Financial Services (Banking Reform) Bill

Stewart Hosie Excerpts

Monday 11th March 2013 Commons Chamber

[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.

[Stewart Hosie (Dundee East) (SNP)]

The Minister said that electrification would work because the regulator—the PRA or the FCA where a financial institution is not PRA-regulated—will be given the power to ensure core services. Does he see any issues arising if the PRA and the FCA perhaps take a different approach to what they might do to the same institution? Is there a concern about two different regulators looking at different institutions on the same matter?

[Greg Clark]

The hon. Gentleman makes an important point, which we considered in drafting the Bill. We would expect all of these activities and institutions to be regulated by the PRA. The FCA was included in the Bill as a means of ensuring that if some other activities were to take place in the future—although we do not envisage that happening—it would not be necessary to come back to the House. That is our clear intention.

Let me summarise what the Bill does include before I go on to talk about what it does not. As proposed by the independent commission, the Bill provides that deposits protected by the Financial Services Compensation Scheme—the deposits of individuals and small businesses up to £85,000—will be preferential debts in insolvency. The Bill provides the regulator with the power to require ring-fenced banks to maintain a buffer of at least 17% of what is referred to as the primary loss absorbing capacity—that is, equity, other non-equity capital instruments, and debt that can be written down or converted into equity in the event that a bank fails. This allows losses to fall on the bank’s wholesale creditors—sophisticated financial investors—rather than on ordinary taxpayers, as was the case with RBS.

A legitimate question arises as to whether additional loss absorbency requirements should apply, in an international financial centre such as the United Kingdom, to the overseas operations of UK-based global banks. This has been much debated in the House, both before the parliamentary commission and elsewhere. It is obviously right that where the overseas businesses of a UK-based bank could pose a threat to UK financial stability, or to the British taxpayer, that bank should issue loss-absorbing debt against the entirety of its group operations. Equally, where overseas units do not pose such a threat they should be exempt from loss-absorbing debt requirements, not least to avoid creating a false impression that the UK somehow stands behind those overseas businesses.

The question that has exercised the commission is this: who should decide? The Government have listened to the Financial Services Authority and the parliamentary commission on how that should work. We agree that the requirement should follow the strategy for managing the failure of each group, known as the resolution strategy. Where a UK parent company will provide support to resolve failing overseas operations, the regulator must ensure that the parent company issues loss-absorbing debt against the entire group. However, where a bank’s overseas subsidiaries would be resolved locally by overseas regulators without reliance on the UK parent, the parent company should not be required to issue loss-absorbing debt against those overseas subsidiaries. Crucially, it will not be the bank’s call but the decision of the regulator and the Treasury as to whether group primary loss-absorbing capacity—PLAC—should be held.

--- Later in debate ---

[Greg Clark]

The resolution plans have to be agreed between the regulator and the Treasury, so both will have that responsibility.

[Stewart Hosie]

Just to get some clarity on the previous point about the relationship with overseas regulators, if both the Treasury and the regulator are required to be convinced of the plan, how will that work in the relationship with, say, the single supervisory mechanism in Europe? Will it, too, not be required to be convinced, or at least will discussions not have to take place, to determine first where liability might lie and then whether the resolution plans are adequate?

[Greg Clark]

The reason for arranging this through the resolution plans is that they should be agreed in advance and everyone should be clear who will be responsible. It is no good the Treasury or the regulator in this country thinking that an overseas jurisdiction will pick up the bill if they were actually blissfully ignorant of it, so the hon. Gentleman is absolutely right that there has to be that clarity.

As I promised on 4 February, I have provided Parliament with drafts of the principal statutory instruments so that the House, while scrutinising the Bill in detail, can understand more clearly how the powers that the Bill grants are intended to be used. As a further aid to scrutiny, I will also make available to the House, in advance of consideration in Committee, a so-called Keeling schedule giving a consolidated text of those parts of the Financial Services and Markets Act 2000 that will be amended by the Bill, including the amendments the Bill will make.

Let me turn to some of the relatively few recommendations of either the Independent Commission on Banking or the parliamentary commission on which the Government have not been persuaded. There are four main areas to consider. The first is the timing of scrutiny, which the hon. Member for Nottingham East (Chris Leslie) mentioned. I hope that hon. Members will accept, from the process I described earlier, that these proposals have already benefitted from an exceptional degree of consideration, both in the amount and, if I may say so, in the august quality of its scrutineers. It will soon be three years since the Vickers commission began its work, and it is less than two years until all the secondary legislation must be enacted if this work is to be completed in this Parliament, as I think we all hope it will be. The Bill is comparatively short—20 clauses— and the time envisaged for its Committee stage is not unreasonable for consideration of all the amendments proposed by the parliamentary commission in its report published today.

