involve a degree of reputational risk.

The Government should look again at this matter and consider mandating the introduction of a real-time database and reporting to a third party. That is important if we are to protect customers and lenders. It is also important if we are to help people to move into a credit stream with lower interest rates, and to help new entrants to move into the market, which we all agree is vital.

Autumn Statement

Lord Tyrie Excerpts

Thursday 5th December 2013 Commons Chamber

[Mr Osborne]

The Leader of the Opposition and I agree on one thing: that was a complete nightmare. The only turkey around here is the speech just given. As for denial, the man who said that borrowing would not come down, unemployment would not come down and growth would not happen, and who refuses to apologise for what he did to the British economy, is the very epitome of denial. That is the central problem with his response and, indeed, his whole economic framework. Not only did he predict that the recovery would never come; he went out of his way to say that if we stuck with our plan it could never come.

This is what the right hon. Member for Morley and Outwood (Ed Balls) said in March this year:

“I’ve said consistently…unless there is a government led plan for confidence, for growth and jobs, the economy will get worse but also the deficit won’t come down, it’ll go up”.

He predicted that the economy would get worse and the deficit would go up and that 1 million jobs would be lost, but the economy is growing, 1 million jobs have been created and the deficit has gone down. I have an explanation for what has happened: we do have a Government-led plan for confidence, for growth and jobs. It is our plan, it is working and the right hon. Gentleman should have welcomed it.

The extraordinary thing about the right hon. Gentleman’s performance was that he could not bring himself to welcome any of the better economic news. He has built his whole proposition as shadow Chancellor on the basis that our effort to deal with the public finances would make that growth impossible. That makes me wonder what the right hon. Gentleman has been up to with his time, but he gave a clue in a newspaper interview this week. He said that he had to cancel his grade 3 piano exam, because it was

“exactly the time when George Osborne is standing up to do the Autumn Statement!”

I think he should have gone ahead with the “Chopsticks” rendition. The newspaper article also says that he asked Miss Perrin, his piano teacher:

“‘If I go wrong can I start again?’ She said: ‘I think it’s probably best to keep going.’”

He takes the same approach to economic policy as he does to his piano. The final thing he said is that he hopes to reach grade 8 piano over the next four years. After his performance today, I can see why he expects to have a lot more time to practise.

Let me turn to the points the right hon. Gentleman raised. The central point is that it is not possible to have a cost of living plan without an economic plan. Labour’s silence on the economy goes to the heart of its weakness. It cannot talk about its record, because it had the biggest recession ever. It cannot talk about the deficit, because it has no plan to deal with it. The right hon. Gentleman cannot even talk about infrastructure and his much vaunted plan for a cross-party consensus, because he was the person who tried to break the consensus on the biggest project of all. He cannot talk about housing, because there were 420,000 fewer affordable homes at the end of the Labour Government. He cannot talk about business rates, because they went up 71% under Labour. He cannot talk about support for business, because he wants to put taxes up on business. He cannot ask about standing up to the powerful, because this is the week that Labour caved in to the trade unions. He cannot ask about jobs, because he wants more jobs taxes. And he cannot ask about banking and financial services, because the person Labour hired to advise it was the Reverend Flowers.

The right hon. Gentleman has said that he would be the co-operative Chancellor. Let me end by saying that that is exactly what he would be: borrowing more than he can afford, with catastrophic management of the finances, and a deluded leadership preaching one thing and doing another. It is hard-working people who will pick up the price if it blows up again. He cannot welcome the economic recovery because he is the biggest risk to economic recovery.

[Mr Andrew Tyrie (Chichester) (Con)]

Does the Chancellor agree that the confidence now returning to the economy is a vindication of the Government’s decision to stand firm on reducing the deficit? Is it not now absolutely crucial that Britain sticks with this policy as the economy recovers, reduces the size of the state and creates room for the economy to grow, and with it, when resources allow—and only when resources allow—to reduce taxes?

[Mr Osborne]

I thank my hon. Friend for his support and his observation about what is happening in the economy. I complete agree with him. One of the things I said in the speech was that of course risks remain, the job is not done, productivity remains too low and we want it to grow. That requires economic reform and reducing taxes on business, which is what we have done again today.

Oral Answers to Questions

Lord Tyrie Excerpts

Tuesday 5th November 2013 Commons Chamber

[Mr Osborne]

It depends, of course, where you buy it. The last price I saw at a petrol station was around £1.35, but it would have been 20p higher if we had stuck with the last Government’s plans—the hon. Gentleman voted for them—in the last Labour Budget. That is the truth, and it is because we are fixing the public finances and fixing the economy that we can avoid these disastrous Labour tax rises.

[Mr Andrew Tyrie (Chichester) (Con)]

The freeze on duty makes a crucial contribution to improving business competitiveness, and will have been welcomed by all our constituents throughout the country. Will the Chancellor undertake, as part of his work on the autumn statement, to publish the Treasury’s own estimate of the full amount by which both motoring and energy input costs have been increased by climate change-related measures?

[Mr Osborne]

Of course the OBR provides an assessment of the impact of Government policies on the economy, and I will consider my hon. Friend’s specific suggestion that we look into the impact of climate change policies on energy prices. We are currently examining the charges and levies that the last Government, among others, added to energy bills, and seeing what we can do to roll them back in order to provide relief for customers.

