Public Service Pensions Bill

Lord Whitty Excerpts

Wednesday 19th December 2012 Lords Chamber

[Lord Newby]

My Lords, I am very happy to have an early discussion with my noble friend and look forward to debating any amendment that he may wish to bring forward.

As I was saying, we want public pension recipients to be reassured that, as a result of the provisions set out here, the new schemes will be administered and governed as effectively as possible. The new open scheme arrangements will ensure greater accountability and transparency through a common approach, an approach that will be independently overseen by the Pensions Regulator. The Bill builds on the regulator’s existing role and powers in relation to public service schemes and, as far as is appropriate, mirrors the existing approach to other occupational pension schemes. The regulator’s new powers will help public service pension schemes deliver good standards of administration and governance, ensuring that scheme costs and risks are understood and managed effectively.

All these changes demonstrate that the end of the current benefit arrangements and the creation of these fairer, more sustainable pension schemes are the right and proper way forward. It is right that public service pensions continue to set a good-quality benchmark for the private sector, and a race to the bottom in terms of pension quality must be avoided.

A consistent approach across schemes regarding consultation processes and the application of financial directions from the Government will also mean that members see unprecedented certainty about how their pensions are handled. It will no longer be the case that a member in one scheme can look over to another public service workforce and marvel at the myriad different quirks and anomalies within the scheme rules. There is some scope for variation to suit the needs of each workforce but, as the noble Lord, Lord Hutton of Furness, recommended, this is a common framework which brings all these schemes together under one legislative umbrella.

We have said that we hope and expect that the new schemes that will be drawn up under this Bill framework will last for at least 25 years. Of course, no Parliament can bind its successors, but we have included in the Bill enhanced consultation procedures, both with those who would be affected by any significant changes and with Parliament, to ensure that there is a high hurdle to be cleared before any such changes could be made.

The approach we are following will apply across all public service pension schemes, including smaller public body arrangements. We are aiming to reform the pensions in those bodies by spring 2018, and there will be no exceptions. This is why I am pleased that the Northern Ireland Government have indicated their intention to maintain parity with the changes set out in this Bill when they bring forward their legislation. Likewise, I hope our colleagues in Scotland and Wales will follow suit for the handful of schemes where competence for pension legislation sits outside Westminster.

Finally, we have also taken the opportunity of the Bill to reconsider whether certain generous historical entitlements remain appropriate in the modern age. The Great Offices of State pension arrangements, which apply to the Prime Minister, the Lord Chancellor and the Speaker of the House of Commons, give unusually generous pensions to these office holders. The scheme will now be closed to new office holders. Future holders of these positions will be entitled to a scheme that is the equivalent of those available to Ministers, thus ending this historical anomaly.

In conclusion, I believe that the package of measures contained in the Bill will fulfil the legitimate and worthy aim of bringing about long-term structural changes that are in the best interests of members, employers and other taxpayers. This is sound, reforming legislation, which I hope will continue to command cross-party support. We must, however, get the detail—

[Lord Whitty]

My Lords, in everything that the Minister has said, he has failed completely to make a distinction between those public sector pension schemes which are unfunded and those that are funded—principally, the local government scheme. Can he give us a guarantee that he will address that difference during Committee, since the Bill and his speech do not adequately reflect that now?

[Lord Newby]

Of course, my Lords, but at the moment I am explaining the common elements of the framework that we are putting in place. At this point, the key thing we all have to have before us is that we are putting in place a common framework, within which all the schemes will fit. The Local Government Pension Scheme is obviously very different, in that it is funded rather than unfunded. There have been many discussions on it; I have agreed to meet the LGA and hope to do so between now and the first day in Committee. The Government are very conscious of the need to ensure that the benefits of current local government arrangements are not undermined in any way by this scheme. I certainly anticipate that we will be discussing aspects of the local government pension arrangements in some detail in Committee.

Indeed, I was about to say that we are committed to getting the detail right and to giving detailed consideration to all these things in Committee. We have to take this opportunity to set in place a sustainable future public service pension landscape. I look forward to our debates on the legislation, and I commend the Bill to the House. I beg to move.

Financial Services Bill

Lord Whitty Excerpts

Wednesday 28th November 2012 Lords Chamber

Moved by

[Lord Whitty]

116AA: After Clause 102, insert the following new Clause—
“The levy
(1) Section 173 of the Legal Services Act 2007 (the levy) is amended as follows.
(2) In subsection (7)(a) at the end insert “except for the purposes of section 161 (in relation to claims management services) which is to be deducted from its expenditure incurred under or for the purposes of the Act (section 173(7)(a), as with the amounts paid into the Consolidated Fund pursuant to 173(7)(b)), and”.”

[Lord Whitty]

My Lords, this is a technical amendment to cover a gap which I would have hoped the Government would have covered by now. It is an amendment to the Legal Services Act 2007 and it deals with complaints from consumers about the activities of claims management companies, about which we have heard a fair amount in this House, particularly at the initiative of my noble friend Lord Kennedy of Southwark.

The purpose of the amendment is to enable the Office for Legal Complaints, that is to say the Legal Ombudsman, to receive payments from the Lord Chancellor under Section 172 of that Act for its costs in relation to handling complaints against those claims management companies.

There has been a pretty widespread air of complaint in this House and in wider society about the activities of claims management companies. Citizens Advice has identified a whole range of problems in this area, from the time and resources wasted on invalid claims through to the aggressive, intrusive and often offensive methods of marketing. I suspect most noble Lords have received an odd text within the past few days, offering them untold riches under the PPI arrangements. It is not just consumer groups that want action on this front. The FLA—the Finance and Leasing Association—would look for an improvement to CMC regulation and, in particular, the tens of thousands of unfounded claims received from CMCs in respect of products which, as we all know, were never sold in the first place. This is a huge irritation which is misleading for consumers and diverts activity for providers, so we need a complaints system which is recognised as robust by consumers and providers alike. We want the Legal Ombudsman service to be able to accept complaints against claims management companies that breach the regulation.

Following discussion on several occasions in this House, the Minister has assured us that regulation is being tightened up to stamp out some of the more horrendous practices that we have heard about and, indeed, been subject to. One of these assurances was in relation to access to redress for consumers. The Government announced on 28 August that complaints handling companies would be handled by the Legal Ombudsman, using the powers under the Act to which this is an amendment. That was repeated by the Minister on 20 November in response to a debate introduced by my noble friend Lord Kennedy. However, I now understand that, due to the Government’s decision to leave claims management regulation within the department —as distinct from an outside regulator—the provisions that would have allowed the Legal Services Board to levy the claims management regulator for Legal Ombudsman expenditure are now deemed unworkable.

The amendment therefore seeks to remedy that position. It allows the Lord Chancellor—in other words the Ministry of Justice, which is, effectively, the claims management regulator—to make payments direct to the Legal Ombudsman without any subsidy by existing ombudsman levy-payers, who are lawyers and are not, of course, party to these complaints.

My understanding is that such money would need to come from a levy on claims management companies rather than the general taxpayer—quite right, too—and that the only effect of the amendment would be to allow the only body with authority to levy them, the Ministry of Justice, to pass such funds to the Legal Ombudsman. Despite this being a levy on these firms, the Treasury has stated that, under the Legal Services Act as currently drafted, the Secretary of State as the regulator of claims management services cannot be designated a leviable body for Legal Ombudsman purposes. The levy is technically considered a tax, and thus a public body, the Legal Services Board as the collector of the levy, cannot impose a tax on government.

It is for this reason that primary legislation to amend the Act is needed. I hope that the Minister, who is supportive of action on this front, can support the amendment. The legislative change that is needed to facilitate it must happen immediately, so that consumers are not left without a course of redress. This is necessary so that the ombudsman can handle complaints as well as provide better intelligence to the regulator and the industry to drive better practice.