However, I know that the parliamentary commission has other advice to give, and I welcome its commitment to produce its final report by the middle of May. Once we have received the commission’s advice, we will of course want the chance to be able to take it. I therefore give this commitment: subject to the usual channels, I will make sure that this House has enough opportunity to consider and debate whatever further recommendations the commission makes in its final report.

--- Later in debate ---

[Chris Leslie]

We will see what happens under the new Financial Conduct Authority, the Prudential Regulation Authority, the Bank of the England and the Chancellor. It is important that Conservative Members realise that self-regulation failed and that not having that statutory arrangement was no great thing. Eddie George was the Governor who said, “Let’s just trust the chaps at the desks to deal with these issues.” That was how banking reform was regarded during their tenure in office. But this is turning into a history lesson.

[Stewart Hosie]

rose—

[Chris Leslie]

Speaking of history.

[Stewart Hosie]

Ten minutes ago, before the hon. Gentleman got dragged into a debate about how rubbish the tripartite system was—and it was—he was making a good point about the lack of time for scrutiny of the Bill. Not least, issues such as the one referred to some time ago—capital requirements for small building societies—took some time to emerge. Will he perhaps get away from the history of how rubbish the tripartite system was and continue to make the case for more time for proper scrutiny, so that those in the industry can tell us what they think of the final shape of the Bill?

[Chris Leslie]

For once, I am grateful to the hon. Gentleman for wanting to focus on the issues; it is important that we have enough time to look at the detail. It is also important to commend the work of the banking standards commission, which has done a phenomenal job so far. I will find today’s report of great use in the short Committee stage, because at least it has taken the rather helpful step of drafting suggested amendments that no doubt the Minister, I and others will be discussing in due course.

The banks have not changed sufficiently. The LIBOR scandal shifted the agenda away from the discussion about excessive risk taking in the financial services sector so that we are now talking almost about anti-corruption measures that need to be put in place. We have had the mis-selling of personal protection insurance and the fleecing of business customers with mis-sold hedging interest rate swap products, while the high-reward bonus season continues to roll on and on, with £600 million of bonuses at RBS sanctioned by the Government, despite a £5 billion loss, to take just one example, so why are they dragging their feet on reform?

--- Later in debate ---

[Mr McFadden]

If the hon. Gentleman believes that the tools were in place, I must refer him to the Chancellor, who is constantly saying that his predecessor, my right hon. Friend the Member for Edinburgh South West (Mr Darling), had no alternative when the crisis hit in 2008.

Let me turn to the Bill and some of the issues before us today. There is broad agreement on the need for some kind of structural separation between retail and investment banking. It is important to understand that the point of ring-fencing, as recommended by the Vickers commission, is not to ensure that no retail bank can ever fail—that is impossible—but to make failure, if it does occur, more manageable by insulating the risks and focusing the resolution effort on the essential services that the Government judge it in the public interest to protect: people’s savings, the payments service and simple consumer and SME lending. It would be going too far, and it would be far too rash, to say that that solves the “too big to fail” problem. However, ring-fencing ought to reduce the risks of future failure to taxpayers and the wider economy.

As the hon. Member for Chichester (Mr Tyrie) has said, the parliamentary commission, on which I serve, made two proposals in relation to structural separation. The first was the reserve power to separate individual banks should they try to burrow under, climb over, erode or get through—or any other metaphor that has been used—the fence, and the Government have accepted that recommendation. The second was to have a wider power to enforce separation on the sector as a whole. That second power would be needed precisely because problems in the sector do not come in the neatly wrapped form of one institution. As we saw in 2007-08, contagion is a fact of life in banking; the weakness of one can quickly affect others. Cultural problems in one part of the sector also spread quickly. It is precisely because problems in the industry are often widespread that there is a strong case for taking a reserve power to enforce separation on the sector as a whole, in the event that the sector tries to get around the intention of the Bill.

[Stewart Hosie]

I am not yet convinced about the reserve power and have many questions. The three banks that actually collapsed were Northern Rock, Bradford & Bingley and Dunfermline, all narrow mortgage banks. How would the ability to separate investment from retail banking have helped in those circumstances?

[Mr McFadden]

The hon. Gentleman neglects to mention RBS, a universal bank, which needed major intervention to bail it out.