Oral Answers to Questions

Lord Tyrie Excerpts

Tuesday 10th September 2013 Commons Chamber

[Mr Osborne]

Let us be clear: this country had one of the deepest recessions of any of the countries in the G20 or anywhere else. We had one of the biggest banking crises and our country has had to recover from that, but I point out that in the hon. Gentleman’s own constituency there are now 12,000 more people in work than at the time of the election, and unemployment is down by a third.

[Mr Andrew Tyrie (Chichester) (Con)]

What contribution has real wage restraint in the private sector made to the surprisingly low level of insolvencies in the UK compared with our competitors, which is now enabling more firms to take advantage of the recovery than would otherwise be the case?

[Mr Osborne]

My hon. Friend is absolutely right that wage restraint in the private sector and the public sector has helped preserve jobs during the economic shock that we experienced under the previous Government. That is partly a credit to the labour market flexibility of the policies that previous Governments introduced in the 1980s and early 1990s and the last Government did not reverse. The wage restraint has helped us preserve more jobs than would otherwise have been the case in the public sector, which is why at least until recently it was supported by the Labour party.

Financial Services (Banking Reform) Bill

Lord Tyrie Excerpts

Tuesday 9th July 2013 Commons Chamber

[Greg Clark]

This has been an interesting debate so far, and it will be a tall order to live up to the great expectations of my hon. Friends the Members for South Northamptonshire (Andrea Leadsom) and for Caithness, Sutherland and Easter Ross (John Thurso).

This set of new clauses has the common denominator of measures that can improve competition in banking. The parliamentary commission has made it clear that competition can, and should, bring about higher standards in the banking sector. It concluded that

“effective market discipline, geared to the needs of consumers, can be a better mechanism for improving standards and preventing consumer detriment than regulation, which risks ever more detailed product prescription.”

The Government completely agree. The British banking industry, at least at the retail level, was too concentrated before the crisis. The forced mergers of the crisis have exacerbated a bad situation. It is imperative that the regulators do not regard themselves simply as regulating incumbents, but act to promote new entry into the industry.

The commission welcomed the prudential reforms contained in the then Financial Services Authority’s barriers to entry review and commented that

“the concerns of challenger banks in this area appear to have largely been addressed”.

We accept the need to go further. Accordingly, we will be adopting the commission’s recommendation that the Prudential Regulation Authority should be given a secondary competition objective, and we will table amendments to the Bill to that effect in the autumn.

[Mr Andrew Tyrie (Chichester) (Con)]

Hear, hear.

[Greg Clark]

I am grateful for my hon. Friend’s contribution.

Government amendment 5 delivers on a commitment made in Committee to accept one of the commission’s earlier conclusions that when considering an exemption from ring-fencing the Government must have regard to any adverse effect ring-fencing provisions might have on competition in the market. The amendment ensures that ring-fencing should not be a barrier to greater competition in the market. To reassure the hon. Member for Nottingham East (Chris Leslie), it does require them to override any questions on whether the continuity objective should be breached. It is there to enable them to bear that in mind, not least for the reasons that we discussed—that competition can have systemic benefits that address some of the regulator’s objectives.

Another recommendation of the commission that we accept is the suggestion that there should be a rigorous study conducted on the benefits to consumers, and competition, of account portability. The House will know that from September the seven-day switching service operated by banks covering 99% of personal current accounts in the UK will come into operation. I do not whether hon. Members have noticed, but there is an excellent exhibition to promote the new changes to the service from September in the Upper Waiting Hall next to the Committee Corridor. It should make it easier, quicker and more secure to change bank account, helping competition, but, as my hon. Friends the Members for South Northamptonshire, for Wyre Forest (Mark Garnier) and for Caithness, Sutherland and Easter Ross said, that might not go far enough. In particular, I congratulate my hon. Friend the Member for South Northamptonshire on the consistent and forensic campaign she has waged on this issue through the Treasury Select Committee and beyond. We will therefore ask the new payments systems regulator to conduct a comprehensive review of account portability, including a cost-benefit analysis, as an immediate priority.

--- Later in debate ---

[Greg Clark]

I certainly will keep a close eye on that, as too, I am absolutely certain, will my hon. Friend the Member for South Northamptonshire. The arrangement is that the fees should be shared between the bank of departure and the bank of arrival, which I dare say reflects the different costs. However, we need to keep an eye on its effect on competition.

In response to the parliamentary commission’s report, the Office of Fair Trading has announced that it will bring forward its investigation into small and medium-sized enterprise banking as part of an ongoing programme of work to investigate concerns about competition in banking. The hon. Member for Nottingham East rightly wants this to go further. The OFT is engaged in a programme of work looking at all sections of the banking sector. As I think Members know, it has recently completed an investigation into the personal current account market, and on that narrow point has argued that there should not be an immediate referral pending some of the changes taking place or in the pipeline.

We have asked that that work considers the impact on the new challenger banks created by the divestments from Lloyds and RBS. The hon. Gentleman asked where they stand. My understanding is that in both cases the parent banks are looking to move forward with initial public offerings of the challenger banks and that they intend them to form part of the competitive environment. The OFT aims to conclude its programme of work next year. It will then decide whether a market referral to the Competition Commission is needed. I can tell my hon. Friend the Member for Caithness, Sutherland and Easter Ross that such a referral would not require legislation; the OFT could make one under its existing powers.

Given that commitment, which is more or less of the same time frame as that envisaged in new clause 8, and given the significant measures being implemented to enhance competition, I hope that hon. Members will agree that the new clause, which calls for such a referral in 2014, following Royal Assent, should not be adopted. It is important that the OFT completes its review in 2014, so that it can build up a file of evidence to be submitted to the Competition Commission. That would be consistent with what both the independent commission and the parliamentary commission called for: that the OFT be in a position to make a referral in 2015. The OFT’s work is absolutely in line with that.