Amendment 120, which complements the first amendment, would allow the technicalities to come into force immediately on Royal Assent without further, secondary legislation being required. It seeks to cover a gap in the present arrangements. The Minister may have a better way of so doing. If so, it is a pity that he has not come forward with it already. Nevertheless, I am prepared to hear what he says. If he is prepared to bring forward an alternative amendment which covers the same points at Third Reading or ensures that there is provision for the Legal Ombudsman to be financed in this way, I will probably be prepared to withdraw the amendment. However, it is a gap that needs covering. At this relatively late stage of the Bill, a commitment from the Government to do so is necessary. I beg to move.

[Lord Newby]

My Lords, as the noble Lord, Lord Whitty, said, the amendment seeks to amend the Legal Services Act 2007 to facilitate the expansion of the Office for Legal Complaints ombudsman scheme to encompass the handling of complaints about claims management companies, on which we have spent considerable time while discussing the Bill in your Lordships’ House. I understand that its specific aim is to prevent any costs incurred by the OLC in respect of claims management companies being passed on to the wider legal services profession.

The Government have announced that the OLC will assume responsibility for the handling of claims management companies next year. They stand by that commitment. I agree with the noble Lord that it is important for consumers of claims management companies to have greater access to redress when things go wrong. As a result of the Government’s policy, the OLC will be in a position to provide more meaningful forms of redress, including compensation up to £30,000 if appropriate. This compares with the current arrangements, under which the regulator can only direct businesses to apologise, redo work and, in limited circumstances, provide a full or partial refund of fees. In addition, the OLC will be able to use the feedback from complaints that it receives to assist the claims management regulator in driving up standards within the sector.

I understand the desire to implement this change as soon as possible given the proliferation of complaints about the conduct of this sector, but we are very concerned to get it right. That means ensuring that the necessary funding, regulatory and operational arrangements are in place before we commence the provisions in the Legal Services Act 2007. This amendment would not achieve that outcome. For example, it is right that the wider legal profession should not cross-subsidise claims management companies. Conversely, we need to ensure that legal firms do not gain any unintended benefit when the Legal Ombudsman assumes its new powers. Under this amendment, the wider legal profession would benefit because case-fee income generated by the ombudsman in respect of claims management companies would be deducted from the levy they have to pay.

The Government’s position, then, is absolutely clear: the wider legal profession should not bear the cost of dealing with complaints about that sector. On this we are in agreement with the noble Lord and the arrangements we put in place will be consistent with that principle. I reiterate our commitment to implementing the changes in 2013 and I hope, therefore, that the noble Lord will feel able to withdraw his amendment.

[Lord Whitty]

My Lords, I appreciate what the Minister said, but I am not quite clear how this then operates. We are at one in believing that the broader legal profession should not be levied for instances which relate to claims management companies—that is clearly a red line and it should be avoided—but in order to avoid it, the Legal Ombudsman, the OLC, will need to have some resources from a levy, or quasi-levy, from the CMC, unless this is to be a matter for general taxation, which would not seem to be appropriate and I do not think is the Government’s intention. Therefore, the Government need powers rapidly in order to have a levy system there, which presumably, as I said in my opening remarks, would have to be via the Ministry of Justice, even though the money would then be passed over to the OLC.

I am not sure what the Minister means when he says that we will sort this out in 2013. Does he mean that, while the other provisions of the Bill will apply, we will need further primary legislation; or does he mean that there will be almost instant secondary legislation under the Bill to ensure that that happens? Because one way or another, for that to be achieved by 2013, which is only about four weeks off—although I guess that he has the whole 12 months to fulfil his intention—a whole pile of complaints that are manifold at the moment will be held up for some months before they can go into the system and the Office for Legal Complaints will be able to deal with them.

I accept the Government’s good will and good intent in this respect, but I still think that the precise system on which it operates needs to be spelled out and that we need to be assured that it will be in place pretty much at the same time as the Bill is passed. I hope that the Minister can give that assurance; alternatively, he could come back with something else at Third Reading. I did not think that he went as far as that in his remarks.

[Lord Newby]

My Lords, I did not go as far as that, in terms of amendments at Third Reading, and I am not going to go as far as that now. As I said, the new system will not come into force immediately, but it will come into force during the course of 2013. I will write to the noble Lord if I am wrong about this, but my understanding is that the funding that is required from the claims management company sector, as it were, will come from the levy, which is being increased at the moment. If I am wrong in that, I will write to the noble Lord.

[Lord Whitty]

I appreciate that having it exactly at the point of Royal Assent is not necessarily the point; the point is that when these provisions come into play there will be resources to cover it. I would be grateful to receive a letter from the Minister and, with that, I beg leave to withdraw the amendment.

Amendment 116AA withdrawn.

Financial Services Bill

Lord Whitty Excerpts

Monday 26th November 2012 Lords Chamber

Moved by

[Lord Whitty]

90: Clause 26, page 114, leave out lines 30 and 31

[Lord Whitty]

My Lords, here we return to an issue which I raised in Committee. It is what I refer to as the “Tesco amendment”, dealing with a situation where large companies outside of the financial sector are becoming involved in providing financial services and are, increasingly, the parent companies of new entrants to the financial sector. It might just as well have been called the “Asda amendment” or possibly the “Virgin amendment”. The point here is that the welcome provisions in this part of the Bill on extending regulation to cover issues relating to the parent company then go on to be restricted to those parent companies that are financial institutions already. I have yet to hear from the Government a logical explanation as to why that should be the case.

As I said, I welcome the general extension to cover the possibility of regulation in this area. I also welcome the entry of many non-financial institutions—of appropriate competence—into this area to provide a degree of competition that is much needed. Of course, the Government recognise that at some point they might have to extend this to non-financial parent companies. Why not do it now? I do not see a reason for the distinction at this point. Therefore, my Amendment 90 would exclude from the Bill that restriction and make all parent companies equal, and Amendment 91 would therefore logically remove the ability of the Treasury to change those rules at a later stage.

When we proposed the extension to cover parent companies the Treasury had a very logical reason to do so. In presenting the principles behind the draft Financial Services Bill, it said that,

“during severe stress, the different priorities and responsibilities of the board of a parent undertaking relative to the regulated company … can be exposed … the FSA does not have legal powers to require action at the level of the parent undertaking”.

That would mean that a number of options were closed. It therefore planned the extension. It is not difficult to see why the same should not apply to a parent company that is a non-financial institution in the terms of this Bill.

--- Later in debate ---

[Lord Whitty]

My Lords, the Minister is right that there is not a lot new under the sun to be said about this clause and these amendments. I find it slightly odd that, in advocating his own amendments, he is looking for flexibility and usability, whereas in relation to mine, he is retaining a high degree of rigidity. In a situation where there is exactly the same behaviour by a parent company which is a financial institution and another which is not, when the regulator decides that it would need to intervene on the former but not on the latter, the Government may be open to a situation where there is a problem of equality of treatment and, therefore, one of effective competition. I suspect that my learned friends would be brought in if those two things were to happen simultaneously.

I therefore think that the Government are digging themselves a bit of a hole in resisting what I had hoped was a fairly common-sense amendment. However, they appear to be adamant that they have powers to bring in the kind of change for which I am seeking. Therefore, at this stage, I will not pursue my amendment.

Amendment 90 withdrawn.

--- Later in debate ---

Moved by

[Lord Whitty]

106: Clause 42, page 134, line 13, at end insert—
“234GA Complaints and proceedings: collective actions and redress
The Treasury and Secretary of State shall within three months of the passing of this Act shall bring forward proposals—(a) to introduce provisions for collective proceedings before the court in respect of financial service claims made by consumers; such proceedings to provide for both ‘opt in’ or ‘opt out’ procedures;(b) to introduce provision for collective proceedings before the court in respect of financial service claims made by small and medium sized businesses; and such proceedings to provide for both ‘opt in’ and ‘opt out’ procedures;(c) to introduce provision for complaints made by or on behalf of consumers or by or on behalf of small and medium sized businesses to the FCA that a feature, or combination of features, of a market in the United Kingdom for financial services is, or appears to be, damaging to the interests of small business or significant groups of consumers.”