The Minister has said that he does not want wider separation because the Bank of England does not want it. It is true that the Bank of England has expressed some reservations about the power if it were to be wielded by the regulator. I took the opportunity to ask the Governor about it last week when he appeared before the commission. He replied that

“a provision so important that it affects the entire sector is one that both de facto and de jure will and should be taken by Parliament.”

When I explained to him that it had never been the commission’s recommendation that this be a policy decision taken purely by the regulator, and that all along we had been clear that it was a decision for Government, he said:

“As long as the decision is taken by Government, we would have no objection to that.”

I hope that we will no longer hear Ministers saying that they are rejecting this power because the Bank of England is opposed to it. This should of course be a decision taken by Government. As for the Chancellor’s point that it would be “undemocratic”, what is undemocratic about holding a proper review into legislation passed by this House as the Banking Commission suggests, or about taking a reserve power the exercise of which would involve the parliamentary process of debate and approval? The truth is that it would not be undemocratic at all.

Financial Services

Stewart Hosie Excerpts

Wednesday 6th February 2013 Commons Chamber

[Greg Clark]

My hon. Friend speaks with great expertise. He has worked in and represented with distinction the City of London over the years, and more than anyone he recognises the importance of it re-establishing its prestige. Part of doing that and of sending a signal to the current generation working in financial services is to say clearly that the misdeeds of the past need to be put right. Where people or small businesses up and down the country have suffered detriment, we should not turn a blind eye. We should be rigorous in holding people to account, and acknowledging the harm done to businesses that have suffered from past mis-selling, and when we do that we should look—as in this case—to recover the costs of such mis-selling from the perpetrators. The Chancellor has set out that principle and I expect the banks to follow it in the months and years ahead.

[Stewart Hosie (Dundee East) (SNP)]

I welcome the statement and particularly the fact that the fines will be paid by the banks and not the taxpayer. I also welcome the fact that the British Bankers Association will no longer have anything to do with LIBOR. However, this is not just about who calculates the LIBOR rate, but how it is calculated. Will the Minister update the House and say how we will have transparency and the confidence to know that rates submitted by the banks are those at which they can borrow money, rather than the acts of fiction, fixes and fiddles that we saw over many years with many banks?

Banking Reform

Stewart Hosie Excerpts

Monday 4th February 2013 Commons Chamber

[Greg Clark]

My right hon. Friend makes a forceful point. The legislation is about the future. It is quite right that it should proceed with consideration and that we should not introduce things that might have unintended consequences without adequate consideration in this House. The Government are obviously the major shareholder in RBS. It is important that RBS should be returned as swiftly as possible to private hands. The current situation is far from ideal, and I know that my right hon. Friend shares our ambition on that.

[Stewart Hosie (Dundee East) (SNP)]

It is right that the taxpayer should never again be on the hook for the bad decisions taken by investment banks or the bad regulation that allowed them to be taken. I therefore welcome the ring-fencing and the provision to separate a given bank if necessary. However, I am not yet convinced of the need for the reserve power to separate any bank. Does the Minister envisage any circumstances under which the Government might include the reserve provision to separate a bank in this or future legislation?

Fuel Duty

Stewart Hosie Excerpts

Monday 12th November 2012 Commons Chamber

[Sajid Javid]

Not yet.

The hon. Lady does not want me to tell the House what the Labour Government did when they looked at this tax loophole. They declared:

“The Government has considered all the consultation responses and believes that on balance the negative effects of changing existing legislation outweigh the benefits"

To address just this issue, this Government have already strengthened HMRC's enforcement and compliance teams, and protected tens of millions of pounds of revenue. So the nub of today's debate is a call to clamp down on avoidance of a relief that the Opposition declared they could do nothing about, to pay for a cut in fuel duty that they supported. Mr Deputy Speaker, you couldn't make it up.

[Stewart Hosie (Dundee East) (SNP)]

The Minister said he wanted to talk about tax avoidance, so let us talk about it. Why did the Chief Secretary to the Treasury promise at his party’s conference last year thousands of extra tax inspectors, and why have the Government failed to deliver any of them?

[Sajid Javid]

I thank the hon. Gentleman for that question; I will come on to it.

Multiannual Financial Framework

Stewart Hosie Excerpts

Wednesday 31st October 2012 Commons Chamber

[Mr Newmark]

I hasten to add that it is my wife’s birthday as well.