[Mr Tyrie]

Will the Minister confirm that, were there not to be a referral, the Government will ensure a full examination of the case for a market study of the retail side, as well as the SME side?

--- Later in debate ---

[Greg Clark]

I beg to move, That the Bill be now read the Third time.

It is good to start the debate with good news. When one is considering a Bill, one is cut off from the outside world, so that is good to hear.

I said on Second Reading that this is a historic Bill that resets the banking system in this country, so that it can once again enjoy the reputation that it had, and its worldwide renown, not just for technical excellence but for high standards of confidence, built on probity.

The Bill is historic in another important respect. It reflects the extensive deliberations and contributions of not one but two bodies of eminent experts: the Independent Commission on Banking, chaired by Sir John Vickers, and the Parliamentary Commission on Banking Standards, chaired by my hon. Friend the Member for Chichester (Mr Tyrie). Both undertook extensive work, and I am grateful to their members, and to the staff who supported them in their work.

Sir John Vickers’s commission was established immediately after the general election, in June 2010. It took extensive evidence before publishing an issues paper in September 2010; an interim report, on which it consulted in April 2011; and a final report in September 2011. The Government gave, and consulted on, an initial response in December 2011, before issuing a White Paper for consultation in June 2012. In the light of that consultation, a draft Bill was published last October, and the Parliamentary Commission was asked to give it pre-legislative scrutiny, which it did, and it concluded its report on 21 December last year.

Following Second Reading, the Committee scrutinised the Bill for more than 40 hours. The process has been characterised by an unusually determined effort to build consensus. Having considered all the options, the Vickers commission made a compelling case for a ring fence separating the riskier investment banking side of banks from personal and business lending. Ring-fencing, an ICB argument, will better insulate retail banks against global shocks and make banks easier to resolve in a crisis. It will thus create a more stable banking system, protecting the economy and the taxpayer against future crisis.

The parliamentary commission, in its first report, recommended some changes to the Bill, which we have been able to make, such as emphasising the importance of competition, as we have just debated, in applying the ring-fencing rules. The commission noted that in putting the so-called Haldane principles on the face of the Bill, the Government went further than its own recommendations. The parliamentary commission, in its December report, also called for the power to be available to force the separation of a ring-fenced bank into its component parts if that bank attempted to game the system or to undermine the ring fence. The so-called electrification of the ring fence is designed to ensure that it is respected in practice.

We debated yesterday the Government’s amendment to implement this power. There was some discussion about whether the power to require separation was too cumbersome to be used effectively in practice. As I said yesterday, there is no difference between the Government’s intentions and those of the parliamentary commission. We agree with the specific reserve power and it has to be usable. We included a time limit by which full separation had to be executed. The PCBS did not specify this, but my hon. Friend the Member for Chichester said that it should be informed by the regulator. That seems right to me and I have no difficulty in expecting to be able to arrive at a formulation that meets all the Chairman’s objectives during the further scrutiny of the Bill in this place.

[Mr Tyrie]

I am very reassured by what I have heard from the Minister. It seems from what he said that it remains the Government’s firm intention to implement the spirit and the letter of electrification for individual banks. It also gives me some reassurance that the commitments that appear to have been made in the paper published yesterday on the recommendations in the fifth report will also be implemented. Can the Minister give some indication when he will produce amendments, so that we have enough time to think about them before they are examined in another place and so that their lordships also have enough time to consider them carefully?

[Greg Clark]

I am grateful to my hon. Friend for his remarks. He is right that we are of one mind on the need to implement faithfully the commitments that we have given. The amendments need to be drafted in a way that is legally watertight, which takes some time. They will be prepared during the summer—the summer holiday will be out of bounds for the officials on the Bill team, sad to say—and they will be introduced in the autumn in the House of Lords.

As well as pre-legislative scrutiny of the Bill, the parliamentary commission’s final report made a series of recommendations concerning standards and culture in banking. As I indicated on Second Reading, in Committee and yesterday, the Government will make use of the Bill and the amendments to give expression to many of the recommendations that require legislation. I gave a commitment to work with the usual channels to ensure that this House has ample opportunity to debate the amendments when they come back for further scrutiny by this House.

[Mr Tyrie]

I may have misheard. Does that mean that we will get two days to consider Lords amendments?

[Greg Clark]

My hon. Friend is nothing if not tenacious as well as ingenious, and his hearing is acute. He will have heard me say that I will work with the usual channels, so the time for consideration will depend on the outcome of those discussions.

The implementation of the commission’s recommendations on culture and standards represents the third pillar of the reforms being made to the banking system. The first pillar was the institutional changes brought about by the Financial Services Act 2012, which received Royal Assent last December. That Act scrapped the failed tripartite system of regulation which, in the words of the parliamentary commission,

“created a largely illusory impression of regulatory control”.

In its place, that Act restored the Bank of England to its rightful place by ensuring, through the Financial Policy Committee and the Prudential Regulation Authority, the stability of the financial system. It established new forward-looking, rather than box-ticking, conduct regulation in the Financial Conduct Authority.

The second pillar of reform is embodied in the ring-fencing provisions advanced by Sir John Vickers and his committee, which are the main focus of the Bill under consideration. The reforms by the Parliamentary Commission on Banking Standards that deal with culture and standards represent the third pillar, and will play a major part in the passage of the Bill.

