Oral Answers to Questions

Alison McGovern Excerpts

Tuesday 25th June 2013 Commons Chamber

[Mr Gauke]

My hon. Friend is absolutely right. He could have added—and I am surprised that he did not do so—that we have taken action on fuel duty as well.

[Alison McGovern (Wirral South) (Lab)]

Money in people’s pockets is one thing, but since the financial crash, food prices have increased by 18% compared with inflation of 13%. It is not just a question of the money in people’s pockets; it is also a question of what they have to pay when they go to the shops. Does the Minister really believe that families in my constituency feel that they are better off?

[Mr Gauke]

It is because of the need to deal with the cost of living that we have taken measures such as controlling increases in council tax. That is why fuel duty is lower than it was in the plans that we inherited, and why we have taken the measures that we have taken in regard to the personal allowance. [Interruption.] The shadow Chancellor is muttering about VAT. Let us be clear about this. Labour Members did not vote against VAT; then they said they were against VAT. Last week they said that they would not change VAT; now the shadow Chancellor is complaining about VAT. It is just chaos and confusion from the Labour party.

Royal Bank of Scotland

Alison McGovern Excerpts

Thursday 13th June 2013 Commons Chamber

[Sajid Javid]

My hon. Friend is absolutely right. RBS has ended what I referred to as the rescue phase. Stephen Hester successfully brought the bank back from the brink and has started to refocus it, and the new strategy that RBS has set out will focus it even more on lending to UK businesses and households?

[Alison McGovern (Wirral South) (Lab)]

The decisions made about RBS’s future represent a huge impact on the public finances, so where is the Chancellor?

[Sajid Javid]

I answered that question earlier.

Finance (No. 2) Bill

Alison McGovern Excerpts

Wednesday 17th April 2013 Commons Chamber

[Chris Leslie]

It comes down to whether the Government have designed the scheme adequately. Is it best to have a broad-brush approach, or should we be targeting help at those who need it most? The Opposition favour the latter.

[Alison McGovern (Wirral South) (Lab)]

My hon. Friend has made an important point about the action the Government have already taken. Does he agree that their action has failed to work because of their mismanagement of the macro-economic system? In a world where people see food prices going up and do not have enough money in their pocket for a weekly shop, the idea that we can have a housing market that works well is not at all realistic.

[Chris Leslie]

The economic background is absolutely key. If we had seen a continuation of the recovery that was beginning to get under way back in 2010, we might have been in a different position. But no, the Government pulled the rug from under the confidence felt by consumers or businesses and in the housing market, too. We have seen a series of consequences as a result. Let us face it: the main problem, particularly for first-time home buyers, is the supply of housing and its cost.

--- Later in debate ---

[Chris Leslie]

The Opposition are not opposed to schemes that are well targeted and well designed to increase affordability for people who want to buy their own home, and we want people to get that first step on the housing ladder, but the way in which the Government are going about these things is shocking.

The funding for lending scheme has shown some signs of altering mortgage affordability at the margins, but it was predominantly designed to boost lending to small and medium-sized enterprises, and in that respect it has not worked at all. In fact, yesterday the Bank of England started talking about doing what the Chancellor should have done in his Budget and properly getting a grip on funding for lending—splitting the scheme in two, to ensure that it provides not only housing support, but particularly SME support.

[Alison McGovern]

The right hon. Member for Wokingham (Mr Redwood) alluded to a much larger debate that we have had in this place, about banking and banking regulation, but does not that entirely miss the point—that actually the Budget, and this Finance Bill, should be about resetting the recovery from that crash: not about the failure that is still there in the banks, but about the economic management of the country, which this Bill demonstrates above all the Chancellor has got wrong?

[Chris Leslie]

I do not think it is because the Chancellor does not realise, or is ignorant about the policy options available to him; it is a deliberate choice not to pull those particular levers, and we need to debate that in a wider context.

