Oral Answers to Questions
Lord Tyrie Excerpts(11 years, 3 months ago)
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Mr Osborne
To get a lecture from the Labour party on demand! The economy shrank by 6% when the shadow Chancellor was in the Cabinet, and we are picking up the pieces of the mess he and his party left behind. One of those pieces was the deeply uncompetitive business tax system which meant that companies were moving their headquarters out of the United Kingdom. Companies are now moving into the UK because of the changes we have made.
Mr Andrew Tyrie (Chichester) (Con)
It is small businesses in our constituencies that will hold the key to Britain’s economic revival. Does the Chancellor agree that they are simply not getting the support they need from the banks at the moment and that although the funding for lending scheme is good, most of the money is currently going into mortgages rather than businesses? I realise that he will not want to say much now, just before the Budget, but can he at least reassure the House that the needs of small businesses are right at the top of his agenda for this Budget?
Mr Osborne
My hon. Friend has that assurance. The funding for lending scheme, joint with the Bank of England, is now supporting the small and medium-sized business sector as well as the mortgage market, and is repairing the damage to the financial system caused by the financial crisis. He is also right to say that small businesses are the bedrock of our economic revival, which is why we have cut the small companies tax rate, which before the general election the Labour party wanted to put up. We have also carried on the relief for small businesses from business rates, and in the autumn statement we increased tenfold the annual investment allowance, so that small businesses can invest for the future and create jobs. The Government understand that there needs to be a private sector recovery in order not to repeat the mistakes of the past.
Financial Services (Banking Reform) Bill
Lord Tyrie Excerpts(11 years, 3 months ago)
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Greg Clark
That is a principal source of concern. Sir John Vickers, the author of the report, has given evidence in public that he is confident that the arrangements are robust, but we reflected on one of the recommendations of the parliamentary commission to provide this electrification so that there are consequences for a bank that tries to game the system. That is right and it is a valuable contribution from the commission.
Mr Andrew Tyrie (Chichester) (Con)
Sir John Vickers has in evidence to us also endorsed in full our proposals for electrification, part of which the Government are rejecting.
Greg Clark
I will deal with the important recommendation made by my hon. Friend’s commission very shortly.
For the sake of completeness, let me summarise the Bill’s other main provisions.
Greg Clark
The hon. Gentleman is absolutely right. That will be one of the requirements—the regulator, and indeed the Treasury, will need to be satisfied by the bank that the overseas regulator has accepted, and credible arrangements are in place, to ensure that no liabilities will fall on the UK taxpayer.
Greg Clark
I am grateful for the hon. Gentleman’s point. As I said, I have published some of the principal statutory instruments and more will be available before the Bill goes into Committee. I will make sure that the House has access to the principal measures; as he knows, minor measures will sometimes follow. I repeat that it is absolutely my intention that the Bill should be properly considered and scrutinised by this House. The strength of these arrangements will benefit from their being exhaustively considered and enjoying the full confidence of the House.
Mr Tyrie
I apologise for interrupting for a third time, but I want to clarify the scrutiny question. The Government intend to get the Bill out of Committee before the date that the Banking Commission had proposed that it should go into Committee. Therefore, this all boils down to how much time we are going to get on Report. Will the Minister now, at the Dispatch Box, give a commitment to two days on Report?
Greg Clark
I cannot do that, but I repeat my commitment that this House will have the opportunity fully to consider the amendments proposed by my hon. Friend’s commission. He has not yet produced his report, so we do not know what he has in mind, but I have been as clear as I can at the Dispatch Box that there is no intent to avoid scrutiny; quite the opposite.
Mr Andrew Tyrie (Chichester) (Con)
Last July, immediately after its creation, the Parliamentary Commission on Banking Standards was asked by the House to undertake pre-legislative scrutiny of this Bill. In other words, in addition to fulfilling its terms of reference it was asked to examine the Government’s proposals for the implementation of large parts of the Vickers review. We have worked very hard to do what the House has asked of us, and I particularly wish to thank all my colleagues on the commission; all the commoners are in the Chamber today and although I cannot see any of the five peers up in the Gallery, their work has been not inconsiderable—as has been pointed out, they are a formidable bunch. I also wish to thank the Treasury Committee, which has continued to participate in aspects of this debate in our inquiries and the vast majority of whose members—nine, I believe—are also in the Chamber.
The first report from the Parliamentary Commission on Banking Standards, published in December, welcomed the Government’s decision to implement the Vickers ring fence, but we also argued that the ring fence had to be made much more robust if it was to have a good chance of enduring. We suggested that the level of innovation in financial services, the lobbying power of the banks, and the short memories of regulators and politicians all pointed to the need to reinforce the ring fence. That is why the commission recommended that the ring fence be supported by a reserve power, subject to final Treasury approval, to enable the regulator to impose full separation on a bank that attempted to game the ring fence. The Government have now accepted the merits of that recommendation and the Bill will be amended to provide for the reserve power, which is very welcome news.
In their response to our report, however, the Government did not accept a number of other proposals, so we produced a second report. It was published today and it seeks to do three simple things. First, for the convenience of the House, especially those Members who will serve on the Committee, it provides draft amendments to support all our proposals that might need statutory backing. As far as I know, that is an innovation for a Select Committee or Joint Committee and I hope that it will be of some use and perhaps set a precedent for how such Committees operate. The amendments have been prepared with the help of a former senior parliamentary counsel.
Secondly, an annex juxtaposes our recommendations against the Government’s response to enable the House to see clearly what has been accepted and what has been rejected.
Thirdly, the report examines the arguments made by the Government for rejecting a number of our recommendations. We were able do that on the basis of further evidence gathered from, among others, Sir John Vickers, the Governor of the Bank of England, the deputy governors and the chief executives and chairmen of most of the major banks. We have concluded that much more work is needed to improve the Bill and I shall linger briefly on only two areas. Much of what needs to be said is in the report and I hope that colleagues will find time to read it.
The first area is leverage. The parliamentary commission has not heard a convincing argument for blocking, as the Government seem determined to, the Financial Policy Committee of the Bank of England from setting the leverage ratio. We have concluded that the ratio is likely to be too low—that is, that banks are likely to remain overleveraged—but we also think that that judgment should rest with the financial stability regulator, the Financial Policy Committee, and not with the Chancellor. We argue that the regulator will want to consider long transitional arrangements, particularly for building societies—the Minister mentioned his concerns about this—as some problems particularly apply to those with large mortgage books. In our first report, paragraph 295 and the paragraphs preceding it go into the issue in some detail.