Having thanked members and staff of the Independent Commission on Banking and the Parliamentary Commission on Banking Standards for their hard work and the exacting standards they set for themselves, I extend my thanks to all those who have participated in the drafting and scrutiny of the Bill so far. First, I thank my Parliamentary Private Secretary, my hon. Friend the Member for Warrington South (David Mowat). Not only has he been assiduous in his more mundane duties of passing notes to and fro, but he has been an invaluable source of wise advice, drawing on a successful career in business. I discovered that he has an ability to see quickly through complexity and get to the heart of the matter—something much needed in matters of financial regulation.

I thank my officials for their efforts and the long hours spent drafting the Bill and Government amendments, as well as briefings for the many clauses we have debated. I hope that the seriousness of this legislation will assuage the loss of weekends and evenings spent with their nearest and dearest, although I hope they were at least able to see Andy Murray play—and indeed win—on Sunday, notwithstanding the timetabling of Report and Third Reading.

I thank those in my private office for their patience and cheerfulness in marshalling the many demands on their skills and expertise, and I am grateful to members of the Bill Committee, and its Chair and Clerks, for the hours we spent in each other’s company during spring. At one point I worked out that I had spent more time that month with the hon. Member for Nottingham East (Chris Leslie) than with my wife, although I hope he will agree that it was not an altogether unpleasant experience.

We had a lively and unusual Bill Committee in which my hon. Friend the Member for Amber Valley (Nigel Mills) went further than the electrification proposed by the Parliamentary Commission on Banking Standards, and demanded the “electrocution” of miscreant bankers. My hon. Friend the Member for North East Somerset (Jacob Rees-Mogg), whom I am delighted to see in his place, was revealed to have a secret life on Twitter, which I hope continues to flourish. I was also able to concede an historic Opposition amendment, given the charming entreaties from the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), even if it was only a single word. All that was done under the beady eye of the Treasury Whip, my hon. Friend the Member for Chelsea and Fulham (Greg Hands), who kept us rigorously to time—indeed, I think we finished a day earlier than was allowed for in the programme motion. Given that the Bill will return and we will have much to discuss, it is not so much goodbye to the Bill on Third Reading as au revoir—or, as I am sure my hon. Friend the Member for North East Somerset would put it, “Hasta la vista, baby.”

Ours is not the only country in which trust in banking collapsed during the financial crisis, but the fact that scandals and bail-outs happened elsewhere is of no comfort. In a world where trust is in retreat, this country must be a beacon of confidence, security and stability, but that will not happen unless we insist on higher standards than apply elsewhere. The overwhelming and urgent imperative is to rebuild that trust. The reforms enacted so far take us a long way, and further than our competitors. The Bill will take us further forward and make the reform necessary to restore the reputation—and with it the prosperity—of banking in the United Kingdom. I commend the Bill to the House.

Financial Services (Banking Reform) Bill

Lord Tyrie Excerpts

Monday 8th July 2013 Commons Chamber

[Chris Leslie]

Those issues were covered pretty substantially by the commission in its first and second reports, and this was the conclusion it reached. Nobody wanted to go for full separation if it could be avoided; we wanted to ensure that ring-fencing arrangements could be upheld and made to work. There are some arguments in favour of that universal model, and therefore it was felt preferable to have such a power in reserve, but in the Bill. It is no wonder that the banking sector breathed a heavy sigh of relief today, when it saw the Government’s response on this and other issues. The markets judged that the banking sector got off lightly, and that there was nothing tough or difficult for the sector. That is why we have seen the market reaction today. The notion of business as usual seems to be back on the table.

I want the House to recognise that this is not an amendment that Labour has come up with in a partisan way. We are simply tabling an amendment that was drafted by the commission after days, weeks and months of deliberation and careful cross-party thought by Members of both Houses, but thrown back in the face of the commission by the Government today. It is important to have this on the statute book. A back-stop power will incentivise the banks to comply with ring-fencing. If the Government are correct in believing that ring-fencing will be adequate, the amendment will do no harm to the policy. It will sit dormant on the statute book. But if the Government are wrong, and this backstop power is not in place when it is needed, serious consequences could arise. It is nonsense for the Minister to ignore this risk, especially as the other place will want to come back to this issue. He may be forced to concede if we get into parliamentary ping-pong at some point.

I do not want to take up too much more time because many other hon. Members have spent a lot more time on this issue than I have, but I wish that the Government would listen to them and to the commission.

[Mr Andrew Tyrie (Chichester) (Con)]

I shall say a little more than I usually say in the House because these arrangements are quite central to the work of the banking commission and give me an opportunity— my first—to explain some of the reasoning behind that work. The two key amendments that I have tabled would empower the regulator to split up a banking group if there were serious failures in the culture and standards of the ring-fenced body or another member of its group. In deciding whether these serious failures have occurred, the regulator would be required to take account of the recommendations contained in the reports of the Parliamentary Commission on Banking Standards, which I chaired.

We produced five reports about a vitally important industry, one that has become embroiled in very serious scandals that have cost the consumer, taxpayers and the whole country a fortune. The parliamentary commission was the first of its kind for a century. The last, exactly a hundred years ago, collapsed in a heap of partisan acrimony.