[Lord Whitty]

My Lords, with most of this Bill being about regulators and the whole structure of regulation, I am returning to a proposition which would in due course return some power and leverage to consumers directly. As we just heard from my noble friend Lord Kennedy of Southwark and others speaking on claims management companies, it is often the case that in widespread abuse by financial services operators a common issue between a number of consumers, often a very large number of them, is that the process of seeking any redress is lengthy and complicated if conducted on an individual basis. It is also open to the intervention of the rougher end of the CMC market, which manages simultaneously to exploit the consumers and the providers.

In Committee, I tried to do the Government’s work for them and offered them an easy way of taking on board a system of collective action and redress by consumers. I proposed a fairly detailed set of amendments, which were almost precisely the same as those that were included in the 2010 Bill, that were dropped without debate in the wash-up prior to the general election. At that time, I proposed that various amendments should immediately be adopted by the Government. They had cleared the Treasury hurdle. They had cleared the hurdle of parliamentary counsel and could have been adopted.

The Government resisted that, and I am suggesting that we push it back to the Government to come up with an alternative version. I am giving them more flexibility to draw up their proposals, so this amendment would require them to come up with secondary legislation which would effectively give collective redress and action provisions for consumers in the financial area three months after the passage of this Act. To give them more time would probably not be sensible, given that had these provisions existed before the great PPI scandal, a lot of it would have been resolved by now.

In the last debate in Committee, the Minister referred in rather Delphic terms to a more general approach to collective redress for consumers, which was being considered by his sister department, BIS, in its approach to consumer affairs. He did so in a way which implied that it was probably going to act on that in the near future. It is true that BIS has included collective action and redress in its consultation paper on the consumer landscape. Now, we have before this House a Bill from BIS dealing with enterprise and regulatory reform, which has not a word about consumer protection and certainly none about the ability of consumers to engage in collective redress. This is in marked contrast to the determination rapidly to reduce protection for employees in that Bill. Consumers hardly get a look in.

I come back to the need for particular provisions in this Bill for the financial sector. There is an additional point in this amendment, which was not in my previous amendment, but was in an amendment proposed at that stage by my noble friend Lady Hayter. It is that this provision for collective action should also apply to small businesses. Like individual consumers, they are often faced with mis-selling or other misbehaviour by financial services, which affect a large number of small businesses, but which would be expensive and time-consuming for any individual business to pursue. If there were a framework, whether on an opt-in or opt-out basis, for small firms to take action against the financial institution or institutions, again their detriment could be met much more rapidly. Hence, I am proposing that the Government cover them within this review, with the requirement to report back and present regulations in three months’ time.

I hope that the Government at the very least accept a need to move in this direction either individually in respect of the financial sector, which has some peculiarities, or more generally. If it is to be done solely on the financial services front at this stage, then perhaps they could accept my amendment as it stands and we will in due course receive the regulations. If they want to move more broadly, I would welcome that, but I have received no indication as yet that the Minister’s colleagues are proposing in any very near-time dimension to bring such broader provisions forward. I hope that either the amendment can be accepted or that we will have a firm commitment to broader action in the near future. I beg to move.

[Baroness Hayter of Kentish Town]

My Lords, I support the amendment moved by my noble friend Lord Whitty. To some extent, the third arm of this amendment has been partially agreed by the Government, in that their proposed criteria for designating super-complaints to the FCA include representatives of SMEs—although they wisely exclude authorised bodies from this category. I have two questions to pose.

First, what is the timescale for the designation of SMEs as super-complainants? In his response in Committee, as my noble friend Lord Whitty has just reminded us, the Minister, Lord Newby, said that the Government hoped,

“to publish their response”—

to the consultation—

“before the end of the year”.—[Official Report, 15/10/12; col. 1351.]

Unless the Minister is to forego his Christmas holiday altogether, this is going to stretch even his capabilities, as responses to the super-complaint issue are due only on Christmas Eve. Amendment 106 adds a timescale to the exercise. Perhaps he could either give a definite date or accept the timescale suggested by my noble friend Lord Whitty. There is some urgency to this. The FSA estimates that more than 40,000 interest-rate swaps were mis-sold to small businesses. It is silly for each of them to have to take individual action over this, so only collective cases will satisfy. We see no reason why each individual or firm must make a separate claim. I cannot see why the onus should not be on the banks, which are the major mis-sellers, to write to those to whom they have mis-sold and repay the monies due to them. We understand that some banks have now agreed to do this, but faster action is required. We hear that ominous noise of foot-dragging. Small businesses simply cannot carry this unwarranted expenditure; they need a more rapid remedy.

My second question relates partly also to Amendments 105E, 105F and 105G, which deal with super-complaints with profits. As the Government have moved some of that oversight to the jurisdiction of the FCA, our original request was superfluous and we shall not press those amendments. However, the question remains how either individuals or SMEs can pursue, through their representatives’ use of a super-complaint, market failures where these relate to the bit of the banks’ activity that is under the PRA’s remit.

As noble Lords will recall, the Government have resisted our attempts to have any channel of communication between the Financial Services Consumer Panel and the PRA. Nor will they have access to super-complaints to the PRA and the collective action suggested by my noble friend Lord Whitty. It rather smacks of the banks’ regulator being deaf to alleged failures in any of the banks serving the needs of their customers.

Hitherto, the Government have suggested that all such representations can be made through the FCA, even though it will have no responsibility for PRA areas and even though it will have a wider remit than just the interests of one group of clients. It will anyway be very much at arm’s length from actual consumers. The issue remains of how collective action can be taken, particularly with respect to banks. Can the Minister therefore offer some reassurance that the PRA, in its regulation of banks and with the new Governor in place, will keep the interests of consumers central to its thinking and policy, so that further consumer detriment does not arise?

[Lord Newby]

My Lords, we of course accept that consumers, including small to medium-sized enterprises, should have appropriate access to redress in respect of financial services as much as to everything else.

On collective proceedings in the financial services sector, we are as we said in Committee awaiting the outcome of the BIS consultation on private actions in competition law, which considers introducing an opt-out collective actions regime for competition law. We shall see what the implications may be for the financial services sector. The Government are hoping to publish their response to that consultation around the end of the year.

If the Government conclude that it is appropriate to legislate more specifically for financial services, any proposals must be the result of evidence-based analysis, taking into account the conclusions of the consultation into private actions in competition law, and they must also be subject to proper consultation.

On super-complaints more generally, which were covered by the amendment, I remind the House that the Bill already provides for designated consumer bodies to make complaints to the FCA. This may include representatives of business consumers provided that they are not authorised persons. The Government are already consulting on the criteria that the Treasury should apply when designating consumer bodies for this purpose and have made clear their intention to designate bodies which represent primarily the interests of retail consumers or SMEs as super-complainants. There is no further provision to allow this.

The noble Baroness, Lady Hayter, asked when SMEs would be designated, to which the answer is: by 1 April next year. She also asked about dealing with complaints relating to the banks in respect of PRA matters. The FCA is the lead body. One makes one’s representation to the FCA. As we have discussed many times, there is a raft of areas where the FCA and the PRA have joint responsibility, and MoUs will deal with that. It therefore seems much more logical to have just one body which is responsible for this kind of complaint and then deals with it as it would deal with other complaints, working closely with the PRA as necessary.

The Government agree with everything that has been said about the importance of the issue. We do not reject outright the idea of collective proceedings in the financial services sector; what we do reject is the proposal that we should legislate now on this matter without considering fully the evidence as to what the implications of changing the law would be. The Government have already committed to consider the implications of the BIS consultation for the financial services sector and we do not want to pre-empt that. In the light of that, I hope that the noble Lord will feel able to withdraw his amendment.