However, for the purpose of completing some analysis of the Help to Buy scheme, the specific question that we have anxieties about is whether the underwrite scheme will provide unintended support for those wishing to buy second homes—in other words the taxpayer, the hard-pressed taxpayer, subsidising an element of activity that really should not be a priority for the taxpayer at this moment. If people want to take equity out of their property or remortgage, they may do so using traditional solutions provided in the market at large; we have nothing against home owners remortgaging in the traditional way. But the scheme seeks to extend taxpayer guarantees unnecessarily. Effectively, Ministers are saying that if people have a spare room in a social home, they must pay the bedroom tax, but if they want a spare home and can afford it, the Government will help them to buy one. No wonder people are calling this the spare home subsidy.

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[Chris Leslie]

The Minister’s pen will run out of ink as a result of the number of specific questions about the scheme that he will have to reply to, but he is diligent and I know he will address them all. I would be grateful if he could confirm that he has thought through the consequences of the design of the scheme for the devolved Administrations. [Interruption.] His gaze has not lifted for the past 15 minutes or so.

I do not wish to take up too much more time, but there are other anomalies. For example, I think the Government have said that home owners will be able to remortgage, but they will not be able to remortgage with their own bank or building society; they have to go elsewhere. Ministers need to think that through a little more carefully. If there is a genuine case for remortgaging, are they, in effect, going to create a whole set of exit fees for those consumers to have to bear and a set of new application fees? What is wrong, in the circumstances of remortgaging, with someone continuing the relationship with their existing bank or building society?

We have a number of concerns about the Help to Buy scheme. Let us leave the last word on the matter to the Office for Budget Responsibility. What was its assessment when it looked at the scheme? What view did it take about the impact that it would have on the housing market? The OBR revised down its forecasts for property transactions, despite the two new schemes that have been announced. It says, I think on page 88 of its report, that

“we have reduced our forecast relative to December to a level which is more consistent with other outside forecasters.”

There we have it. For all the announcements, the spin and the press releases about the scheme, the Treasury could not convince the OBR, which is only just down the corridor from where Ministers reside.

[Alison McGovern]

Is not that particularly disappointing given that the Government have not exactly met the OBR’s forecasts to date?

Cyprus

Alison McGovern Excerpts

Monday 18th March 2013 Commons Chamber

[Greg Clark]

The agreement that was reached at the weekend was an agreement between the Government of Cyprus and the eurozone members. The ECB has said clearly:

“It’s the Cyprus government’s adjustment programme. If Cyprus’ president wants to change something regarding the levy on bank deposits, that’s in his hands. He must just make sure that the financing is intact.”

The Cypriot Parliament will, quite properly, be discussing and debating this matter. It has some influence, and indeed some control, over how these measures are levied.

[Alison McGovern (Wirral South) (Lab)]

As the Minister made clear, whether in the eurozone or not, what affects one country in Europe affects us all. Will he therefore answer the question asked by my hon. Friend the Member for Bolsover (Mr Skinner) and give us his view on this levy on deposits?

[Greg Clark]

The Government of Cyprus agreed to this proposal. The spokesman for the German Government was very clear that how Cyprus makes its contribution—how it makes the payments—is up to Cyprus. If the Government of Cyprus, recently elected by their people, make this decision, it is for them to justify it to the Cypriot Parliament.

Financial Services (Banking Reform) Bill

Alison McGovern Excerpts

Monday 11th March 2013 Commons Chamber

[Greg Clark]

I should have thought it was reasonable for the Financial Secretary to the Treasury to introduce a Bill on financial services.

Let me continue to make my point. The financial services sector is of great importance to Britain, but that importance carries risks for this country. At their peak, the banks’ balance sheets amounted to 500% of UK GDP, compared with 100% in the US and 300% in France and Germany. In 2008, for example, the Royal Bank of Scotland was the biggest bank in the world and, as we all know, Britain also witnessed the first bank run for more than a century, with depositors queuing in the streets to get their savings out of Northern Rock. RBS and HBOS had to be bailed out, with £65 billion of taxpayers’ money needed to shore up the banks.