We have produced five reports in under a year, all of which were agreed unanimously. We also put in an unprecedented amount of detailed work, taking evidence for 171 hours in no fewer than 76 evidence sessions, in addition to deliberating in private for a further 74 hours. I would like to thank my colleagues on the commission in both Houses for their huge contributions, injections of energy and endurance. I would also like to express my thanks for the equally impressive commitment of the commission staff and specialist advisers, led by Colin Lee and his two deputies, Adam Mellows-Facer and Lydia Menzies. Only the very limited time available prevents me from listing many more of the staff who put in so much work. I would also particularly like to thank the Front Benchers of all parties, who have offered a great deal of support.

The task now is to get the report implemented, primarily by regulators and banks, and, where necessary, supported by statute. The Government have today responded to the commission’s most recent report—our fifth. I have had a chance to flip through the response, but there has been no time to digest it fully—it is about 80 pages—and, of course, no time for anyone to table amendments as a result. In view of the extent to which it looks as if the Bill has been changed, I would be grateful if the usual channels could consider recommitting this Bill to Committee. Failing that, at the very least—as the my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) has said—an extra day should be provided for consideration of what will inevitably be a mass of Lords amendments. Bearing in mind the struggle that we had to get the half-day tomorrow, I hope that the Government will show more flexibility about this extra time.

Having said that, I warmly welcome the supportive tone of the pre-briefing given to the Financial Times about the publication that we have had today. Still, I would rather have heard about it here first. I am also very pleased that so many of the proposals and also the argumentation for them appear to have been accepted in full. But I am not fully reassured. The Government appeared to have accepted the commission’s proposal on a specific power to force the separation of an individual bank, but here we are, at the eleventh hour, trying to prevent the proposal from being severely weakened by the Government. In fact, as I will explain, the Government’s amendments would render the specific power of electrification virtually useless.

Some of the commission’s important proposals have not been accepted at all, for example on leverage, on which we support the recommendations of the Vickers commission, and on reform of the Bank of England’s antiquated governance structure, on which the commission supports the recommendations of the Treasury Committee.

Other ideas that the Government have rejected include the need to wind up United Kingdom Financial Investments Ltd and the regulatory reforms to provide statutory autonomy for the regulatory decisions committee. I find that especially regrettable. The Government have also rejected the proposal to remove the FCA’s strategic objective. No one can see much purpose to this except the Government. It can be used to trump the operational objectives of the FCA, including that of competition, and can thus serve only to weaken those operational objectives. On all those issues, I hope that their lordships will repair some of the damage that we have been left with no time to attend to here.

[Mr Love]

I agree with the hon. Gentleman that it is an offence to Parliament to read about the Government’s response first in the Financial Times. Give the mixed reception from the Government to our fifth report, we should have adequate time to discuss all the very important issues about which we deliberated for many days and which appeared in our recommendations.

[Mr Tyrie]

I strongly agree with the hon. Gentleman and I have already made both those points, which he just reinforced. All the amendments that I have tabled on behalf of the commission are about standards. Banking continues to suffer from the effects of poor standards. Even in the seven months that we took oral evidence, we had two more major LIBOR scandals, the interest rate swap scandal, a major bank found to be involved in money laundering in Latin America, and another fined $670 million for sanctions busting in Iran.

It is sometimes suggested that trying to do much about this will drive banks overseas. But all of the evidence we took pointed to exactly the opposite conclusion. Far from imperilling the UK’s global competitiveness, high standards will make the UK a more attractive place to locate. Many good things can flow from higher standards in banking, among them a restoration of trust. Trust is an essential buttress to the UK’s reputation as a global financial centre. It is also vital for the British economy. While banks are not trusted by their clients and particularly by SMEs, there will be less lending and less economic activity.

The crisis of standards and trust in banking—and it is a crisis—is multi-faceted, and so are the necessary remedies. None the less, the nub of the problem can be characterised as twofold. First, there has been a lack of individual responsibility at the top of banks. Collective decision making has diffused responsibility and a sense of duty to be vigilant. Secondly, there has been colossal failure of judgment by regulators, with an approach based on pointless data collection on a huge scale and needless box ticking.

In a nutshell, boards were negligent and the system of regulation was found seriously wanting the first time it was tested. Both boards and regulators were motivated by an understandable desire to cover their backs, but their lapses were inexcusable. The lack of personal responsibility in banks has been aggravated by misaligned incentives. By that I mean bonus and remuneration structures. They encouraged bankers to make short-term gains while the full risks and costs became evident only later. The taxpayer ended up picking up much of the tab.

--- Later in debate ---

[Mark Field]

My hon. Friend talks about the idea of incentives to find holes in the ring fence. Surely it is in the nature of the way in which one looks at regulation to try to find holes in the ring fence. There is nothing untoward about the idea of looking at a regulation or law and trying to find a way around it. Obviously, one should try to do so without breaking the spirit of the rule or regulation, but if we live in a highly regulated society it is surely inevitable that those who are regulated will look to try to find ways of avoiding them. Surely that is a fault of having over-regulated societies, whether in banking or in other fields of commerce.

[Mr Tyrie]

I am not going to delay the House by disagreeing for too long. It is rare that I disagree with my hon. Friend, but I wonder whether we would like surgeons to test all the time the regulations that encourage them to do a good job as they pull out their scalpels and wonder if they can get away with just one incision here or there.

[Mark Field]

I think my hon. Friend makes my point for me. The medical profession is a profession and relies on such things as the Hippocratic oath, and it has a centuries-old approach to how they go about their day-to-day business. An over-regulated industry is one that encourages the avoidance of regulation. Genuine professionals look on their professional responsibilities in a very different light.

