Professional Standards in the Banking Industry

Viscount Thurso Excerpts

Thursday 5th July 2012 Commons Chamber

[John Thurso (Caithness, Sutherland and Easter Ross) (LD)]

It is a pleasure to follow the hon. Member for Dundee East (Stewart Hosie), a fellow member of the Treasury Committee. I am particularly grateful for his last point. I believe that there is an honest disagreement on the best route, but that there is far more consensus than members of the public who watched the early part of this afternoon’s debate might be given to think. There is a consensus both in the House and across the country that the LIBOR fixing is a scandal, that banking has yet again let down the country and that Parliament must take appropriate action to remedy that. There is also a consensus that further questions must be answered and advice taken to ensure that we take the right steps to remedy the banking industry for the longer term. Today’s debate should be about how to achieve that, and none of our constituents will be grateful if the result is a partisan deadlock while the bankers escape scot-free once again.

What do we actually need to know? First, we need to know all the facts relating to the LIBOR scandal. Secondly, we need to know how that has affected our constituents, both individuals and small and medium-sized enterprises, and how they can be compensated. Thirdly, and to my mind most importantly, we need to know whether banking as it now exists in the United Kingdom is fit for purpose and has the right model to deliver what society requires of it. How best are we to deal with that?

On the first point, with regard to Barclays we have all the facts relating to LIBOR. The report is comprehensive, as most people who have read it would admit, and, along with the US Justice Department’s report, gives us the facts we need. There will be new facts to come when the FSA reports on other banks, an important matter to which I will return. The FSA report on Barclays shows two things: traders fiddled for their own gain before the crash; and Barclays as an institution low-balled after the crash in order to protect itself. Both behaviours are unethical, and when I asked Mr Diamond about that yesterday he said, “Yes, they are unethical.” As I understand it, arrests may have been made and further arrests can be anticipated, so the facts are clear. What we need to know now is what we should do about it.

On the second point, which is about our constituents, the FSA has put forward a model for how it will redress the swap selling scandal, and it involves the financial services ombudsman. I suggest that that is a technical process that will be able to do the job, but that we should monitor it.

We come to the third and most important point: is banking delivering for society? What do we need from our banks, and not the investment banks, but those on the high street? We need a payments system that works. The RBS outage showed us that that is not always obvious. We need to have a safe home for deposits. Most importantly, we need a source of prudential lending for businesses. It should be a low-risk, low-return operation. It is clear that retail and investment banks have, and should have, separate cultures, so it is clear in my mind that they should be separated. We have had the Vickers recommendations, which represent the ring fence. I was prepared to accept that and would like it to be revisited as part of the inquiry.

There are a number of material points that we need to look at. I want to look at how best we can do that, because we need to get right the legislation when it goes through Parliament and the banking Bill that is to come. I happen to believe that a judge-led inquiry is not the best way to fulfil that objective, but I recognise fully that others take a different view. I believe that a parliamentary inquiry is up to the job, but only if the standard Committee procedure is improved. I believe that the Committee should have a QC, a legal team and, as the right hon. Member for Haltemprice and Howden (Mr Davis) suggested, forensic accountants. It should have the resources that the Chancellor has said he will put in so that the new bits of evidence can be properly assessed and the barrister can lead part of the questioning.

If today’s debate, therefore, leads us simply to an entrenched partisan position, nobody wins and the bankers get away again. It is essential that at the end of today’s debate we support an inquiry, whether it be parliamentary or judicial.

When some more facts come to light in respect of what the FSA is looking at, we may decide that a wider and deeper inquiry is needed. Let us cross that bridge when we come to it, but let us for now get on with the job of taking what we have and putting it into legislation, so that we end up delivering for our citizens banks that are fit for purpose.

--- Later in debate ---

[Mr Jenkin]

Actually, it is the Liaison Committee on which I serve as a Select Committee Chairman. I am personally looking into the matter and will report to the Liaison Committee next week; that will be part of our report on the powers and effectiveness of Select Committees, which we hope to produce before the end of this term. It greatly ill serves the House to denigrate the powers of Select Committees.