We also argue that the Bank of England should provide an annual assessment to Parliament on risk-weighting. It is clear to anybody who has considered the composition of risk-weightings and how they are derived, including the fact that they are based on modelling by the banks themselves, that to rely on risk-weighting alone would be a perilous task. It is vital that that should be supported by a robust leverage ratio, as risk-weightings are not a good measure, on their own, of overall balance sheet risk.
The Government have rejected all those suggestions and, frankly, I find it surprising that they cling to the line, which we heard again today, that we should wait for Basel—that is, that we should wait for other countries to decide. As many witnesses have said, it is for us to sort out what is best for Britain. We need to work out what is right for our industry, rather than waiting for a lowest common denominator decision from the Basel group. I was a little disappointed to hear more in that tone from the Government today.
From time to time, the Government even remind us, as they did today, that the transfer of the power to the Financial Policy Committee, if and when it happens in 2018, should occur only after it has been reviewed. In other words, it is possible that the Government might conclude that it should not be transferred at all. I think that would be a grave mistake. Getting leverage right is crucial to the future of the banking industry. With twin peaks in place and the financial policy up and running, it must be right to give that power to the FPC.
A second major outstanding area of disagreement is the Government’s rejection of a second reserve power for industry-wide separation. Our first report made it clear that this should be exercisable only after a fully independent review, after a recommendation from the regulator, and with Treasury approval. Not only did the Government reject the second reserve power, but in their first published response they even rejected the case for an independent review after a few years to assess the effectiveness of the ring fence.
On that last point—the need for a review—when the Chancellor came before the Committee about a fortnight ago, he appeared to be a little more flexible and he said he would consider it, and I noted the more emollient tone that we heard from the Minister today. I very much hope this presages some action on that point. I hope the Chancellor will give very careful consideration to the two points that I have raised here and that we raised in the report, both on leverage and on general separation.
Mr Tyrie
I do not think it is particularly democratic to give the authority directly to the Chancellor of the Exchequer, but I understand what he means if he thinks that Parliament should be given some opportunity to debate the issue. It is possible that some scope for flexibility could be built in to reconcile the point that he is making and the point that the commission is making. What would be unacceptable would be for the legislation to reach the statute book without a power of general separation and without there having been a thoroughgoing independent review. If those are in place, the extent to which Parliament can be involved a second time, and the extent to which the Chancellor himself should trigger that involvement, is something on which we could show flexibility.
I said that I hoped the Chancellor would think carefully about leverage and general separation, but there are a good number of other issues to which I hope he will give some thought, most of which have, at least briefly, been mentioned so I will not linger on them. I know that other Members want to speak, so I shall cite just three or four.
On derivatives, the Government appear completely at odds with the Vickers review and somewhat at odds with a slightly modified version of the same point that has been put forward by the commission which I chair. I will not delay the House now by going into the detail.
I hope the Chancellor will also consider a point that has scarcely been raised so far today—the need for the imposition of the so-called sibling relationship between the two parts of the ring-fenced bank under a single holding company, rather than the parent-child relationship, which was originally proposed in the Vickers report and which the Government still support. There are good corporate governance grounds and other grounds for supporting that proposal, which won widespread support in evidence that we took on it.
I hope the Chancellor will also think carefully about the way in which individual banks demonstrate whether they should benefit from a PLAC exemption—an exemption from the requirements of primary loss-absorbing capacity. This is a complex area which mainly affects banks headquartered in the UK with large overseas subsidiaries and branches. It is an issue that needs to be approached with considerable care. We thought very carefully about it and came forward with a balanced recommendation. On that, too, so far I have not seen enough flexibility from the Government.
The issues in the Bill are crucial for Britain. The industry is a great one, but it has serious problems. The Bill will address only some of the sector’s structural problems, and there is a lot more to be done. The parliamentary commission expects to produce its final report in May and that will seek to address some of the wider issues, the problems of standards and the culture in banking. We have just had a shocking LIBOR scandal and the wholesale rigging of crucial wholesale markets, and we have seen the equally shocking rip-off of consumers in the payment protection insurance scandal and of small businesses in the interest rate swap scandal. Those and other revelations, which have included sanctions busting and money laundering, reflect deep-seated problems of standards in banking.
Neither the Bill nor our proposals in May, nor for that matter any global initiatives under way, will solve all those problems. In fact, many of them will perhaps take many years—decades—to address. But something can and should be done, and that is why the Government are right to have made a start with this Bill. I very much hope that they listen to what the commission has said about it, because if they improve it further, along the lines that we have proposed, it can make a substantial contribution to a much stronger banking industry in Britain.
Financial Services and Markets
Lord Tyrie Excerpts(11 years, 4 months ago)
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Mr Andrew Tyrie (Chichester) (Con)
The Minister has just mentioned the leverage ratio. There are two crucial issues: first, the leverage ratio should be firmly in the hands of the FPC, not the Government; and, secondly, the UK should be able to act unilaterally, rather than necessarily having to wait indefinitely for international agreement—we should not move at the speed of the slowest. Indeed, the United States demonstrates how necessary that is. Does the Minister agree with that sentiment and, if so, why is that not reflected in what he is announcing today?
Greg Clark
As my hon. Friend knows, that has been a matter of much debate in the Treasury Committee and the Banking Commission, both of which he chairs. It is appropriate to have regard to the international debate on this. There is a difference between the debate on the leverage ratio and the two other tools that we will move on to talk about, the sectoral capital requirements and the counter-cyclical buffer, over which, it has been established internationally, there should be domestic discretion. We are not at that stage with the leverage ratio, as he will know, but I can certainly confirm to the House that the Government’s intention is to provide the FPC with a time-varying leverage ratio by 2018, subject to a review by the European Banking Authority, which is planned for 2017.
Greg Clark
We do not expect such a delay. The discussions are continuing and are live, as we know, so we do not expect to need that, but of course it is open to the House as it debates the Bill, presumably at some length, to keep that under review as the discussions progress.