[Mr Tyrie]

There is a heap of regulation surrounding the wielding of those scalpels. The common feature of the two industries is not the professionalisation or non-professionalisation of the industry; it is that both owe a duty beyond bettering themselves. In the case of the banks, they owe a duty because of the implicit guarantee; in the surgeons’ case, they owe a duty to the patient. I will not prolong this discussion any further, but I think most people accept that we do not want banks constantly trying to find a way around or through the ring fence.

[Sir Peter Tapsell (Louth and Horncastle) (Con)]

Will my hon. Friend give way?

[Mr Tyrie]

I will just this last time, but I have a lot that I want to say today, which is unusual for me.

[Sir Peter Tapsell]

How can anyone read the evidence that Mr Paul Volcker gave to my hon. Friend’s commission and come away with any other conclusion than that ring-fencing, whether electrified or not, simply will not work when we get the next major banking crisis?

[Mr Tyrie]

There is considerable force in what my right hon. Friend says. We considered the issue in great depth and published a report—the third report—on exactly that. We discussed the case for full separation, but concluded that although the ring-fence proposals had merit, they should not be reconsidered until we have given the Vickers ring-fence approach a try. We also examined the merits of a closely related proposal for the separation of proprietary trading—exactly what is being suggested—from the rest of banking activity. We concluded that further statutory support was not needed for that approach now, because the Prudential Regulation Authority might already have the powers to implement an effective separation of prop trading. We asked the PRA to present a report to the Treasury and to Parliament on its use of a range of monitoring and corrective actions, which could serve as the subsequent basis for a full and independent review of the case for full separation of prop trading. Unfortunately, as far as I can tell—I have had very little time to absorb this publication, which came out only at 12.30 pm—the Government have rejected even examining the proposal for prop trading. That is a mistake. I regret that, but I hope it will be put right in the other place.

Returning to amendment (a), the Government accepted the case for ring-fencing, arguing that banks that test the ring fence should be strongly deterred and, if necessary, prevented from doing so. However, I am afraid that that will not be the effect of the Government’s amendments. On the contrary, the Government amendments almost guarantee that banks will not get a shock, and will not be discouraged from testing or gaming the ring fence. The regulator needs a useable and credible deterrent. This proposal creates too many obstacles and delays to the sanction of full separation.

Frankly, it is inadequate for three main reasons. First, it requires the regulator to issue—we have already heard a little about this—no fewer than three preliminary notices and a warning notice before it can act. Secondly, it then requires the regulator to obtain permission from the Treasury no fewer than three times while the process is in train. Putting that requirement on the statute book would transfer most of the effective regulatory decision-making power away from the PRA and the Bank of England to the Treasury. It cannot be appropriate for the Treasury to be the regulator. The commission argued for a Treasury override at the end of the process, not at the beginning or in the middle, but the Government’s amendment requires the regulator to secure the consent of the Treasury on three occasions prior to that point. Even so-called preliminary notices—in effect, expressions of concern by the regulator—will require Treasury consent. That is absurd and compromises the regulator’s independence.

The third objection has also been alluded to. The Government’s amendments allow at least five years for the completion of the separation after a decision has been made. That would create enormous scope—indeed, it would make it ideal—for lobbying for a change of heart in the interim. It would create far too much room for that and we can do without it. It also flies in the face of what the Minister said in Committee, where he alerted Parliament to the risk of what he described as an “inordinately long” delay in implementation. A tool that is so difficult and slow to use is likely to deter no one and that is why I have proposed a number of amendments that would remove some of the obstacles erected by the Government to taking action to separate banks.

[Mr McFadden]

I want to ask the hon. Gentleman the same question that I asked the Minister about the difference in time scales between his amendments (a) and 19 combined, and the five to six-year timetable in total that the Government have set out. Were we to go down the road recommended in the hon. Gentleman’s amendments, how long does he think it would take between a decision on separation of an individual group being taken and that eventually happening?

[Mr Tyrie]

That is something on which we can usefully take advice from the regulator, but I would have thought that two years would be a reasonable maximum. Five years is ridiculous. It might take less than two years, but we have people down the road who can give us a clear view and the Government should ask them, if necessary publicly.

I have also tabled an amendment that would give effect to the Banking Commission’s proposal for allowing for full separation, as well as trying to improve the Government’s faulty amendment a bit. I recognise that the amendment has been debated in Committee and that the Government said they did not like it, but their reasons for not liking it were frankly not strong. I still find it curious that the amendment was rejected as a starting point for putting in ring-fencing. When the Bill goes to the other place, I hope that that amendment might be seen to be a better starting point than the Government’s. The Government have had several months to get this right. It is regrettable that they have made so little progress on it, but we are where we are. In any case, even ring-fencing with electrification is no cure-all for the standards problems in banks. To improve them, we all have to move forward on many other fronts.

I would like briefly to refer to the main other areas that are needed. To improve competition, we recommended a range of measures. We asked the Competition and Markets Authority to initiate a market study of the retail and SME banking sectors. I noticed that the Government were so enthusiastic about that recommendation that they announced it as soon as they received the embargoed copy of our report. We asked the Government immediately to establish an independent panel of experts to assess ways of enabling much greater personal bank account portability. The Government appear to have ridden back a little from that in the proposals they published today, although I cannot be sure.

We also took a good deal of evidence on RBS. Competition is weak partly because RBS is weak. Further restructuring may well be needed. In our view, the Government will need to be bold. We recommended that they undertake a detailed analysis of a good bank/bad bank split as part of an examination of the options for the future of RBS. That is vital work. In the field of banking reform, a healthy RBS, with the restoration of normal lending to the SME sector, is probably the biggest tonic that could be given to the British economy.