I am going to support the Government motion. I am not in favour of a judicial inquiry; I think it would be completely dotty to plunge us into such a lengthy procedure. However, I want to sound some warnings about the dangers that might befall a parliamentary Select Committee inquiry as proposed in the Government motion. We must be mindful, not least, that if Ministers or ex-Ministers were to be called to give evidence to try to sort out the absurd row that we have seen this afternoon, the Committee could not possibly function. Indeed, it could not possibly function if Opposition Front Benchers were determined to undermine its authority and operation.

It was highly irresponsible of the shadow Chancellor to fail to answer my question or that of my right hon. Friend the Chancellor about whether the Opposition will go on non-speaks if the motion is carried. I commend the hon. Member for Dundee East (Stewart Hosie), who said that even if the Opposition lose the vote, Scottish National party Members will co-operate with the inquiry. How is the House meant to make a judgment about whether to vote for the motion unless we have a clear view from the shadow Chancellor?

My hon. Friend the Member for Chichester mentioned the Marconi scandal. That occurred when Ministers—Liberal Democrat Ministers, I hasten to add, just for fun—were accused of buying and selling shares for profit—

[John Thurso]

I want my hon. Friend to tell us all about the Marconi scandal, but we were Liberals then.

[Mr Jenkin]

I beg my hon. Friend’s pardon. Of course—rebranded to cleanse the history.

Lloyd George’s Government were deeply embroiled in what we would call an insider dealing scandal. A Select Committee was very contentiously set up. It divided on party lines, it divided on whether to call Ministers as witnesses, it divided into party groups during the questioning of witnesses, and it divided along party lines in the writing of the report. In fact, it produced three reports—the official report, the Chairman’s report, and a minority report. Interestingly, the introduction to the 23rd edition of “Erskine May” says:

“Such highly visible failure condemned their successors”—

Select Committees—

“to a very limited role for almost half a century.”

I place great faith in my hon. Friend the Member for Chichester that he will draw stumps on the exercise if there is any danger that the Joint Committee is going to collapse in such a welter of recrimination. First, it could not produce a decent report under such circumstances; and secondly, it would damage this House in a very serious manner.

I do not wish to give succour to Her Majesty’s Official Opposition, but I note that the consequence of the Marconi scandal was the passing of the Tribunals of Inquiry (Evidence) Act 1921 when, following a subsequent scandal that engulfed the Government, it was decided that there had to be an alternative means of conducting a judicial inquiry outside Parliament with a judge, and that is how that format came into being.

The report by the Salmon royal commission on tribunals and inquiries, which was produced in the 1960s and is still the bible of how tribunals and inquiries are conducted, said that it would be “a retrograde step” to resurrect the format of a judicial inquiry within Parliament. Among the drawbacks listed by Lord Salmon were that Committees were composed of Members representing the relative strength of parties in the House, that parliamentary Committees do not hear counsel—something that has been suggested today—that some of, if not all, their members will have no experience of taking evidence or cross-examining witnesses, and that witnesses might not enjoy the same absolute privilege as in a tribunal set up under the Act. Those are the dangers that we have to guard against when we vote for the motion.

As I say, I am going to support the motion, but I add one other caveat. I would be grateful if the Minister will confirm that the Government will not present any objection to providing the resources—the money—that the Joint Committee will need to carry out its functions. We cannot have this new Committee raiding the staff and resources of other Committees. I think that if the inquiry is confined to matters of policy and recommendations for legislation rather than trying to settle the internecine disputes that we have seen on the Floor of the House this afternoon, then it can function with the support of the Opposition, but if the Government want it to happen it must have the necessary resources, which may be substantial. I would also recommend recalling a senior Clerk who has recently retired instead of raiding a Clerk from another Committee, because otherwise all our work will be disrupted.