[Lord Whitty]

My Lords, I am tempted to reflect that in the difficult, dying days of the previous Administration, the Treasury—contrary to its previous history—was prepared to go ahead of the game in relation to consumers’ rights. Under Alistair Darling, it was prepared to propose in the 2010 Bill, which was attenuated in view of the general election, very substantial provision for collective redress. It is a pity that, under new management, the Treasury is being more diffident and unusually deferential to BIS in this respect. Under BIS and its predecessor departments, all of us who have been involved in the consumer movement know that this issue of collective redress has been kicking around for at least 20 years under various guises and that the department has still not yet come up with a very firm proposition.

Nevertheless, I am glad that the Minister is now saying that we will see the result of BIS’s considerations before Christmas. I hope that we will therefore see these if not in the enterprise Bill that is already here, which would be a very convenient vehicle, then in an early Bill from BIS. Also, because of the—if you like—scandals in the financial services area, it might have been better had the financial services and their regulators moved more rapidly.

I will not take this to a vote tonight. However, I suspect that, if they are not careful, Ministers might regret not having these provisions on the statute book at an earlier date. However, if this is the situation, I beg leave to withdraw and, with this one, wish the Government luck.

Amendment 106 withdrawn.

Financial Services Bill

Lord Whitty Excerpts

Monday 15th October 2012 Lords Chamber

[Baroness Hayter of Kentish Town]

My Lords, I should like to know which Minister is going to respond to this—it may help.

We are pleased that the FCA now has a new competition objective and wider competition powers. However, these powers do not go far enough to enable the FCA to deliver its objectives. As the Bill stands, the FCA will still have to refer cases to the OFT, or its successor body, which will then conduct a market analysis before being able to take further action. This looks like a slow and rather unfair regulatory process, even after the merger of organisations that will take place under another Bill.

We therefore support the view of the Joint Committee that the FCA should have concurrent competition powers in respect of a market investigation reference, together with the OFT. That would empower the FCA to conduct its own economic analysis and deal with distortions in the market without the need for any delay.

We have heard a lot about the lessons learned from PPI, which highlight the need for the FCA to have the market investigation reference powers. In 2005, the FSA signalled its concerns about the PPI market and began an investigation. After the investigation, the FSA took its concerns to the OFT, which had to look at the issues before passing the case on to the Competition Commission. Eventually the Competition Commission passed the issue back to the FSA. The process took far longer than necessary and allowed the banks and other credit providers to continue selling PPI to their unsuspecting customers.

Giving the FCA concurrent MIR powers would allow the FCA to escalate concerns about competition failures quickly and efficiently, with any failures addressed before consumer detriment crystallised. By giving the FCA powers equivalent to the OFT under Section 131 of the Enterprise Act 2002, a single organisation would be able to tackle significant market issues such as PPI without the substantial delay through referral to another body. We therefore seek to amend the Bill accordingly and I beg to move.

[Lord Whitty]

My Lords, since my noble friend is a bit lonely on the Front Bench just now, I intervene very briefly to support her on this. Quite often in regulatory structures the sector regulator is very nervous of referring anything to the competition authorities because it regards that as part of its failure. Under the terms of this amendment, it would be part of the process that was available—I will not say normally, but if necessary—to the FCA to refer things to the competition authority, having itself examined the structure of the market with its concurrent powers.

I am very mindful of an equivalent sector—namely, energy—where one of the problems has been that Ofgem has always refused in effect to refer the structure of the energy market to the competition authorities, even though, I happen to know, at the time the competition authorities or the members of the Competition Commission were very anxious to look at it. We might have to change the form of words slightly but I think this is the better formulation—that the FCA has concurrent powers but that it is not seen as a complete departure for a case to be referred to the competition authorities themselves and that the process is not prolonged.

[Lord Sassoon]

My Lords, I can see that the noble Baroness is delighted that I am on my feet. I listened to the very clear and detailed arguments that the noble Baroness, Lady Drake, gave in an earlier session, to which we have come back today. I may not always respond there and then but I listen very carefully to everything that is said. However, I do not want to raise the expectations of the noble Baroness on this one.

This amendment seeks, as we have heard, to give the FCA a power to make a market investigation reference to the Competition Commission. I am sure that the Committee is aware that the Joint Committee that scrutinised the draft Bill recommended that the FCA should be given concurrent market investigation reference powers. However, noble Lords will also be aware that the Treasury Select Committee, in its report on the FCA, concluded that the case for the FCA to have market investigation reference powers has not yet been made, and that the issue should be reviewed when the FCA has bedded into its new role.

Having considered the matter very carefully, the Government have adopted the proposal of the Treasury Select Committee. The FCA’s competition objective will require it to keep the markets it regulates under review and it may of course perform its own competition analyses as part of that. The evidence-gathering and analysis carried out by the FCA will support any subsequent intervention by the OFT. For example, on a referral from the FCA, the OFT may have sufficient evidence to launch a market investigation reference almost immediately. There is precedent for this in the OFT’s response to the report of the House of Lords Economic Affairs Committee on the audit market. In the light of the evidence collected by the committee, the OFT felt able to consult on a reference to the Competition Commission without conducting its own market study.

As the Government have made clear in their response to the Treasury Select Committee, we will review the question of the FCA competition powers when it has bedded in to its new role, five years after it comes into being. I hope that with that reassurance, and confirmation that we are following the Treasury Select Committee’s recommendation, the noble Baroness will feel able to withdraw her amendment.

--- Later in debate ---

Moved by

[Lord Whitty]

189BA: Clause 40, page 128, line 5, at end insert—
“Collective proceedings234J Collective proceedings and collective redress
(1) In respect of claims to the courts covering a significant number of consumers with equivalent or near equivalent interests or complaints, the following procedures will apply.
(2) The court may, on the application of a person (“the representative”), by order authorise the representative to bring collective proceedings before the court in respect of financial services claims of a kind specified in the order.
(3) “Collective proceedings” means proceedings brought by the representative on behalf of persons who are entitled to bring (or have brought) proceedings in respect of the specified kind of claim.
(4) “Collective proceedings order” means an order under subsection (2).
(5) A collective proceedings order may be made only if it appears to the court that the specified kind of claims raise the same, similar or related issues of fact or law.
(6) A person may be authorised under subsection (2) to bring proceedings even if the person would not otherwise be regarded as having any interest, or any sufficient interest, in the proceedings.
(7) Proceedings may be authorised under subsection (2) even if each represented person does not have a claim of the specified kind against all of the defendants to the proceedings.”

[Lord Whitty]

My Lords, I shall also refer to Amendment 189BB. Both amendments make up two pages of amendment to an already massive Bill, but the text should be familiar to some of the Minister’s officials in the Treasury, for reasons that I shall explain in a moment.

The Bill, by way of a pretty radical restructuring of the regulation of the financial services, greatly enhances the power of the Bank of England. One hopes that it will greatly enhance the consumer protection power of an FCA replacing a relatively feeble FSA. It enhances some consumer powers, and it arguably also enhances the role of the consumer panel and the financial services ombudsman, but it does nothing to enhance the position and powers of consumers.

The amendments suggest that we should move to a system of collective redress when the misdemeanour, or illegality sometimes, of the financial institutions involves a large number of people. The amendments would provide for the Secretary of State for the Treasury to come forward with regulations allowing for collective redress procedures.

We have had a number of such issues over the years, from mis-selling through to PPI, which has been debated substantially today and during other consideration of this Bill. Those issues involve a range of problems and a very large number of people. We know that the inability of individual consumers to get redress is difficult. We know that it also creates the kind of confusion to which my noble friend Lord Kennedy of Southwark referred just now, with intervening bodies and claims management companies confusing rather than enhancing the position for the individual consumer. Whether tens or thousands of people are involved, a more collective approach would sometimes be desirable. The PPI scandal, for example, could probably have been largely resolved by now for the vast majority of potential claimants. Instead, we are getting a “fishing trip” from the CMCs, and a huge number of claims will take years to settle and involve the banks, the intermediary companies and the courts in time, effort and cost.