The system of regulation failed, as did the culture of the banking sector, in not preventing and resolving the crisis without recourse to taxpayers’ money or otherwise putting people’s deposits at risk. That is why fundamental reform was needed, the first pillar of which has been put in place through the passage of the Financial Services Act 2012, which received Royal Assent in December and establishes a clear and distinct role for prudential regulation and conduct regulation, a role that was blurred and ineffective.

The Bill is the second pillar of those reforms and it reflects the considered views of no fewer than two expert commissions. The first, chaired by Sir John Vickers, was the Independent Commission on Banking, whereas the second, chaired by my hon. Friend the Member for Chichester (Mr Tyrie), was the Parliamentary Commission on Banking Standards, on which many Members of the House have served.

Let me say something about the process we followed, briefly summarise how the Bill reflects the recommendations of each commission and then explain in some detail the rationale for the few remaining areas in which the Government’s proposed approach differs.

[Alison McGovern (Wirral South) (Lab)]

In his discussion of the process, will the Financial Secretary explain why, given that the crash in 2008 to which the Bill is a response was one of the most momentous economic events in my lifetime and the lifetimes of many people, and given the importance of its proposals, the Chancellor did not see fit to lead the debate today?

[Greg Clark]

I am disappointed that my presence here does not satisfy the hon. Lady. The Chancellor trusts his Financial Secretary to speak at the Dispatch Box. I do not know how it is in the Opposition.

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[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?

[Alison McGovern]

Conservative Members point to times in history when things changed in banking. While my hon. Friend is talking about culture, is it not important to listen to those who were there at the time, such as the former Chancellor, Lord Lawson? He said of financial deregulation:

“When the Thatcher Government first took office in 1979 it inherited an economy beset by all manner of government controls…We judge these…regulations to be amongst the causes of Britain’s economic weakness and we wished to be rid of them.”

Does this story not go back much further? If we want to look at points in history, we might do well to look at the big bang, which changed the culture.

[Chris Leslie]

My hon. Friend is entirely right. Ducks go quack, cows go moo and Conservatives hate regulation of the market. It is part of their ingrained DNA.

--- Later in debate ---

[Alison McGovern (Wirral South) (Lab)]

I congratulate the hon. Member for Eastleigh (Mike Thornton) on his maiden speech, which was a really good first contribution. As a former railway person, I know that the town of Eastleigh is extremely important to that industry, but there is no more important a subject for him to make his maiden speech on than this Bill. I offer him my sincere congratulations.

Let me say why I think this Bill matters. By way of setting the scene, I want to explain something from which I think the financial services industry suffers. There has been a recent influx of Members to the Chamber for this debate, although I fear that it is not entirely due to the subject under discussion. Normally, the financial industry is quite a niche subject, which is partly to do with the fact that people often talk in code about financial services. There is a certain language that people are supposed to use when talking about financial services, and I suspect that those who work in the industry feel a bit as though they are part of a special club. They use words that normal people cannot really understand; they repeat their shibboleths and some of them live in their gated community, quite apart from normal society. Well, hands up, Mr Speaker, it takes one to know one; Parliament is just the same in so many ways. If we make things sound complicated, people will think we are really clever, but I think we should learn that democracy and financial services are too important for that.

Unfortunately, the culture in financial services makes scrutiny much harder than it ought to be. We now know that in the 2008 crash, the real risks taken by the banks were hidden, and that happened because of the insider culture. We are yet to hear from the Parliamentary Commission on Banking Standards about the cultural aspects of the financial services crash, so I repeat to Ministers earlier pleas about the timing of that advice. As I have explained, cultural aspects are important for effective scrutiny and good legislation in the future, so can we not ensure that we proceed with the best possible advice from the parliamentary commission? We in this House would probably all agree that we have been sent here to speak up for ordinary people, but what happens in the City’s square mile matters on every high street in Britain. It is not good enough anymore for financial services to be a niche interest in Parliament.