The way in which banks run themselves also needs reform. An accountability firewall had grown up that allowed senior bankers to deny responsibility for their failings. That wall has to be taken down. To give effect to that, we proposed the introduction of a senior persons regime. This would ensure that the direct personal responsibilities of board members, particularly the chairman, reflected the importance of their roles, so that it was clear to bankers and regulators who should reasonably be accountable when things went wrong, and for what. Our study of HBOS—our fourth report—provided a clear example of exactly the opposite. It guided our thinking on this and a number of other areas. Senior board members at HBOS did not take responsibility for what went wrong.

The crisis of standards was partly caused, and considerably inflamed, by the fact that bankers were rewarded for doing the wrong thing. Bonuses were often paid out well before the risks of the actions that they ostensibly rewarded became apparent. Bankers took huge rewards and when the risks turned sour, taxpayers picked up the tab. That has to stop. The Government and regulators should not set levels of remuneration. However, much more radical steps are needed to incentivise better behaviour among all staff whose actions or behaviour could seriously harm a bank, its reputation or its customers. Deferred remuneration for executives should not be viewed as an entitlement. People should keep their deferred bonuses only when it is clear that they have really been earned. That will mean long deferral, in some cases up to 10 years.

--- Later in debate ---

[Greg Clark]

We have had a fascinating, high-quality debate. I am grateful for the contributions of all hon. Members, but especially for those of the Members who served with such distinction on the Parliamentary Commission on Banking Standards: my hon. Friend the Member for Wyre Forest (Mark Garnier); the right hon. Member for Wolverhampton South East (Mr McFadden); the hon. Member for Edmonton (Mr Love), who is no longer in the Chamber; the Chair of the commission, my hon. Friend the Member for Chichester (Mr Tyrie); and the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso). With the help of Members of the other place, they laboured hard to produce a report that not only will stand the test of time, but will be a reference document for many generations in this country and throughout the world. The report will be seen as a major contribution to addressing the less tangible aspects of culture and standards, which is something that has eluded regulators throughout the world. I am sure that the report will be read with a great deal of interest.

The report’s central judgment includes the acute point that for too long questions of standards and culture have been contracted out to regulators, rather than being an intrinsic part of the institutions themselves. That aspect of the report stood out as the essence of the required change, because it should no longer be simply for the regulators to decide on such questions, as the culture throughout the institutions should reflect the correct standards that we expect.

I spoke at length at the beginning of the debate, so I shall deal briefly with several of the points that hon. Members raised. I was asked about timetabling. On Second Reading, I made two commitments, the first of which was that the House would have adequate time to consider all provisions, including amendments proposed by the parliamentary commission. I hope that hon. Members will concede that I have been true to that in Committee and throughout our two days on Report, and I repeat that that commitment remains as the Bill goes to the other place. I also said explicitly on Second Reading that the recommendations of the commission’s final report on standards and culture would be reflected in amendments to be made in the House of Lords. Of course, those measures will subsequently be considered by this House, so our intention has not changed. It was right to expedite the response to the report so that it was available much more quickly than usual. It has been useful in informing today’s discussions, as will be the case tomorrow, and it will be available to their lordships during their consideration of the Bill.

The hon. Member for Nottingham East (Chris Leslie) asked several specific questions, including about whether Government amendment 8 contained a typo. It does not, but it would require more than the four minutes remaining for me to explain why, so I hope that he will trust me on that at least. The upper tribunal is not a new invention; it is the court that considers all references made under FSMA for adjudication.

The hon. Gentleman made a substantive point about the notice period, as did my hon. Friend the Member for Chichester and the right hon. Member for Wolverhampton South East. I was asked whether an elongated process in some way diminishes the effectiveness of the ring fence. Our intention was—and is—to implement faithfully the parliamentary commission’s recommendation on the institution-specific ring-fencing rule. As I assured my hon. Friend the Member for Chichester, I am confident that if the Government’s proposals can be improved during the Bill’s passage, all his concerns about the use of the power can be addressed. In fact, the procedure under consideration has been described as pressing the nuclear button.

[Mr Tyrie]

I think that was a concession, so I am extremely grateful to the Minister. I am also grateful that the response was published at the earliest opportunity—it could have been delayed, so at least we have had a chance to look at it. That shows us that the Government are listening, and the response will be helpful in the other place. Above all, it gives us more confidence that there will be full implementation of the proposals. The Government have indicated their general support for them, so I hope that we will not have to go through a rigmarole to get the necessary provisions on the statute book.

[Greg Clark]

I am grateful for my hon. Friend’s intervention. I always take praise when it comes—especially from him, as he is often very flinty in issuing it. I do not think that what I said amounts to a concession, because it has always been our intention to reflect the spirit of his suggestion.

Let me make an important point on the process that my hon. Friend describes. In his amendments, he does not have a time period in mind for the exercise of the power.

Spending Review

Lord Tyrie Excerpts

Wednesday 26th June 2013 Commons Chamber

[Mr Osborne]

I will leave it to the country to ask these questions. I make this point. In this spending plan I have set out total managed expenditure of £745 billion, and it is up to all Members of this House to decide whether they support that. We do not know the position of the Opposition, because on Saturday the Labour leader said there would be no more borrowing, but on Sunday the shadow Chancellor said “yes, of course” there would be, so we will see what the position of the Opposition is on this.