The statutory instrument we are debating today relates specifically to the ability to set sectoral capital requirements. I will deal with that tool first before briefly covering the others. The interim FPC recommended that the statutory FPC should have a power of direction to vary financial institutions’ capital requirements against exposures to specific sectors over time. It argued that the over-exuberance that precedes crises often begins in specific sectors before spreading further. The Government agree that this targeted approach would allow these risks to be managed more effectively and proportionately than raising capital requirements more generally. The FPC has stated that it would wish to avoid what it terms an
“overly activist, fine-tuning approach”,
which should limit this risk. However, there may be times when using the tools in a granular way may be necessary, so the Government will keep the use of this tool under review to ensure that it is being used effectively and proportionately. There is also a risk that imposing sector-specific requirements could displace excessive risk into other sectors, so the FPC will need to monitor carefully the impact of any policy interventions using this tool and perhaps consider adjusting more general capital requirements if displacement turns out to be a significant problem.
I should take this opportunity to bring to the House’s attention the one change that the Government have made to the order following the consultation that we undertook on the draft version that was made available for that purpose. The current order excludes investment firms that are not regulated by the PRA from the FPC’s power. This will ensure that systemically important firms are captured while smaller firms that are not systemically important will not be subject to additional requirements.
Let me discuss briefly the other macro-prudential tools that the Government intend to give the FPC: the role of setting the UK’s counter-cyclical capital buffer; and, as we have briefly discussed, the power to intervene to limit leverage ratios. These are not covered by the draft order, but it might be useful if I provide a bit of context to the debate. The counter-cyclical capital buffer is part of the Basel III agreement, and it will be implemented in Europe by the capital requirements directive, commonly known as CRD 4. The directive aims to ensure that banking sector capital requirements take account of the macro-financial environment in which banks operate. It will be deployed by national jurisdictions when excess aggregate credit growth is judged to be associated with a build-up of system-wide risk to ensure that the banking system has a buffer of capital to protect it against future losses. Banks, building societies and larger investment firms will be required to build up capital during upturns. This will help to increase the resilience of the financial system and might also dampen the credit cycle. Unwinding these requirements in the downturn once the threat has passed might help to mitigate contractions in the supply of lending.
It is clear that with its macro-prudential focus, the FPC will be the body best placed to determine the level of the counter-cyclical capital buffer. This was supported by the results of the Government’s consultation. As the counter-cyclical capital buffer is expected to be provided for in CRD 4, on which discussions are continuing, the simplest way to incorporate it into UK law is via regulations made under section 2(2) of the European Communities Act 1972 to transpose into UK law the provisions of CRD 4 which relate to the counter-cyclical capital buffer.
It is vital that the FPC’s decisions in relation to the counter-cyclical capital buffer should be subject to comparable procedural and reporting requirements to the FPC’s other tools. Therefore, in addition to the requirements imposed by the EU legislation, the Government intend to ensure that the counter-cyclical capital buffer will be subject to the same transparency requirements as other FPC decisions, with a summary of the FPC’s discussions when taking decisions on the buffer set out in the FPC’s meeting records, and the FPC’s use of the buffer covered in the biannual financial stability report. The Government will make any necessary changes to achieve this in the regulations that incorporate CRD 4 into UK law.
The interim FPC recommended that the statutory FPC should have a power of direction to set and vary a minimum leverage ratio. The Government think that a leverage ratio could indeed be a useful macro-prudential tool for the FPC. The unweighted nature of the measure would guard against risk weights underestimating the true riskiness of assets and provide a directly comparable figure across firms. Firms’ leverage ratios were a useful indicator of failure during the last crisis, and the period immediately preceding the crisis was characterised by sharp increases in leverage. The Government strongly support the inclusion of a backstop leverage ratio in the EU prudential toolkit and consider it an essential measure to ensure that leverage remains at sustainable levels. It is clear that there is some way to go, but the review in 2017 will address that, and it will not be implemented across the EU until 2018, so we have some time to consider it.
Greg Clark
The discussions on those need to proceed separately—I think that the Financial Services (Banking Reform) Bill Committee will have some vigorous discussions—but the order relates solely to the sectoral requirements.
The Government will, of course, be able to add to the suite of macro-prudential tools in the future by further order, subject to the approval of this House and the other place. At the moment, we believe that the measures I have described are appropriate and sufficient starting points for the FPC. The Government expect the tool kit to adapt and evolve as the international debate and academic literature on the subject develops and empirical experience becomes more widely available. We expect the FPC to make recommendations to the Treasury if its macro-prudential measures require amendments or the addition of new measures is required. I hope that my explanation has been helpful.
Economic Policy
Lord Tyrie Excerpts(11 years, 4 months ago)
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Urgent Questions are proposed each morning by backbench MPs, and up to two may be selected each day by the Speaker. Chosen Urgent Questions are announced 30 minutes before Parliament sits each day.
Each Urgent Question requires a Government Minister to give a response on the debate topic.
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Mr Osborne
Government Back Benchers are as baffled as I am by the shadow Chancellor’s economic policy, which he has just had a few minutes to explain and still there is no explanation. His answer to a debt crisis is to borrow more. His answer to too much borrowing is to add to it. That is the problem he has, ultimately—that he is responsible for the mistakes that got Britain into this economic mess. This is the verdict from the leading Citi economist, Michael Saunders, today:
“In our view, the underlying causes of the UK economy’s weakness—and hence the rating downgrade—stem from the surge in private credit and public spending during 2000-2007.”
Who was in charge of economic policy during that period? The right hon. Gentleman is the architect of the mistakes that gave Britain its debt problem. He ignores the solution to that debt problem. He is condemned to repeat those mistakes and, as a result, his party is condemned never to be trusted with the public finances again.
Mr Andrew Tyrie (Chichester) (Con)
The truth is that any Government would need a credible deficit reduction plan, and the plain fact is that the markets are telling us we have one. Does the Chancellor agree with the shadow Chancellor, though, as he pointed out only the day before yesterday, that what the rating agencies have to tell us, given their dismal forecasting record, is of very limited value?
Mr Osborne
I would say that the credit rating agencies are important, but they are one test—[Interruption.] It is the shadow Chancellor who wants to say that the rating agency’s decision is not important, but we should still have a debate on it in Parliament. It is a completely contradictory position. It is important, but it is just one test of the Government’s economic credibility in the markets, and that is tested by the gilt yields, by the value of sterling, by the rates of the stock market and all sorts of other things, and as I say, today we have not seen excessive volatility. I say to the shadow Chancellor and to my hon. Friend and the Treasury Committee that we have to convince the world that we can pay our way in the world, and that is what this Government are going to do.