Let us discuss and decide today what message the Prime Minister should be given. Clearly he will read Hansard, and he will know the message that the Whips give him and so on, but do we want to bind his hands when he goes into the negotiations? He has already discussed a real-terms freeze with the Germans, French and Dutch, who are buying into the fact that this is a reasonable prospect. Do we want to push him over the edge and ask for something that we know he can never realistically achieve?

[Stewart Hosie (Dundee East) (SNP)]

The real-terms freeze that the hon. Gentleman says is realistic is of course an inflationary rise. Does he really believe that it is unrealistic that the European Union can find modest efficiencies to deliver even a modest cut? When I am to his right on a subject, he is definitely wrong.

[Mr Newmark]

If it was the hon. Gentleman and I negotiating, I am sure we could find some realistic efficiencies. The fact is, however, that for the time being—I say this for the benefit of my hon. Friend the Member for Stone (Mr Cash)—we are in something called the European Union. We therefore have to negotiate with more than 25 other countries.

Oral Answers to Questions

Stewart Hosie Excerpts

Tuesday 11th September 2012 Commons Chamber

[Mr Osborne]

Yes, I agree that that is of course the best approach, but in the tax code of a western democracy there will inevitably be opportunities for abuse and avoidance, which we need to deal with. When it comes to retrospection, I say to my hon. Friend, the Chair of the Treasury Committee, that I think the House of Commons should sanction retrospective taxation only when it is very clear that the explicit wishes of Parliament have been abused and avoided. For example, in the case of a particular UK bank that his Committee and I have corresponded about, we acted retrospectively because there was a clear breach of what Parliament had expressed, and I am very pleased to note that the bank’s new chief executive has today said that the bank will be scaling down its tax structuring activities.

[Stewart Hosie (Dundee East) (SNP)]

A year ago the Chief Secretary to the Treasury made a speech in which he said he would employ 2,000 more tax inspectors, but in March this year it transpired that there were almost 1,300 fewer people in compliance than there had been when the Government came to power. Can the Chancellor tell us when we will see any of those 2,000 new inspectors, or are we to take it that that was simply a conference flourish speech and that there is no real determination to clamp down on tax avoidance as the Chancellor has said?

[Mr Osborne]

The number of specialist tax people at HMRC dealing with compliance is going up over this Parliament. We are also committing an extra £900 million to the organisation specifically for that activity. As I have just explained to the House, we are collecting £3 billion more in tax as a result of compliance over this Parliament and, as we will confirm later this week, we are collecting £500 million more from high net worth individuals because of the high net worth unit and its better than expected performance over the past two years.

Professional Standards in the Banking Industry

Stewart Hosie Excerpts

Thursday 5th July 2012 Commons Chamber

[Stewart Hosie (Dundee East) (SNP)]

We need an investigation into LIBOR—there is no question about that. We need it because of the result of the FSA investigation into Barclays. The final notice on Barclays makes gruesome reading: LIBOR rates were manipulated for three and a half years, for which Barclays has been given a large fine. That means that there will be questions to the tripartite regulatory framework, and to the British Bankers Association, which is responsible for collating and calculating LIBORs. There will be questions of competence, action, oversight and omission for the Financial Standards Authority, the Bank of England and the Treasury.

This is an historic issue. We are already changing much or most of that, with the prudential regulation authority coming into being; the Financial Conduct Authority looking at the conduct of business; the recommendations of the Vickers commission being implemented; and the Basel III requirements being implemented to sit over what the banks do. The Chancellor has announced that the chief exec-designate of the FCA will be given responsibility for looking at the setting and management of LIBOR. We are looking at strengthening the Financial Services Bill and at criminal sanctions in relation to LIBOR, and we want to make recommendations quickly so that we can change, beef up and strengthen the as yet unseen banking reform Bill. That is all good stuff, but the problem—and it is a huge problem—is that our concerns are about more than simply technical changes, better supervision and the implementation of a criminal sanction regime in relation to LIBOR, however necessary those things are, and they are extremely necessary.

Yesterday, we heard quite extraordinary testimony from Bob Diamond, the ex-chief exec of Barclays, who told us that although LIBORs had been rigged for three and half a years, no one above the pay grade of desk supervisor knew anything about it. That is almost impossible, but it points to the fact that this is more than simply a technical problem—there is a deeper cultural problem.