The issue of collective redress in consumer matters has a considerable history. It is true that all consumer bodies have agitated under successive Governments to provide for a general system. The last Government and previous Governments were resistant to a general power. However, in the wake of the financial collapse and financial scandals, it was recognised by the last Government and many around this issue that some provision was necessary on the financial side. Indeed, the Bill that was produced in 2009-10, which became the Financial Services Act, included in its original form whole sections on collective redress—Clauses 20 and onwards of that Bill. They were considered in part very briefly by the House of Commons. They were not rejected by that House; there was actually support for those provisions at Second Reading from those on all Benches. Of course, they ended up being dropped by the advent of the general election in 2010 and the rather peculiar Byzantine proceedings that we call in constitutional jargon “wash-up”, and disappeared. I particularly objected to them disappearing, but by then it was too late.

--- Later in debate ---

[Lord Newby]

The Government believe that collective proceedings, in the appropriate circumstances, can deliver access to redress and a potential deterrent effect. That is why the Government have been consulting on a range of proposals to make it easier for consumers and small businesses to bring private actions in competition law—including whether to extend to businesses the current right of consumers to bring a collective action following a breach of competition law, and whether to make it easier to bring such actions. The Government are considering the consultation responses and hope to publish their response before the end of the year. We want to take the opportunity to learn from the outcome of that consultation and reflect on the implications for the financial services sector before proceeding to legislation.

The noble Baroness may say that her amendment would provide adequate time for consultation. However, her amendment specifies that small businesses should be able to bring collective proceedings on an opt-out basis. The type of persons who might bring collective actions, whether on an opt-in or opt-out basis, are substantive questions on which BIS has been consulting. We think that it is a lot better to await the outcome of the BIS consultation and reflect on the implications for financial services than to seek to pre-empt that process and require a particular model now. If the Government were to conclude from this exercise that it would be appropriate to bring forward legislation on collective proceedings for the financial services sector, any proposals should then be subject to proper consultation.

As an addendum to the second part of Amendment 189BC, I note that the Bill would not prevent bodies representing small and medium-sized enterprises that fit the relevant definition of “consumers” from making super-complaints. As was explained in another place, the issue of what type of consumer body should have access to super-complaints is complex and will require more detailed criteria than can be set out in the Bill.

We have considered this matter carefully, and I can inform the House that the consultation document that the Government will shortly publish covering this issue will include the proposal that the Treasury should be able to designate bodies that primarily represent the interests of small to medium-sized enterprises as super-complainants and that this will be reflected in the draft criteria.

I hope that, with the reassurance that the Government will consider proposals on collective proceedings carefully and that they will shortly consult on allowing SME representatives to make super-complaints, the noble Lord and the noble Baroness will feel able to withdraw their amendments.

[Lord Whitty]

My Lords, I was aware and was of course pleased that BIS is once again consulting on this issue. Given the way in which these amendments are framed, the Bill would simply say that the Treasury had the power to bring forward regulations for collective procedures and collective redress on an opt-in or opt-out basis. They do not specify more than that. They do not, unlike my noble friend’s amendment, actually specify a timescale. Having this in this Act would therefore allow the considerations arising from the more general consultation to be tailored to the financial services arrangements without any new primary legislation. I would therefore have thought the Minister would welcome that.

In the discussions in the run-up to the Financial Services Bill in 2010—noble Lords do not often hear me say this—the Treasury was much more progressive on these issues than was BIS. Of course, we are under new management now and maybe that has changed. There are some very special situations in the financial services sector, and we do not want to wait for another PPI, another pension mis-selling, another sub-prime mortgage crisis or whatever where we have to construct from scratch a new system to protect consumers, both business and individual.

These amendments would allow the Minister to do that, after the general consultation if necessary, so I do not accept the argument that we have to wait for that consultation before they are included here. It is clear to me and, I think, to a lot of people that the financial sector needs such provisions, and I would not like to be in a position 18 months down the line where we had to go back to a new form of primary legislation in order to provide them. I therefore advise the Minister to have another look at these amendments, but for the moment I shall withdraw my amendment.

Amendment 189BA withdrawn.

Financial Services Bill

Lord Whitty Excerpts

Monday 8th October 2012 Lords Chamber

[Lord Sassoon]

There are of course other amendments in the group but for the moment I will just speak to the two government amendments. New Part 12A of FiSMA, as inserted by Clause 25, confers on the regulators for the first time substantive powers in relation to unregulated parent undertakings of authorised persons. These new powers strengthen the regulatory framework by ensuring that the regulator can take appropriate action in relation to a parent undertaking that itself is not regulated but which controls and exerts influence over an authorised person.

Amendment 174ZA extends the meaning of “qualifying parent undertaking” so that the new Part 12A powers can also be applied to body corporates which have a place of business in the United Kingdom. At present, the powers are restricted to a parent undertaking that is a body corporate incorporated in the United Kingdom. There is a risk under the new Section 192B(2), as currently drafted, that some financial groups may be beyond the scope of new Part 12A powers or indeed may engage in regulatory arbitrage and restructure their operations to remove themselves from scope. Left unchanged, it would be possible for a firm to evade the powers by incorporating their parent undertaking overseas while retaining a place of business in the UK. It is important that the powers can be deployed for the purpose for which they were designed.

Amendment 174ZB is a bit of small tidying up of the drafting. As there is only one system of company law in the UK, it is not possible for a body corporate to be incorporated only in “part of” the UK. That is why we are making that second amendment. I beg to move.

[Lord Whitty]

My Lords, I am perfectly happy to accept and support the Minister’s proposals. My two amendments, and I think those of my noble friend Lord Tunnicliffe, attempt at this point to reflect the reality of the changing structure of banking and the potential changing structure of financial services, and their interrelationship with retail. It could go wider than this, but it specifically relates to the phenomenon of supermarkets obtaining banking licences, establishing banking subsidiaries and operating in the banking and financial services area.

This presents significant issues of consumer information and consumer privacy. My first amendment is a simple one. We have, in this Bill, a number of safeguards in relation to financial companies’ relations with their parent company. However, among other things, subsection (4) of the previous Act’s proposed new Section 192B defines a parent undertaking that is susceptible to these protections:

“Condition C is that the parent undertaking is a financial institution of a kind prescribed by the Treasury by order”.

It then goes on to say that those conditions can be changed by the Treasury. However, the reality is that Tesco—I am not particularly having a go at Tesco—would not fall within that definition. Yet Tesco will have a banking operation and has every intention of building on that. My first amendment would therefore delete that restriction, so that a parent undertaking of a financial company could, in fact, be a company of any kind and not simply one which falls within the Treasury’s—from time to time altered—definition of a financial institution.

My second amendment relates directly to the area of potential consumer detriment. Again, I take the example of Tesco. There have been examples in the United States already, so it is not necessarily directed at Tesco; I have a Tesco card myself, as I am sure many other Members of the House do. I would not presume that Tesco would be in a position, deriving data from my Saturday afternoon purchases, to offer to their banking subsidiary indications of my current or potential credit-worthiness. Noble Lords may feel that I do not need that protection, but there will be many who do. The pattern of purchases, particularly for the more vulnerable consumers, can vary dramatically from time to time as circumstances change. Their credit-worthiness can alter if the interpretation of that data is such that the banking subsidiary thinks that they are no longer as credit-worthy as they were last month or last year.