Financial Services
Lord Tyrie Excerpts(11 years, 4 months ago)
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Greg Clark
It is, of course, right that we do that. I have been very clear that we are taking the steps that we are taking to restore the international reputation of the City and to make it pre-eminent in the world as a place in which people have confidence.
I would have thought that the hon. Gentleman would have taken this opportunity to reflect on the contribution that the previous Government made to the decline in the reputation of the City. It is not as if the chaotic regulatory regime was not foreseen. In November 1997, during the passage of the legislation that set up the flawed Financial Services Authority, my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley) said:
“The coverage of the FSA will be huge; its objectives will be many, and potentially in conflict with one another. The range of its activities will be so diverse that no one person in it will understand them all.”
He went on to say that the Government of the day
“may, almost casually, have bitten off more than they can chew. The process of setting up the FSA may cause regulators to take their eye off the ball, while spivs and crooks have a field day.”—[Official Report, 11 November 1997; Vol. 300, c. 732.]
That was the warning that the Conservative party gave the Government at that time, but it was ignored comprehensively for their 13 years in office.
We have moved quickly, as most reasonable people would concede. We already have a Financial Services Act on the statute book and we have set up an eminent commission chaired by Sir John Vickers to recommend far-reaching changes to the financial services system. The previous Government’s contribution to the eminence of the City was to knight Fred Goodwin, for heaven’s sake. The Opposition spokesman brags about the reforms to the regulatory system that he recommended in a Public Bill Committee, but it was the shadow Chancellor, when he had my job, who said that
“nothing should be done to put at risk a light touch, risk-based regulatory regime.”
We are making the reforms that it falls to us to make.
I will answer some of the specific points that the hon. Gentleman made. We will have discussions about the Financial Services (Banking Reform) Bill. Most reasonable people would conclude that the reforms that we are making, with the advice of the Vickers commission and the Parliamentary Commission on Banking Standards, lead the world in this area. The Liikanen report, which is being recommended at a European level, explicitly refers to the reforms that we are contemplating. It is right that we should be ahead on this.
The hon. Gentleman is right that the Financial Services Authority must investigate whether any individuals or firms lost out as a result of the attempted manipulation. I call it attempted manipulation because we are talking about the rates that were submitted and it is not necessarily the case that the LIBOR reference rate changed in response. However, it is right that the FSA should make that assessment.
The process that Martin Wheatley recommended to replace the BBA is under way. It will become a regulated activity as soon as the statutory instruments are passed. Baroness Hogg and her committee are setting up a process to invite tenders, which will not include the BBA, to administer that process. As Martin Wheatley said, it is necessary that that is done in a way that does not undermine confidence in the rate-setting process during the transition, because it is fundamental to many contracts, as the hon. Gentleman implied, including people’s mortgages.
The hon. Gentleman mentioned other benchmarks. The powers that we took in the amendments that we made to the Financial Services Act 2012 before Christmas allow us quickly to specify any other benchmarks that might be subject to such abuse. Our response has been co-ordinated with the international authorities and nobody regards the powers that we have as inadequate to the task of dealing with other abuses.
On whistleblowers, the hon. Gentleman is right that it is important that people within banks and financial services should have the confidence to report abuse. A very small number of people are responsible for something that is besmirching the reputation of many millions of people up and down the country who work hard, day and night, for banks. Those people have had reason, over the years, to be proud of their career. It is important, not least for those people, that the institutions for which they work recover their reputations.
On the shareholding in RBS, it is of course the Government’s intention to return it, at the appropriate time, to private ownership. It is not right that we should own such a significant stake of a high street bank. It was necessary for us to do so because of the crisis that the hon. Gentleman and his colleagues know all about. As soon as it can be returned to independence, the better.
Mr Andrew Tyrie (Chichester) (Con)
I am sure that the whole House welcomes the fact that the US fines will be clawed back from bonuses. LIBOR, serious though it is, is just the tip of a large iceberg of banking malpractice that is now being exposed to view. The Minister ended his statement by pointing out that we should not shrink from imposing higher standards than other countries. Does he agree that if we impose high-quality regulation, it will not only be morally right, but may attract good business to the UK and be in the UK’s economic interests overall?
Greg Clark
I do agree with that. The work that my hon. Friend’s commission is continuing to do on the culture of banking is important and will inform the further reforms that we need to make. I do not think that we should be shy of setting high standards in this country; in fact, it is necessary to do so. At a time when trust is in flight across the world, there is an opportunity for the City of London to establish itself as a haven of probity and safety in a volatile world. High standards, far from being a threat or a danger to our financial institutions, are necessary for their continued prosperity, which I and the whole House want to see flourish.
Banking Reform
Lord Tyrie Excerpts(11 years, 4 months ago)
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Greg Clark
I had rather hoped for a serious response to a serious matter. When the Bill has its Committee stage, I hope the hon. Gentleman, with whom I am happy to work on the details, will be able to make some more substantial reflections than those he has offered the House today. Frankly, the idea that the Opposition should have the brass neck to table an urgent question on banking reform is almost unbelievable. At no point in 13 years of power did they show a scintilla of urgency in facing up to, never mind solving, the catastrophic absence of banking reform that led to the financial crisis being particularly damaging to this country. The failure of the botched regulatory system they introduced in 1997 has played a large part in the burden that the ordinary working people of this country are still having to shoulder today to bail out the banks. They were in office after the crisis, too. Even then they did nothing urgent apart from hurriedly plunge their heads in the sand to hope that the nightmare would pass.
It has fallen to this Government—as it regularly does, I am afraid—urgently to clear up the chaos in which Labour left the country. It should not have taken so long, but since the Government have been elected—from the beginning of our tenure in 2010—we have set up the Independent Commission on Banking, which has done a superb job, and we have created a separate conduct regulator and a prudential regulator that are now on the statute book. Why did we need to wait for this Government to be elected to do that? Why did Labour not set up a parliamentary commission on banking standards? [Interruption.] Of course, I will answer the pitifully few points that the hon. Gentleman made.
The hon. Gentleman asked, perfectly reasonably, why we had not given the Bank of England the power to split up the whole banking system. One of the principal reasons for not doing so was that the Governor of the Bank of England, in evidence to the commission, said that he did not want that power. It would seem odd to foist on the Governor a power that he does not want. The hon. Gentleman also asked why we did not adopt the higher backstop ratio. One concern expressed was by building societies worried about being disadvantaged by that. That was a concern we had.