The other problem is that this is not about Barclays at all. The media tell us that there may be 20 or more banks in the frame, even before we look at other financial institutions that may do similar things. This is a fast-moving story. The right hon. Member for Haltemprice and Howden (Mr Davis) spoke about derivatives: this is not really a LIBOR problem—it is a problem of derivative traders manipulating LIBOR. I am not sure, within the narrow remit of a Joint Committee, that we can do all the cultural stuff we need to do. It might also be the case—in fact, I am certain that it will be—that issues arise not necessarily about LIBOR or even related to it but, equally serious, as a result of investigations that are under way in other banks. We will of course want to deal with those issues in changes that we make, as they may have the same consequences in the real economy and cause the same deterioration of confidence in the banking industry as the LIBOR scandal.

Our political parties back the call for a judge-led inquiry. It is the right thing to do, because the issues are far wider and deeper than merely the technical ones. However—and I say this to my friends in the Labour party—if we fail to secure a judge-led inquiry we will not stand in the way of a joint parliamentary inquiry, because there is an absolute imperative to investigate LIBOR. Nevertheless—and I think that Labour Front Benchers were right on this—the calls for a wider inquiry into the culture that led to the problems at Barclays must be heard.

LIBOR (FSA Investigation)

Stewart Hosie Excerpts

Monday 2nd July 2012 Commons Chamber

[Mr Osborne]

My hon. Friend will know, as we discussed this in the Treasury Committee, that the Vickers commission specifically recommended—indeed, insisted on—the ability to change bank account easily, and that from 2013, the banks should have in place a mechanism that enables people to do that within a week. As Vickers said—I agree with him—let us see that that happens; if it does not, we can take alternative measures, but we have in place plans to make it much easier to switch bank accounts from next year.

[Stewart Hosie (Dundee East) (SNP)]

I welcome what the Chancellor said about the Serious Fraud Office and the responsibility that he has given Martin Wheatley in relation to governance and the setting of LIBOR, and what he said about potentially putting criminal sanctions in the banking reform Bill. I am disappointed that he has not ordered a full public inquiry, but I wish the investigation that he has set up well. Will he confirm to the House that the hon. Member for Chichester (Mr Tyrie) will not be restricted in any way in calling for evidence, under oath, from witnesses from the commercial banks, the central Bank, the regulators, or Ministers at the Treasury at the time of the LIBOR rigging scandal?

[Mr Osborne]

I can confirm to the hon. Gentleman that the Committee will not be restricted in any way. It will call whomever it wants. I suggested—but this, of course, will be a matter for the House—that it should call people to give evidence under oath. [Interruption.] As we are getting a question from an Opposition Front Bencher, let me say that the Committee will also be able to call former Government Ministers.

LIBOR (FSA Investigation)

Stewart Hosie Excerpts

Thursday 28th June 2012 Commons Chamber

[Mr Osborne]

I agree with my hon. Friend that we should separate retail banking from investment banking, but the best way to do that is through the ring-fence as proposed by John Vickers. We asked him and his distinguished commission to look at the structure of banks, and explicitly to consider the option that some had proposed of completely separating retail and investment banking. The commission considered and rejected that option, and instead proposed an approach that it thought would be stronger for financial stability, and particularly for the stability of retail banking. That is the ring-fence approach, for which we will now legislate.

[Stewart Hosie (Dundee East) (SNP)]

Notwithstanding that Barclays has been hit with a very large fine, it is truly shocking that market manipulation of this sort is not a criminal offence, particularly as the FSA final notice tells us that the abuses went on for three and a half years. I echo the comment made by the Chair of the Treasury Committee and others: we should look again at legislating now, in the Financial Services Bill, particularly as regards the powers of the Financial Conduct Authority—the conduct-of-business authority that will be responsible for this matter—to make sure that it has the powers and the sanctions it needs to deal with this sort of problem.

[Mr Osborne]

I agree with the hon. Gentleman. Of course the Financial Services Bill is before Parliament and there is still some time to go before it completes its passage, so it is a readily available vehicle, but we want to make sure that we get this right, given what went so badly wrong with the previous attempt to regulate the financial services industry.

Changes to the Budget

Stewart Hosie Excerpts

Monday 11th June 2012 Commons Chamber

[Mr Speaker]

Let me remind the House that the urgent question relates to the subject of changes made by the Treasury to the Budget presented to the House on 21 March. Questioning must be focused on that narrow terrain. I know that in that respect we can rely on Mr Stewart Hosie.

[Stewart Hosie (Dundee East) (SNP)]

The Minister said that these U-turns, however welcome, would be neutral in terms of the Budget, so will he confirm that by the time we get to 2016-17 the Government will still take out of the economy £155 billion a year in tax increases and service cuts?

[Mr Dennis Skinner (Bolsover) (Lab)]

Whatever happened to independence?