This is an issue of privacy. This is an issue of clarity. It is an issue of confidence that consumers who have quite happily allowed the retail parent company to acquire very detailed information on their purchasing patterns should not have that information used for the entirely different purpose of establishing credit-worthiness and the ability to seek loans, overdrafts or banking facilities from a banking subsidiary. I emphasise this because the change in the structure and interface between banking and large-scale retail and other conglomerates is likely to get larger. In broad terms, the consumer interest benefits from this wider competition and the expertise that it may bring. However, Tesco itself has recognised that one of the synergies arising from its move into the banking sector would be using the club card for credit assessments, and one which, alongside a loyalty scheme, could benefit the banking as well as the retail side of its business. I do not think that that is right. I do not think that the ordinary consumer who goes to Tesco every week would think that it is right. It is, of course, also a facility available to a banking subsidiary of a supermarket which is not available to its competitors, who are part of a purely banking or financial institution.

I hope that the Minister will recognise this problem, and will at least agree that the first deletion is appropriate and to take away the issue raised by my second amendment and come back to us at a later stage, indicating his way of dealing with it. It is an issue which, as I say, is likely to grow in importance and makes hundreds of thousands of consumers vulnerable. I do not beg to move, as the Minister has done so, but I hope that he will take my words into account.

Financial Services Bill

Lord Whitty Excerpts

Wednesday 25th July 2012 Lords Chamber

[Baroness Noakes]

My Lords, the noble Baroness, Lady Drake, has made a powerful case for her amendment. I think that it is widely acknowledged that the needs of consumers require greater emphasis in the financial services industry as it moves forward, and I believe that that is why the consumer is being placed at the heart of the FCA. However, I am puzzled that the noble Baroness, Lady Drake, has chosen to put her amendment within the competition objective for the FCA. It seems to me that what she was talking about is quintessentially part of the consumer protection objective, which is in new Section 1C. A number of things are already listed within that consumer protection objective, including,

“the general principle that those providing regulated financial services should be expected to provide consumers with a level of care that is appropriate having regard to the degree of risk involved … and the capabilities of the consumers in question”.

It seems to me that if proper regard was paid to that in the development of the FCA’s policies, that would meet almost all of what the noble Baroness, Lady Drake, seeks to address in her amendment.

[Lord Whitty]

My Lords, I support my noble friend’s amendment and much of what has been said about it. I would also like to counter what the noble Lord, Lord Flight, said because the amendment goes much further than providing information to consumers.

[Lord Phillips of Sudbury]

Rather than the noble Lord remain in rather dangerous flight, I believe he means the noble Viscount, Lord Trenchard, does he not?

[Lord Whitty]

My Lords, I do. I was looking at the Marshalled List and saw the name of the noble Lord, Lord Flight, to the next amendment. I beg the pardon of the noble Viscount, Lord Trenchard.

When faced with issues of consumer care and consumer protection, the FSA, in its early days and for much of its time, tended to resort to stipulating the information that the consumer needed to be given. By the time that had gone through the corporate lawyers of the various banks and insurance companies, it amounted to five, six or sometimes 25 pages of close 10-point type, which was even more difficult for the average consumer to understand than it is for the average Member of the House of Lords to understand this Bill.

That is a very passive form of consumer protection and it is a very passive definition of customer care. The amendment attempts to put an obligation on the FCA to ensure that companies operating in this sector operate positive customer care, not simply passive provision of information which a large number of consumers cannot understand. To answer the noble Baroness, Lady Noakes, one reason why I believe that it is appropriate for it to be in the competition area is that when the FCA looks at where competition is succeeding, one of the measures of the proper outcome of competition that it considers is the way in which companies compete, as regards customer care, for their consumers.

Competition is not an end in itself. Competition policy and the enforcement of competition should protect and enhance benefits to consumers. One of those benefits is that the truly competitive company looks after its customers in a positive way and competes with its competitors in that regard. The passive provision of information is not customer care. This clause goes a significant way towards ensuring that customer care is seen as an objective both of consumer protection and of competition policy.

[Baroness Hayter of Kentish Town]

My Lords, along with most other speakers, I support the amendment moved by my noble friend Lady Drake. As I have argued in Committee before, it is no good having a competitive market for banking and insurance—not that we have one—if consumers effectively cannot enter the market, if they cannot identify what they need and if they cannot get value for money. As we have heard, all sorts of people find it challenging to know what services are suitable for them. How else could HSBC have sold bonds designed to be held for five and more years to 2,500 with an average age of 83? It is a little like people trying to sell PPI to my noble friend Lord McFall, or Barclay, HSBC, Lloyds and RBS mis-selling interest rate swaps to 28,000 businesses.

My hope is that Amendment 117 will give the FCA an explicit mandate to put a stop to unfair overdraft charges, excessive fees and complicated price structures, all of which hinder competition, which is probably why I think the amendment belongs within this area. The FCA has to be able to tackle hidden charges if it is to promote effective competition, given that, as we have heard, individual consumers simply cannot do this for themselves. If we, as consumers, buy a theatre or an airline ticket, there is a pernicious little booking fee—at least we can see it. I have just had to pay £2 on a £10 ticket to go to the Noel Coward Theatre, which seems a bit high. At least we can see such a charge and we can choose whether to pay it or not to go to the theatre, but that is not the case with bank charges.

A recent Which? survey found that 60% of those polled said that they paid what they felt to be an unfair bank charge and half paid a charge which they thought was disproportionate to whatever benefit they received. It is not clear, from the current language in the Bill, that the FCA will have the necessary mandate to tackle hidden charges. I know—and my noble friend Lady Drake quoted it earlier—that the Financial Secretary in the other place said that the FCA had,

“the powers and the mandate to intervene on matters of price and value for money”.—[Official Report, Commons Financial Services Bill Committee, 1/3/12; col. 261.]

The Financial Secretary argued that the FCA does not need these bespoke powers, given that it can take action under the competition and consumer protection objective. However, a Queen’s Counsel advised Which? that the current wording of the objective could allow the industry to challenge the FCA’s mandate to tackle hidden charges, which could lead to a repeat of those failed and expensive test cases to which my noble friend referred. Any such uncertainty would make the FCA very risk-averse; it would be reluctant to take action for fear of being challenged. Unless the FCA has a really clear, unambiguous mandate to tackle hidden charges, I can share its reluctance to be at risk of legal challenge from the industry. Therefore the Bill must give this power to the FCA; it is absolutely key to promoting competition. At present there is insufficient responsibility on firms to ensure that products are appropriate for the consumer in terms of meeting their needs, accessibility and reasonable value for money, as Consumer Focus argued to the Joint Committee. The Council of Mortgage Lenders said that the regulator,

“should have an appropriate degree of protection for consumers and should reflect a differential approach not only between market and retail consumers, but within the retail market itself”.

The amendment is simple; and can only promote confidence in the industry. Who, after all, could argue with appropriate services and value for money? Not even, I think, the Minister. We need to get back to trusting the banks and the pension providers, as the noble Lord, Lord Lucas, said. Therefore we trust that the Minister will accept Amendment 117. In the words of my noble friend Lord Barnett, it can do no harm; it can do good.

Financial Services Bill

Lord Whitty Excerpts

Monday 11th June 2012 Lords Chamber

[Lord Whitty]

My Lords, I want to approach this Bill in a slightly different way. Although I no longer have any formal role in the consumer world, I want to look at the Bill from the point of the view of the average consumer of banking and other financial services and of the microbusinesses that have to deal with our financial institutions. They are faced with a very powerful and often quite incomprehensible financial system and a fairly incomprehensible system of regulation. I am not sure that this Bill will help them or, indeed, many practitioners in this field. The Bill is not only, as my noble friend Lord Eatwell said, slightly messy in its presentation, for all the pre-legislative efforts, but the way that it is drafted makes it difficult to follow, and it also excludes substantial parts of the jigsaw. The Minister referred to the Vickers report, the forthcoming White Paper and a separate banking Bill, and in another part of the jungle we have a change in the competition regime and changes in EU financial regulation, all which need to be taken into account before anybody can form an overall position about whether this new regime replaces the old regime in a way that is beneficial to the consumer.