The hon. Gentleman asked about a full review. If he had read closely the statement we published in response to the commission’s report, he would have known that the PRA would conduct a full annual review of the ring-fencing rules, and we will obviously act on any recommendations that it makes. He also asked about further recommendations that might come from the commission, which is chaired by my hon. Friend the Member for Chichester. The hon. Gentleman seems surprised that, having set up the commission, we might be interested in taking seriously its recommendations. I hope it is apparent from our response today that we take its recommendations very seriously, and I look forward to its further recommendations, particularly on competition, which have a great deal to offer. I greatly respect the commission’s work and look forward to making time available when the next report is published to make the necessary changes to the Bill to accommodate the recommendations.
Mr Andrew Tyrie (Chichester) (Con)
The commission will look carefully at the detail that the Government have published today, but in the meantime I warmly welcome the Government’s acceptance of several of our key proposals, including on electrification of the ring fence.
Last night, journalists were briefed by the Treasury that the Government had also accepted our proposal that an external assessment should be made before the PRA could exercise its reserve power, but there is no mention of that in the Government’s response. Will the Minister confirm that such an assessment will be provided for in the Bill?
Oral Answers to Questions
Lord Tyrie Excerpts(11 years, 5 months ago)
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Mr Osborne
The claimant count has fallen on the most recent measure, which was published last week. As I said, 1 million jobs have been created in the private sector. We are also, as my hon. Friend the Member for Erewash (Jessica Lee) reminded us, creating the apprenticeships to give these young people the skills they need, which the previous Government were not providing, to compete in the modern economy. I would ask the hon. Lady to get behind the education and welfare reforms needed so that people have the right incentives to work and the right skills to get a good job in future.
Mr Andrew Tyrie (Chichester) (Con)
The recent cancellation of the rise in fuel duty in the autumn statement was very welcome news for all our constituents, and it will help with jobs. Our constituents now need greater certainty about future rises, so will the Chancellor accept the Treasury Committee’s recommendation, published today, that he should use the Budget to set out a clear medium-term strategy for fuel duty?
Mr Osborne
My hon. Friend is right to remind us that fuel duty is 10p per litre lower than it would have been if we had stuck with Labour’s Budget plans. We have also, as a medium-term measure, abolished the fuel duty escalator that the previous Government put in place. He mentions the Treasury Committee’s report. I hope that, as Chair of the Committee, he will welcome the fact that we have got the money in from Switzerland, because one of the issues that the report raised was whether that money would be forthcoming, and the fact that it came last night was very welcome.
Oral Answers to Questions
Lord Tyrie Excerpts(11 years, 6 months ago)
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Mr Osborne
I think that most people in the House—I thought this was the case in all parties—welcome the innovative work being done on social financing and social impact bonds. Sir Ronald Cohen is one of the leading advocates of this and has been advising the Government. It is all about trying to get new forms of financing into improving our society. I would have hoped she would have welcomed that, rather than criticising it.
Mr Andrew Tyrie (Chichester) (Con)
Many on the Treasury Select Committee are already concerned that Whitehall Departments might again find themselves addicted to the “get something now, pay later” culture that bedevilled PFI the first time round. What is also concerning us is that a number of the proposals set out by the Government—I refer, in particular, to page 13 of the document produced—look more like motherhood and apple pie than something substantive enough to offset that Whitehall pressure. Will the Chancellor assure the House that, excluding value-for-money considerations, all accounting incentives to remove PFI from balance sheets will now be closed off to Departments?
Mr Osborne
I say to the Chair of the Treasury Select Committee that we will set out at the Budget—of course, he will want to scrutinise this carefully—a new control total for the off-balance sheet liabilities of PFI. We already now publish the whole-of-Government accounts so that people can see the liabilities built up under the previous Administration. The country now has more than £280 billion of PFI debt, of which only £40 billion has been paid off, so he is absolutely right to hold our feet to the fire to ensure that we properly account for this and remove perverse incentives in Whitehall. We want the private sector investing with us in public services, however, so it is important that we have the right regime.
Financial Services Bill
Lord Tyrie Excerpts(11 years, 6 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Chris Leslie
It is a great pleasure to welcome the new Minister to these rather long-winded proceedings. I believe we started on this Bill back in February, but he should not worry, as this is shortly to be followed by the banking reform Bill and possibly even a banking standards Bill—to be determined—so we will probably have plenty more opportunities to chew over these issues then. It is a little preposterous to have a knife coming down at 7 o’clock, by which time we have to put the Question on 150 or so of these Lords amendments. That gives us about 25 seconds per amendment [Interruption.] I will get on with it; I lost about a dozen amendments just then.
That is why we have tabled several amendments to those Lords amendments—you will be impressed with that, Mr Deputy Speaker—and I wish briefly to explain why we have done so. The first Lords amendment that we are seeking to amend is Lords amendment 3, which, as all hon. Members here know, deals with the creation of an oversight committee within the Bank of England as a sort of subset of the court of directors, where it is to have a reviewing and, supposedly, a scrutinising role. There is a problem: the oversight committee has a series of responsibilities, not one of which is set out, in overseeing what the Bank of England does. The committee has a set of responsibilities to monitor, to review procedures and to conduct performance reviews, but all of that is retrospective—it looks backwards, not forwards. May I gently suggest to the Minister that it might be more appropriate if he were to call this a “hindsight committee” rather than an oversight committee, because as things stand I do not think there is a sense in which this is a proper check and balance within the governance of the Bank of England?
Why does that matter? It matters because the Government are giving phenomenal new powers to the Bank of England within our economy as an overarching financial regulator. The Minister says that the PRA is independent and will report to Parliament, but let us be honest: this is a creature of the Bank of England and the Bank will control very much what happens in the regulatory framework. Although we welcome the concession that was made to create an oversight committee, people have misgivings—we will probably hear about some of them, perhaps from members of the Treasury Committee, in a moment—that there is still a very hierarchical and centralised set of governance structures in the Bank of England.
We therefore need to make sure that this crucial verb “oversee” is included in the oversight committee’s remit. That would help to shift the balance of power between non-executives and executives in the Bank of England framework just that bit more. These are important lessons of governance, certainly from the private sector. While we are moving towards that executive and non-executive balance, it is important that we recognise that the Bank of England is being dragged into the 21st century. If we are taking the opportunity to do that in legislation, making that particular change would be very welcome.