The shadow Chancellor mentions what has been said in this House before. Well, let us be clear about what he said in this House before, and how we have responded to it in this spending plan. On 6 June 2011 he said there would be a return to mass unemployment. We have set out welfare plans that help people get back into work. Does he support those or not? That is the question the public will ask of him. He said in October 2010 that we were taking a huge risk with crime. Crime is down 10% or more. He said in July that year that the university reforms would shut out those from disadvantaged backgrounds from university, but actually a record proportion of pupils from disadvantaged backgrounds applied to go to university. He said, in his own words, that the cuts to the border agency would mean we would be unable to enforce our immigration policy. That was wrong, too. Every prediction he has made, including the prediction that there would be no more boom and bust, has proved to be completely wrong, so why would anyone believe a word he has got to say about this?

The simple point is this: we have set out our plans—we have set out our economic strategy, we have set out our spending plans—and those who disagree with them should advance an alternative or retreat from the battlefield, because the shadow Chancellor finds himself in no man’s land. He has abandoned his economic argument but stuck with a disastrous economic policy of borrowing more, and in the end, if we want to know why, we only need to hear what he said this month:

“Do I think the last Labour government was profligate, spent too much, had too much national debt? No, I don’t think there’s any evidence for that.”

All people want Labour to say is, “We’re sorry, we got it wrong, we borrowed too much and we spent too much, and we won’t do it again.”

To answer the specific question that the shadow Chancellor asked me, yes we will have free museum charges—so that people can go to our museums and see the antiquated economic policy advanced by the Opposition, which brought this country to its knees and gave us the worst economic crisis for a generation, and they can learn how this Government cleared up that mess.

These reductions and the control of public expenditure are absolutely essential. That will bolster the credibility of fiscal policy in the markets and it creates room for the private sector to lead the recovery and create the jobs we need, particularly in small businesses in our constituencies, which are desperately trying to find the funding to expand.

[Mr Andrew Tyrie (Chichester) (Con)]

Behind all the noise, most Members actually do agree that both the deficit and public spending are much too high and have to come down, and we should be under no illusions among ourselves just how tough and remorseless a task that is. Those reductions and that control of public expenditure are absolutely essential. They will bolster the credibility of fiscal policy in the markets and create room for the private sector to lead the recovery and create the jobs we need, particularly in small businesses in our constituencies, some of which are desperately trying to find the funding to expand. Sustaining public expenditure control over this period, and now being able to set out plans for the years ahead, is a great achievement by the Chancellor, the Chief Secretary to the Treasury and the coalition.

I want to draw attention to and ask a question about a particular proposal. The cap on nominal welfare spending will need careful scrutiny; it may well be an essential measure to give teeth to controlling annually managed expenditure, which frankly has not been well managed and is threatening to get out of control. Will the Chancellor publish today all the necessary detail to enable Parliament and the Treasury Committee to examine this extremely important proposal?

[Mr Osborne]

I thank my hon. Friend for his support for the difficult steps we needed to take. Our trying to set out these spending plans further in advance, so that Departments have time to make the necessary adjustments, is a good innovation in fiscal policy. The certainty we now have for 2015 will, I think, mean better public policy.

We have set out some of the details of the welfare cap in my speech today, but in the document we publish, we have set its parameters, how it will be set in cash terms, the period over which it will be set and when it will be set—at the Budget. However, it is absolutely my intention to listen to the Treasury Committee, which I hope will take an interest in this issue, and to examine best practice and make sure we get the final details absolutely right. If we want to change the Office for Budget Responsibility charter, we will have to legislate, but that is something we need to examine. We absolutely should work on the details, but the principles and the principal components of the cap have been established.

Oral Answers to Questions

Lord Tyrie Excerpts

Tuesday 25th June 2013 Commons Chamber

[Mr Osborne]

Of course, I respect my right hon. Friend’s experience. A powerful argument has been made that we should completely separate and split up retail banks from investment banks. We asked John Vickers to convene a commission to look at this specific subject, and he came forward with proposals to ring-fence retail banking, as he thought that that would be a better approach. We also set up a cross-party parliamentary commission to consider the ring fence, and it thinks that the ring fence is the best approach. It made a specific recommendation that we should give the regulator the power to split up a bank that had refused to comply with the ring fence, and we are giving the regulator—[Interruption.] The shadow Chancellor shakes his head, but again not one of these things was done when he was City Minister. Let me say to him again, because he obviously does not understand, that we are giving the regulator a specific power to split retail from investment banking in a bank that is ignoring the ring fence. I think that that is the right way forward.

[Mr Andrew Tyrie (Chichester) (Con)]

In the Treasury Committee this morning, the Governor of the Bank of England expressed considerable concern that unacceptable pressure had been brought to bear on the Prudential Regulation Authority from within Government, both from No. 10 and from No. 11, at the behest of the banks, putting at risk the regulator’s independence. Will the Chancellor reassure the House that he knew nothing about this, that he was not personally involved, that he will investigate the allegation that others did bring unacceptable pressure to bear, and that he will report to Parliament?

[Mr Osborne]

Of course, if there is unacceptable pressure, I absolutely say that that is not acceptable—if that is the right way to put it. The PRA, which we created, is completely independent and it has made its independent decisions on capital in our banks. We also have the Financial Policy Committee, which again is completely independent and able to make these recommendations. We empower our regulators to do their job. Of course, banks, consumer groups and anyone else can make their case, but this is ultimately an independent body, an independent regulator, that makes the judgment. That is the system we have created.