Growing up in the 1980s and 1990s I often felt that Merseyside was being buffeted and shaken in the interests of the City of London. Given the Chancellor’s words over recent months, it has sometimes felt a little like my teenage years on playback. The Chancellor talks about defending the interests of London as a financial centre—for example on leverage ratios—but how much do financial institutions worry about the average British high street?

[Mark Field]

Will the hon. Lady give way?

[Alison McGovern]

Let me finish the point, and then of course I will give way to the Member who represents the square mile.

Let us be honest: some financial institutions do worry about that, and some are very large employers, and I know that many people in the financial services would agree absolutely with my point. However, wage inequality skews influence to insiders at the top.

[Mark Field]

Does the hon. Lady recognise that as well as the hugely important business, which is perhaps based culturally within the square mile in my constituency, a vast number—indeed, the majority—of jobs in UK banking and financial services are based not just outside the City but outside the capital? She will be aware, for example, that not too far from her constituency in the city of Chester, a huge number of employers employ many thousands of people in the financial services.

[Alison McGovern]

That was the point I was trying to make, and I refer the hon. Gentleman to comments made by my right hon. Friend the Member for Wolverhampton South East (Mr McFadden), who said that although that is true, it is not enough to say, “We’re a big employer; leave us alone.” The influence of the financial services in the City is greater than that, and that will not do anymore.

Wage inequality in financial institutions skews influence to insiders at the top. This is a classic insider-outsider problem, and we in Parliament must work out how to scrutinise more what goes on in the City. I believe that the Royal Bank of Scotland’s final report makes great play of how it is finally a living wage employer. Well, good for RBS, but it is perhaps a little too late.

On the bonus culture, the Government have said that there could be a perverse incentive in controlling bonuses and that people might be paid more if their bonuses are reduced. That is true if—and only if—they think the following two things: that it might not be better to have more fixed costs and less turbulence, and that we might want to think about the impact of those highly variable costs on incentives; and, secondly, that the overall remuneration of bankers is just fine and the current inequality in the financial services sector is okay. Well, it is not okay. The hon. Member for Cities of London and Westminster (Mark Field), who represents the City, mentioned the many people all over the country who work in financial services, but when I make the point about inequality in the financial services sector, it is those very people, and the money in their pockets, who I am thinking of.

[Mr McFadden]

On pay and reward, does my hon. Friend agree that it is unfair that the vast majority of financial services workers, who are in ordinary branches of banks and so on and paid normal, average salaries, get tarred with the brush of excess and of salaries way out of kilter with what normal people earn, when in fact that is taking place at the very top of banking and not in the local branch?

[Alison McGovern]

I could not agree more. It is also not okay that people in regular branches were pressured to sell all kinds of products, which we know happened.

I was very much taken by the contribution made by the Father of the House, the right hon. Member for Louth and Horncastle (Sir Peter Tapsell). Unfortunately, he has left his place. I was going comment on the deregulation of building societies and the big bang back in 1986, but as he has already covered that very well, I will not do so except to say this. On reading Lord Lawson’s account of the impact of the 1980s boom on the real economy, I think he is clear that he thinks he made a mistake. We should listen to the lessons of history. We should also congratulate the right hon. Member for Haltemprice and Howden (Mr Davis), Lord McFall and Baroness Kramer on establishing the New City Network, which is trying to find ways to answer some of the questions I have raised.

To turn to my second point, which is more specific to the Bill, we need to ask ourselves what kind of economy we want. My constituents, unsurprisingly, are interested in having a job to go to, and in having enough money in their pockets to feed their family and have a roof over their heads. They want a Government who do not tell them that they will cut debt to solve the problem, only to see debt rising. Notwithstanding that, the Bill ought to help finance to underpin a growing economy. Will the ringfence help us do that? That is determined by what we think banks are for. We should say that banks are not just like any other industry: cavalier risks are totally unacceptable, and that is why the ringfence matters. We need to assure ourselves that we have done enough to provide for business continuity in a real, productive economy.