The other amendment we wish to make to Lords amendment 3 relates to crisis management. As I said, the Bill gives massive new powers to the Bank of England, but in a crisis there will be very little time to figure out and design standing orders, or to work out arrangements for who will meet whom and for how decisions can involve the right people. You will recall, Mr Deputy Speaker, how during the global financial crisis crucial decisions affecting billions of pounds of taxpayers’ money and whether people could access the cash machines were made in the space of hours over weekends. In hindsight, it would have been nice to have had a carefully planned set of arrangements, and this Bill needs to learn the lessons from that. We are concerned that the crisis management arrangements are still thin and inadequate. We have suggested that if there is going to be an oversight committee in the Bank of England, the Bill needs to set out explicitly that it is to have a duty to ensure the adequacy and effectiveness of arrangements with the Treasury for crisis management.
There is no role for the new financial conduct authority in the drafting of the arrangements. Apparently it does have a veto, but it is not part of the drafting of that memorandum of understanding. The Government are still resisting proposals to ensure that deputy governors and the chief executive of the FCA can consult directly with the Treasury in circumstances where there might be differences of opinion. Given the import and the size of the FCA, the PRA and the FPC within the Bank, it is important that the deputy governors have an ability and a right to talk to the Treasury, so that everything is not hidden and suppressed within one view of the Governor of the Bank of the England.
There is a very bizarre set of provisions excluding the ability of the memorandum of understanding to make provision about the relationship between the Bank of England and the PRA, which goes to prove that the PRA is very much a creature of the Bank. It also suggests that the Governor will have powers to suppress the voice of the PRA in a crisis. Shockingly, there is no parliamentary approval process for that MOU; no statutory instrument arrangement has been made, as I understand it. The crucial paragraph of the MOU that deals with what happens in the white heat of an emergency simply says, “Oh well, there will be ad hoc or standing committees just to sort these things out.”
That is not good enough. The whole of best practice in preparedness and in emergency and contingency planning would suggest that now is the time for Her Majesty’s Treasury and the Bank of England to sit down and calmly and methodically work through what would happen in those circumstances. There should be some draft standing orders to pre-empt those scenarios.
Mr Andrew Tyrie (Chichester) (Con)
The hon. Gentleman will recall, of course, that the poorly drafted MOU that lay behind the tripartite agreement certainly played a role in the lack of understanding of how to handle the crisis. Does that not point all the more towards a need to think things through very carefully now? That MOU was scrutinised in Parliament; I was in Committee at that time and most of the points made were largely ignored. Surely now, while we have the time, we should think through what is required in such an MOU and take the opportunity to consider that in Parliament.
Chris Leslie
I entirely agree with the Chairman of the Treasury Committee, who is very knowledgeable and has some strong views on these questions. It is a pity that when we flick through the luminous list of Lords amendments, we find a gaping hole on those crisis management arrangements, where none was accepted by the Government. Some clauses in the Bill deal with that set of scenarios, and it is noticeable that such provision is not included there. That is in part why we have sought to amend Lords amendment 3, as one of the few areas where we can make an amendment is in respect of the role and duties of the oversight committee. I accept that that is only half of the scenario, as we also want Her Majesty’s Treasury to have a process for reviewing the adequacy and effectiveness of its arrangements with the Bank of England, but we do not have the opportunity today to propose such an amendment.
If we are to have an oversight committee, it should be able to play a role in ensuring that the crisis management arrangements are up to scratch and that there is joined-up thinking between these variously important branches of governance to ensure that someone at the Bank of England is tasked with thinking these things through very carefully.
Chris Leslie
My hon. Friend will not be surprised to learn that there was a little argy-bargy between the Treasury and the Bank of England. As I understand it, the Bank initially said, “Loan-to-value ratios on mortgages, and loan-to-income ratios, are an awfully big decision. There is a lot of politics in that. We are not that keen. Push that back to the Treasury.” I think the Treasury has been saying, “No, Bank of England, this is a decision for you to take.” These are inherently political issues and our constituents would rightly ask whom to hold to account for such big decisions that affect their daily lives: whether or not someone can get a mortgage, what is happening in the housing market, and so on. That is why we still have some reservations about the governance structures and the lack of accountability on policy making. That is why we are asking for an assessment of the impact on economic growth whenever these levers are pulled and whenever these decisions are taken. I accept that there are careful balances to be struck. The FPC of course has to have an eye to stability, but it also needs to recognise, as the Chancellor has said, that we do not want the risk-aversion of the graveyard so that there is no economic activity. That is why we have suggested this particular change.
I am conscious of the time and I know that a number of hon. Members want to speak. Those are the main points that I have to make about our particular arrangements and it would useful if we could hear the views of others.
Mr Tyrie
The Bill came out of the other place only last Wednesday night and it was heavily amended there. It is the most complicated, and one of the most important, pieces of financial legislation for decades.
Much of what we are considering today amends provisions in the Bill, which themselves amend the Financial Services and Markets Act 2000 and the Bank of England Act. The Bill is incomprehensible without constant referral to FSMA. I would go further and say that it is incomprehensible in parts even after considerable referral to FSMA. We now have a piece of legislation that passeth all man’s understanding, like God’s will. FSMA itself was arguably the most complex piece of legislation ever passed by Parliament. I was on the Bill Committee and it was certainly pretty testing.
We are now legislating in a huge rush to get this on the statute book by the end of the year in order to meet an entirely arbitrary deadline. The deadline has been rendered all the more absurd by the fact that we will be back here next year anyway amending it as part of the banking Bill, which is required to give effect to the Vickers commission’s recommendations, parts of which have to be done by amending FSMA and cannot be done in any other way. I am not making some recondite point about parliamentary procedure; I am making a point about how to make the Bill effective. It is a point that is being made to me right now by senior regulators, who would very much prefer that we just take a little bit more time to get the legislation right.