It is clear that there were serious failures in the 1997 tripartite structure. It is also pretty clear that there were serious failures in the pre-1997 structure that concentrated powers in the Bank of England and the Governor of the Bank of England. We need to look to see whether this third attempt is any better. Many of us would conclude that the problem was not so much the institutional structure as the nature of the regulation. I would say it was too light touch—the noble Lord, Lord Bilimoria, would say it was too wrong touch—and I am not sure that the current structure makes it much better.

I, slightly surprisingly, find myself on the same page as the noble Baroness, Lady Noakes, on this one. The separation of the FSA into two distinct parts does not necessarily commend itself to me. Of course, there are those like the noble Lord, Lord Lawson, who will say that consumer protection got in the way of proper prudential supervision; there are also some on the consumer side who would say that the FSA was overburdened and failed in its consumer protection, partly because it had multiple functions. Total separation, which this Bill appears to create, seems unfortunate. After all, if you look at Northern Rock, it failed on its own corporate microprudential side and, indeed, made a major contribution to the failure on the macroprudential side because it was selling inappropriate products to the wrong consumers. In other words, in that case the consumer interface was important in the prudential sense in the total running of the monetary system, as it was in the United States with those who advanced subprime loans and so forth. Separating them totally is dubious. However, like the noble Baroness, I think I will be flogging a dead horse on this one if I pursue that in Committee. After all, the previous Government also proposed separating them, and I think I had better concentrate on what I would regard as a slightly second-best solution; namely, that the Bank of England and the PRA should also have some regard to consumer considerations and that there should be more effective co-operation between the PRA and the FCA and between the Bank of England and the FCA in relation to consumer issues and consumer issues implications through the broader supervisory role. That could be in a memorandum of understanding, but since the previous memorandum of understanding did not really work, as several noble Lords who have great experience of these matters have said, I would prefer to see it in primary legislation. It is certainly something that we should return to in Committee.

Turning to other consumer issues, why are we not writing a consumer mandate throughout the Bill? Where are the enhanced consumer powers? I welcome the additional powers for the regulator with regard to such things as products—I recognise that there are restraints on those—but where are the powers for the consumers themselves? Under Alistair Darling, the previous Government proposed, for example, at least a limited form of collective redress in financial matters. That would greatly simplify the current mess over PPI. Whether such a system of collective redress would be opt-in or opt-out is a secondary consideration. However, that additional direct power for consumers or consumer organisations appears nowhere in the Bill.

I have other concerns. One consumer concern in particular relates to privacy. The nature of the banking sector is changing. Organisations that are not banking organisations are setting up banks or quasi-banks. We heard about Marks & Spencer just this morning. There is protection for the privacy of data for the consumer of one subsidiary of a bank; the parent company cannot use that information in a different context. However, no such provision seems to apply to supermarkets. They already have a huge amount of data on their customers, which they could use to customers’ detriment were they to pass them to their financial wing—Tesco bank or M & S bank, or whatever we will call it. That is a loophole that we need to address.

There are also issues in relation to the competition structure. When, under the previous Government in 2008, this House approved the takeover of HBOS by Lloyds TSB and the nationalisation of RBS, I argued that we had to agree to it, given the emergency, but that in 18 months’ time there should be a full Competition Commission investigation into the structure of retail banking. However, if anything, the situation has got worse since then. I hope that the fact that the OFT has powers in relation to CCA issues does not mean that we end up with yet another sectoral regulator of everything in financial services that has competition well down its list of considerations. After all, some other sectoral regulators, such as those for energy and water, are adamantly opposed to any reference to the Competition Commission because they see it as a failure on their part. We need to avoid that.

I make a brief point on governance—not so much governance of the Bank of England as of all banks. Banks are unique companies. The rules that apply to joint-stock companies and other bodies generally are not really appropriate for banks. We must all recognise that if we do not change the responsibilities of the boards of banks and those who sit on them, we will go through a similar crisis again. At some point, in the course of either this Bill or the banking Bill, we should address that issue.

Finally, I agree wholeheartedly with the right reverend Prelate the Bishop of Durham, who made a very effective speech. We have a two-tier financial market in this country. Around 20% of our population do not have access to banking facilities, credit or insurance in the way that most of us do. On the credit side, many are driven to those who offer loans at a rate of around 1,000% APR and often, as the right reverend Prelate said, into the arms of criminals. Unless we not only intervene in that market under the new regulatory structure but impose on the mainstream banks and credit creators some responsibility for universal provision, I am afraid that the two-tier financial market, financial exclusion and the whole system—of which payday loans are but one example—of division within our society will persist. I hope that somewhere within the Bill and this structure we can address that issue as well.

Queen’s Speech

Lord Whitty Excerpts

Wednesday 16th May 2012 Lords Chamber

[Baroness O'Cathain]

My Lords, as has already been said, it is an honour to take part in a debate on the gracious Speech. Like so many others, I was tempted to take part in the debate on constitutional matters, but on a self-denying ordinance I took a vow not to on the basis that everything that should be said or could be said on the reform of the House of Lords had been said. I am not sure I was totally right about that because there were one or two nuggets during all those hours of debate—and we should not forget that we also had a full day of debate a short time before that debate. Frankly, I do not think we should publicise the fact that we spent two full debating days on 17 words in the Queen’s Speech, because that is what it amounted to. It would be difficult to justify, particularly as they came, as I have said, hard on the heels of a full day’s debate. There is also, I am afraid to say, overwhelming evidence that, outside the precincts of Westminster, very few people are even remotely interested.

I believe that there are many thousands, indeed many millions, outside the precincts of Westminster who are intensely interested in the issues being considered in today’s debate: agriculture, business, the economy, energy, the environment, local government and transport. Many of the contributors to this debate have commented on some or all of them. Each one of these issues is of huge importance to all the citizens of our country, whether they are really aware of it or not, and we should keep our minds and eyes firmly fixed on those instead of on our little local difficulty. Our responsibility is to ensure that all Bills related to the areas we are considering today are carefully scrutinised, debated and improved through the legislative process in this House, using all our experience and expertise—and thus negating, it is hoped, the statement of the Deputy Prime Minister that in the House of Lords we have only a “veneer of expertise”.

Many of the excellent attributes of our House have been described fairly fully in recent debates, but sadly we are frequently subjected to negative pronouncements which in common parlance are described, I believe, as “bad mouthing”. The economy, particularly the debt and deficit situations—too many confuse these—the sorry state of a large number of pensioners—we know where that stems from—and the truly worrying situation of unemployment are not collectively joyous and are constantly thrown at us from the Benches opposite. When I point out, as I shall again, that all of these issues are to a large extent part of the legacy of the previous Government, the orchestrated groans become full-throated. I hear no response.

The noble Baroness who is the Leader of Her Majesty’s Loyal Opposition in the House of Lords and who I definitely number among my personal courageous friends, told us on 9 May that the “real record” of this Government is,

“of businesses and shops closing; of people being put out of work”.—[Official Report, 9/5/12; col. 12.]

The wording of the Motion of Regret tabled today includes regret about the,

“one million young people out of work”.

One needs to have a very short memory indeed not to make an instant link between that wording and the statement made by the Governor of the Bank of England in the past two weeks to the effect that the previous Government were directly responsible for the loss of—yes—1 million jobs. The noble Lord, Lord Myners, who sadly is not in his place, put up two blacks today. He certainly put up a black about the grocery adjudicator, but he also put one up about the Governor of the Bank of England. But, after all, was the noble Lord not actually part of the process that reconfirmed the Governor of the Bank of England’s reappointment during the period of office of the previous Labour Government?

Happily, something is being done about those 1 million jobs, as we have seen in today’s figures, but, sadly, we can expect yet another twisting of that news by the BBC. In the past few days, a presenter on Radio 4’s “Today” programme said that there was no mention of growth in the Queen’s Speech. No mention of it? Let me read out the first sentence of the speech:

“My Lords and Members of the House of Commons, my Government’s legislative programme will focus on economic growth, justice and constitutional reform”.