I am not sure that the ringfence is necessarily enough to do that, however. What about the examples of straightforward bad lending? What about investment banks with no retail operation, such as Lehman’s in the US? What about retail banks that went under in this country? How does the ringfence de-risk in those cases? Then there are the comments from the hon. Member for Chichester (Mr Tyrie) about the industry marking its own exam. That gives rise to the need for reserve powers, which other hon. Members have described well.

We need to be clear that some in financial services argue against separation at all—they worry about the cost to the bank. I am afraid that that sounds a little too much like special pleading. Saying that this will hurt lending to the real economy because it passes costs on just sounds like tit-for-tat: “Block our preferred business model and we will punish small and medium-sized enterprises, small business and the average small lender.” Why do they have to do that? I am not sure that one necessarily leads to the other—it is about their business model. How does the Bill help with protection from banking failure in other European countries?

We have heard other hon. Members talk about competition, so I will not dwell on that for too long, but the Government must be clear and Ministers must say exactly what kind of competition they want. Any economics textbook will tell us that three firms are enough for competition, but I think we all think that common sense dictates otherwise. How many new entrants to the market are sufficient? More importantly, what kind of competition do we want?

There is nothing in the Bill about ownership, but perhaps there should be. What are the Government doing to open up banking to more mutuals? Could we look back over our history at what happened to building societies, as my hon. Friend the Member for Bassetlaw (John Mann) mentioned, and see whether there is room for change in that sphere? I have raised before the Financial Services Compensation Scheme and pre-funded deposit insurance. If we compare the EU’s position on making sure that banks commit properly to the UK’s position, I wonder whether Ministers have got that one right.

In conclusion, this is a shell of a Bill and we can do much better. To paraphrase John Donne, financial services is not an industry entire of itself; it is a piece of the continent, a part of the main. We therefore need a greater commitment from the industry that it is prepared to change, and from the Government that they are prepared to legislate to help it do so. The impact of the financial crash on people in my constituency was huge, be that from the threat of losing their house, or losing their job. That is too important for this subject to remain a matter of technical, niche interest. The Government must be much stronger and listen to the voices calling for change.

Economic Policy

Alison McGovern Excerpts

Monday 25th February 2013 Commons Chamber

[Mr Osborne]

Last week we had the good news that unemployment had fallen again and employment had gone up, and we had the forecasts from the European Commission. Although we would of course want UK growth to be higher, they show that it is actually forecast to be higher than that of France, Germany and many of our European neighbours. We are in a tough neighbourhood—it is a tough economic situation—but we are confronting our country’s economic problems.

[Alison McGovern (Wirral South) (Lab)]

The Chancellor’s response to the questions today has proved that, as ever with him, it is politics first before economics. Now that he has failed the test he set himself, will he turn his attention to the test that Wirral people set him, specifically on under-employment? What is he going to do to help people who cannot get the hours they need in work to put food on the table?

[Mr Osborne]

Of course we want to help people who are not currently working the hours that they want to work; we want to help them by helping businesses to expand to take on more people. As well as jobs going up by 888,000 in total and private sector jobs going up by 1 million or more, the number of hours worked in our economy has also gone up. Labour argues that it is all to do with under-employment, but that is not the case. Of course we want to help people who are working part time but want to go full time and people who want to work more hours. The best way to do that is to create an environment in which businesses want to expand and take people on.