This group of amendments deals largely with Bank of England governance. Everyone is agreed that Bank of England governance is in a huge mess. That is why last April the Treasury Committee took the highly unusual step of tabling a new clause in an effort to try to sort it out. I am particularly grateful to colleagues from four parties on the Committee who all co-operated to enable that amendment to go down with unanimous support. I am also particularly grateful to my deputy Chairman, who is sitting on the Opposition Benches, who assisted with the tabling of that clause. It was needed because the Bank has ramshackle governance arrangements that reflect their 17th century origins, as the name “court” demonstrates. As has already been pointed out, better governance would improve its accountability to Parliament. But much more important in some respects, it would also improve the Bank of England’s authority to act and to speak to the rest of the country as it takes tough decisions, such as those that have just been referred to. This is a point that is not lost on very senior people in the Bank of England right now, on the Monetary Policy Committee, the Financial Policy Committee, and also a number of deputy governors.
The Treasury Committee clause would not have solved all that, but it would have gone some way to bringing the Bank into line with good practice on corporate governance generally. It would have placed a duty on the court to conduct retrospective reviews of Bank performance and to publish the results, and it would have required the court to publish its minutes. I withdrew the amendment in the Commons only when the Government gave undertakings to make those changes in the Lords. I will come back to that.
In May, the Treasury Committee took another highly unusual step of reporting on the Financial Services Bill, after we had looked at it in the Commons, in order to assist the other place with its examination. Most of the conclusions that we came to in that report were raised as amendments in the Lords. The Government responded to some of them and that is what we are debating now. The Government’s Lords amendment 3 sets up, as we have heard, an oversight sub-committee of the court’s non-executives. That would give the court the power to commission retrospective reviews of the Bank’s performance —that is a step forward—to be carried out either externally or internally. The Government have also inserted an amendment to require the publication of court records of its meetings. While these amendments improve the Bill, they fall well short of what we were hoping for, and what in our view is still required, for several reasons.
First, the amendments place the power of review in the hands of a sub-committee of the court, rather than the court itself. This will further confuse the lines of accountability, not least to Parliament and to the Treasury Committee. These accountability lines are now very complex. I urge the Minister to try drawing them on the back of an envelope. I wager that he will have quite a task on his hands. Senior regulators agree that they will not do as they stand, and they have been telling us that publicly and privately. They want an improvement. They want the legitimacy for their decisions that comes with effective parliamentary scrutiny. Senior people in the Bank of England have seen how the Monetary Policy Committee has been strengthened and bolstered as a result of effective scrutiny by the Treasury Committee.
Alison McGovern
May I take the hon. Gentleman back to his fourth point? He mentioned the Treasury Committee’s ability to get information from the Bank. What specifically is he concerned about, and does he think that his Committee ought to be able to access data from the Bank as part of its oversight role? First, how would he improve on that point? What specifics of governance does he think we must look for? Secondly, is it a question of getting data out of the Bank so that group-think can be laid bare and investigated? Am I right to take those points from what he has said?
Mr Tyrie
If the hon. Lady will forgive me, I will not linger on those points for too long, because the Committee has set that out in some detail in a number of reports. On her first point, in a nutshell, one need only look at the corporate governance arrangements of almost any public sector body, or indeed any public company, to see that the lines of accountability are powerfully drawn between their non-executives and the executive arm. That is almost completely lacking in the court, whose role is heavily circumscribed and, until recently, involved nothing more than oversight of the Bank’s budget. Indeed, I have been told informally that until recently an unspoken requirement of membership of the court was to have no great knowledge of financial matters, and certainly not to interfere with them. That strikes me as the negation of genuine oversight, but perhaps those who whispered such thoughts in my ear were making mischief.
On the hon. Lady’s second point, it is of course crucial that somewhere in the accountability framework there is a group of people who are capable of asking for detailed information in order to make the scrutiny meaningful. The Treasury Committee, in our investigations into Royal Bank of Scotland, found that we needed to send specialist advisers into the FSA to obtain the necessary papers to ensure that they were taken into account in its report on RBS. I do not think that it would be a healthy state of affairs if the Treasury Committee ends up having to send specialist advisers into the Bank of England to perform such a role. It would be far better to have a group of non-executives in the Bank of England whose explicit task is to look for those documents and to be available to help us do the scrutiny directly. My reply to her questions touches only the surface of the more detailed reply that could be given, but it has been set out in some detail in at least two Treasury Committee reports.
Next year we will have a new Governor. He could, of course, grasp the opportunity to improve all this, and no doubt he will form views about governance, ones that might benefit from legislative change. The Banking Commission will also make recommendations on standards, culture, competition, governance, regulation and sanctions for rule-breaking by bankers. Any or all of those might require statutory action. I would be grateful for an assurance on that from the Minister, so will he commit the Government to broadening the scope of the banking Bill to ensure that further amendments to FSMA, including in the areas I have just mentioned, can, if necessary, be made next year?
Greg Clark
I can give my hon. Friend that assurance. The Government have already said, I think in response to the question of data on lending to deprived communities, that if we do not succeed in establishing agreement with the British Bankers Association, we will use the forthcoming banking Bill to make those changes. If the distinguished members of my hon. Friend’s Commission, following their considerations, have recommendations that will require legislative changes, we will of course have vehicles available for that.
Mark Durkan (Foyle) (SDLP)
The hon. Gentleman has referred to the new Governor. If it had been a condition of his appointment that he understood the Bill and could explain it, does the hon. Gentleman believe that he would have been appointed?
Mr Tyrie
Well, he is a very clever man. I am confident that at the time of his appointment he would have been unable to pass the FSMA test, but I have no doubt that by the time he comes before the Treasury Committee for his pre-appointment hearing he will have mugged up fully on it all.
I have spoken for 14 minutes already, which is four minutes longer than I make a point of ever speaking in the House these days, so I will move swiftly to one last point. The Minister, as he pointed out, started looking at the Bill three quarters of the way through the process of putting in place a new system of financial regulation. I will wager a pound to a penny that he has found the tangled web of legislation that we have just been discussing extremely confusing. In fact, I wager that he has found it, in places, to be a nightmare and impossible to understand. I wager the same amount that the officials advising him do not always understand it either, and that is no reflection on the high-quality advice he is no doubt getting. Will he be prepared at least to consider rewriting FSMA afresh when he comes to adapt it to take account of the banking Bill, because that is what regulators have told us they would prefer, what the Governor of the Bank of England said he would prefer and what would enable the industry, the public and Parliament to have a much more intelligible piece of legislation?