Episodes like that make me warm even more towards the re-elected Mayor of London. He has stated that,

“the prevailing view of Beeb newsrooms is, with honourable exceptions, statist, corporatist, defeatist, anti-business, Europhile and, above all, overwhelmingly biased to the Left”.

I could not agree more. Contrary to what is a fast-developing tendency in this House to score points, to increase the number of “blame statements” and rubbish this Government’s efforts to remedy as solidly, quickly, fairly and permanently as possible the legacy of 13 years of economic mismanagement, I believe that we must stop talking down our country and our economy, and in particular the heroic efforts being made in many sectors to build up what has been so damaged in the past.

The Opposition constantly accuse the Conservatives of destroying British manufacturing industry. I suggest that the doom-mongers should take a good look at what has happened to the British motor industry since 2010, and in doing so dispel that accusation. The statistics and information I am about to impart come from the Society of Motor Manufacturers and Traders. They show that during the last five years of the Labour Government, jobs in the motor industry steadily declined year on year from 868,000 to 736,000. That inexorable decline stopped in 2010 when there was a slight increase of 1,000 jobs. In 2011, some 9,900 new jobs were created, and just as important, more than 12,000 jobs were safeguarded. Net investment during those last five years of the Labour Government—

[Lord Whitty]

My Lords, this is the third time that someone from the Benches opposite has claimed credit for the very welcome revival of the motor industry. Does the noble Baroness not accept that the reasons for that revival, after a disastrous prior record, were threefold? The first was the intervention by my noble friend Lord Mandelson on the motor scrappage scheme and other incentives to the industry. The second was the better relations that were established between management and trade unions in the industry, and the third was very substantial investment by Japanese firms, nearly all of which occurred prior to the election in 2010.

[Baroness O'Cathain]

I absolutely refute all of that, but we can talk about it afterwards because the noble Lord is taking time out of my speech, and I will not have that. In passing, has anyone in this House mentioned the fact that the Corus plant which was mothballed by the said noble Lord, Lord Mandelson, in February 2010 was reopened a few months back and, since last Friday, is exporting steel?

I understand that I shall get bad marks if I carry on. All I want to say is that I think it is time that we understood that good things are happening in this country. We should stop peddling gloom and doom and get down to supporting the measures in the Queen’s Speech.

--- Later in debate ---

[Lord Whitty]

My Lords, my main theme tonight concerns economic strategy and the fact that the eurozone authorities and our own coalition Government got diagnosis and prescription profoundly and damagingly wrong, for the reasons that were spelt out so brilliantly by the noble Lord, Lord Skidelsky. First, I have some good news for the Government. Unlike my noble friend Lord Myners, but like another noble Lord who has just spoken, I strongly support the groceries code adjudicator. I champion the consumer, as does the noble Baroness, Lady Wilcox, but we both recognise that it is not in the interests of the consumer for the supermarkets to be able to wipe out farmers and other small producers who are part of the food chain in this country. Therefore, she will have my support on the Groceries Code Adjudicator Bill, although it needs a bit of strengthening.

I welcome other Bills in part. Some of the electricity market reforms proposed in the energy Bill are desirable but it will fail to tackle the problem of investment in nuclear and renewable energy and the problems associated with decarbonising our energy use and of fuel poverty. I had hoped that we would have a fully fledged water Bill. However, as the noble Baroness, Lady Parminter, said, pre-legislative scrutiny may give us a chance to sort out the abstractions regime. That is desperately needed in the light of the pressures imposed on our water resources by climate change and population increase. Therefore, I welcome the commitment with regard to a pre-legislative Bill.

I may also support a few parts of the enterprise and regulatory reform Bill. The rationalisation of the competition structure is sensible. I welcome the green investment bank although I think that it could go significantly further. However, I also fear that better regulation will lead to a substantial attack on environmental regulation and employment protection, which I do not wish to see.

As regards the Financial Services Bill, I welcome the implementation of much of the Vickers report, particularly in relation to the ring-fencing of bank activities. However, I am afraid that the rest of the Bill is mostly about the location, labelling and institutional structure of the regulators. Frankly, changing location from the FSA to the Bank of England or changing names on doors does not give much comfort to small businesses that cannot get capital from the banks, to those seeking first-time mortgages or to those who are excluded from conventional credit and are falling prey to legal or illegal loan sharks. Above all, I do not think that the Financial Services Bill goes very far to tackle the turmoil in the money markets and the failings of the banking system across Europe and much of the world. That is the backdrop against which we are discussing this matter.

Like the noble Lord, Lord Bates, I do not share the schadenfreude that is felt in relation to the problems of the eurozone. I also fear that the coalition is believing its own propaganda and adopting the wrong policies partly as a result. The only real success that the Government have gained from their statements on economic policy is that they have managed to convince a fair proportion of the press and the public that the crisis is all the fault of the Labour Government, despite its global nature. Frankly, the Labour Party has not been all that good at defending its record. We have heard that mantra repeated today. There was a Labour Government failure: namely, the failure of banking regulation, which was far too light touch. However, it was not as light touch as the present Chancellor then said; he wanted it to be considerably stronger. Nevertheless, it was not a failure of macroeconomic policy. Up until 2008, the UK debt to GDP ratio was lower than that of most OECD countries and lower than it had been for much of our history. Indeed, that applies also to other countries in the eurozone.

With the exception of Greece, this crisis is not primarily one of public finances; it is a problem with the banks. That was true in Ireland four years ago and it is true in Spain this week. By putting all the burden of resolving it on public finances, the symptom but not the cause of the problem is being tackled. We have the money markets behaving like packs of feral dogs trying to find the weakest link and Governments who are more afraid of the ratings agencies than they are of their own electorates. When their electorates pronounce, what happens? The Greeks are told to vote again until they get it right, and no doubt if the Irish vote no in the referendum, they will be told the same. However, they will not get it right on that basis because it is the wrong strategy.

I speak as a long-standing pro-European and indeed as a supporter of the euro, and I say this with a heavy heart. I think that what has happened in Europe, reflected here too, is that the decent instincts of post-war social democracy and Christian democracy in Europe have been replaced by a combination of the revival of the understandable German terror of hyperinflation and by ideological neo-liberalism, and lying behind the austerity strategy is the belief that you can win the battle against this crisis only by reducing the size of the state. That is what is behind the strategy in Europe and it is true here in Westminster. Who is paying for this? It is not the bankers, who caused it, but the poorest regions of Europe and of Britain, the youth of Europe and the most vulnerable workers, with inequality growing between regions, between rich and poor, between genders and between the generations.

I recognise that of course there has to be discipline in relation to public spending and the management of our debt, but that discipline has to take into account the profundity of this economic cycle and, if the financial stability pact is so inflexible that it cannot do so, then it is not only Greece that is likely to be the victim.

In the UK we have adopted much of the same approach. At the moment, it looks milder than it does in Greece and Spain but that may be a matter of time. We have only just had a Budget that rewarded the rich and penalised pensioners and pasty eaters, and of course 90% of the cuts have yet to come. We have now had a Queen’s Speech that does even less to tackle this economic problem. It has not done very much for small businesses; it has done nothing at all to stimulate the housing market, despite the total dysfunction of that market; it has done almost nothing for green investment, although we could build on the green investment bank; it has done nothing for the regions, infrastructure or manufacturing—there is no investment bank, for example—and nothing for employment, except, bizarrely, to make it easier to sack people.

All our leaders can do is to repeat the mantras of the austerity strategy. The noble Lord, Lord Skidelsky, calls that denial. To me, it is a bit reminiscent of the dreadful twilight days of the Soviet Union, with leaders reasserting failed nostrums and phoney statistics in provincial tractor factories. The country deserves better, Europe deserves better and the Government need to do better.