It is a great shame that that approach, which was vigorously put forward at the time, was rejected when the Government first announced that they would proceed with amendments to FSMA. The Governor was pressing for it very strongly, and he had allies in Parliament. We now have a second chance, and I very much hope that the Minister will consider taking it. He will need to bear in mind that there will be 100—perhaps 1,000—official voices telling him not to do that, but just occasionally there are moments when a Minister can greatly improve the quality of the statute book. Would he be prepared at least to consider rewriting the Bill so that we have one fresh piece of legislation that everyone can understand?
Greg Clark
This has been a short but interesting debate, and I am grateful to the hon. Member for Nottingham East (Chris Leslie) and to my hon. Friend the Member for Chichester (Mr Tyrie) for contributing to it. I think that my hon. Friend does himself a disservice. If anyone can follow, and indeed have imprinted in his mind, every clause of FSMA, and be able to relate it to any future amendment, I know that he is capable of it. Let me first respond to some of the points made in the debate, including his.
The Bank of England is obviously at the heart of the financial system, and the changes are among the important reforms of its powers in history, alongside nationalisation in 1946 and independence in matters of monetary policy in 1998. Notwithstanding the few remaining issues of debate, I think that the whole House would agree that the changes made in the Lords represent a significant improvement in this part of the Bill. The amendments will strengthen the governance and accountability of the Bank. They will give the Financial Policy Committee a more positive and proactive mandate around economic growth and shift its membership to reduce the influence of the Bank’s executives. In addition, there are clarifications to simplify the drafting and terminology, if perhaps not going as far as my hon. Friend would wish to go. The name “court” is retained, despite his preferences.
On the Opposition amendments, I do not think that there is, in practice, a huge degree of difference between us. As the hon. Member for Nottingham East said, amendment (a) to Lords amendment 1 would add the word “overseeing” to subsection (2) of new section 3A of the Bank of England Act 1998. That was well debated in the House of Lords, as he will know. Some clarity was achieved there, in that the kind of oversight in which the oversight committee is expected to engage is common to non-executive directors elsewhere. Baroness Noakes made particular reference to that. The opportunity to review decisions and to consider how they are made is well understood in the context of the term “oversight”. The hon. Gentleman is proposing something that goes beyond that: that oversight should contain a more real-time role as well as a backwards-looking role. That could involve second-guessing the Bank’s policy decisions while they are being taken, which would not be appropriate. Indeed, it would go against the recommendations of the Treasury Committee, which said in its report that it agreed with the Governor that the Bank’s governing body should place more emphasis on oversight and ex-post scrutiny that would not authorise it to become involved in second-guessing immediate policy decisions. That is the advice that we have taken.
Greg Clark
They may be fresh instructions, but I have decided not to read them. I may be countermanded, but I will not retract my statement.
I will conclude by addressing what the Chairman of the Treasury Committee has said. I am reliably informed by my predecessors that this Bill, though complex and voluminous, has been well considered in numerous Committee sittings in this House, and I think that most people will conclude that their lordships have done a good job in their scrutiny. The Bill is important and it is right that it has been scrutinised to the extent that I think it now commands the broad support of the House, as evidenced by the relatively few amendments that have been tabled to their lordships’ amendments.
As I said in response to an earlier intervention, opportunities will be presented to the House in the years ahead—new Bills are already gathering speed on the runway—to accommodate further changes, should they be necessary. If so, I am sure we will have further conversations about them.
My hon. Friend the Member for Chichester issued me a challenge to rewrite the Financial Services and Markets Act 2000 and anticipated that I would be besieged by objections from officials and others.
Greg Clark
I will not turn around and look at my officials in the Box, because I am sure I would get some black looks. My hon. Friend would not expect me to make a commitment, but I know—this is the case with everything he says—that he speaks from experience and that he examines the issues meticulously. I will look at what he has said, but I ought not, at this late stage, to raise his hopes too high.
Lords amendment 1 agreed to.
Lords amendment 2 agreed to.
After Clause 2
Oversight Committee
Amendment (b) proposed to Lords amendment 3.—(Chris Leslie.)
Question put, That the amendment be made.
Autumn Statement
Lord Tyrie Excerpts(11 years, 7 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Osborne
The 4G licence, yes. We are using the 4G licence. [Interruption.] May I say something about the 4G licence? The shadow Chancellor had 20 minutes to make his points, but he did not make any at all. We are using the 4G money, in part, for new capital spending, including building further education colleges, one of which is called the Leeds city college, in a town called Morley in west Yorkshire. I am not sure what the local MP would make of the shadow Chancellor’s decision that that is not the best use of the money, but he can look at himself in the mirror and ask that question.
The shadow Chancellor cannot answer these basic questions. He tries to claim that all the problems in Britain began in May 2010 and that they are all the fault of this Government. Literally only the people in the Brownite cabal claim that; there is not a single other person in the Labour party, in any business organisation or in any of the international bodies who believes that. The reason he has to maintain this completely incredible position is that if he admitted that the previous Government were responsible for the problems in our country, he would have to admit that he was responsible for them.
Out of necessity not choice, therefore, the Labour party leader has a shadow Chancellor who is more associated with the economic mismanagement that led to Britain’s problems than anyone else in Britain. He will not let his party move on. He is a man trapped in the past. The one thing the Opposition need to say is: “We’re sorry. We spent too much and we borrowed too much, but we won’t do it again”, but that is the one thing the shadow Chancellor cannot say. Until he does, though, the British public will never trust him or the Labour party with the public finances again.
Mr Andrew Tyrie (Chichester) (Con)
What the business community—the bedrock of economic recovery—needs most of all is stability, and I believe that what we have heard today delivers more stability. Does the Chancellor agree that businesses, particularly small businesses, need banks that lend? With that in mind, will he examine the radical options to achieve that—opening up banks to much more competition from new lenders, as the Treasury Committee has recommended; cleaning up bank balance sheets, as the Bank of England has advocated in the financial stability report; and possibly even breaking up one or more of the state-owned banks to improve their funding and hence lending?
Mr Osborne
My hon. Friend makes a good point: many of the problems in our economy are borne of the credit constraints and the elevated bank funding costs, which I talked about when I mentioned the OBR’s assessment of the economic forecast. There are several responses. The funding for lending scheme has brought bank funding costs down. That scheme, according to the OBR’s assessment, has had an impact, and it is an important part of our macro response. I agree with him that we must do much more to encourage competition in our banking system. We have some new entrants, but we can go further, and we need a much more competitive banking system that is able to serve the public better.