Banking Reform

Alison McGovern Excerpts

Monday 4th February 2013 Commons Chamber

[Greg Clark]

My hon. Friend is absolutely right. One of the real tragedies, and one of the things that makes me most angry about the declining reputation of banking in recent years, is that the reputations of many hundreds of thousands of people who work in banks up and down the country and who have chosen banking as a career because of its associations with probity and respect in the community have been besmirched by the actions of a very small number of people. Our purpose in restoring the reputation of financial services in this country is also to allow those people to go to the pub without being teased and ribbed because they work in a bank, which is something that should never have happened to them.

[Alison McGovern (Wirral South) (Lab)]

My constituents want banks to serve industry and our community, not themselves. May I try the Minister yet again on the question of full reserve powers? Why should the evidence of one institution hold sway over that expert commission?

[Greg Clark]

It is the hon. Lady’s objective that banks should serve businesses and their customers, and that is precisely what Sir John Vickers has in mind. That is the purpose of the exercise, and it is exactly what I want to achieve. Any ring-fenced bank that strays from that purpose and neglects its core customers—its retail depositors and the other people who bank with it—by taking their money and playing with it in the casino will be broken up.

Oral Answers to Questions

Alison McGovern Excerpts

Tuesday 29th January 2013 Commons Chamber

[Mr Osborne]

Of course, we are clearing up the mess that Labour left behind. As we do that, the private sector has created over a million new jobs, unemployment has been falling, employment is at a record high, and female employment is at a record high. I would have thought the right hon. Gentleman should celebrate that, rather than talking it down.

[Alison McGovern (Wirral South) (Lab)]

Private sector job creation is not working for young people. In January 2011 I asked the Government how many young people they would be paying out the dole to by the end of this Parliament. They said 279,000. In December 2012 they had to up that figure to 310,000, an extra 31,000 young people who they predict will be on the dole by the end of this Parliament. Who does the Chancellor blame for that planned increase in welfare spending—himself or the Secretary of State for Work and Pensions?

[Mr Osborne]

The claimant count has fallen on the most recent measure, which was published last week. As I said, 1 million jobs have been created in the private sector. We are also, as my hon. Friend the Member for Erewash (Jessica Lee) reminded us, creating the apprenticeships to give these young people the skills they need, which the previous Government were not providing, to compete in the modern economy. I would ask the hon. Lady to get behind the education and welfare reforms needed so that people have the right incentives to work and the right skills to get a good job in future.

Financial Services Bill

Alison McGovern Excerpts

Monday 10th December 2012 Commons Chamber

[Chris Leslie]

I entirely agree with the Chairman of the Treasury Committee, who is very knowledgeable and has some strong views on these questions. It is a pity that when we flick through the luminous list of Lords amendments, we find a gaping hole on those crisis management arrangements, where none was accepted by the Government. Some clauses in the Bill deal with that set of scenarios, and it is noticeable that such provision is not included there. That is in part why we have sought to amend Lords amendment 3, as one of the few areas where we can make an amendment is in respect of the role and duties of the oversight committee. I accept that that is only half of the scenario, as we also want Her Majesty’s Treasury to have a process for reviewing the adequacy and effectiveness of its arrangements with the Bank of England, but we do not have the opportunity today to propose such an amendment.

If we are to have an oversight committee, it should be able to play a role in ensuring that the crisis management arrangements are up to scratch and that there is joined-up thinking between these variously important branches of governance to ensure that someone at the Bank of England is tasked with thinking these things through very carefully.

[Alison McGovern (Wirral South) (Lab)]

Does my hon. Friend agree that it is incredibly important that Parliament gives its view on such issues, given the weight of academic insight into the arrangements in place at the time of the crash? We are trying to learn some of the lessons from that, and one of the key lessons is the importance of rules and thinking them through ahead of the scenarios, since it is literally impossible to know what the next unforeseen shock might be and where it might come from.

[Chris Leslie]

My hon. Friend is correct that this is about learning the lessons of preparedness and of what level of forward thinking we can undertake at this point in time. It is still amazing—I know she agrees—that although the FSA conducted a comprehensive review of its role in the financial crisis and the Treasury and Government did the same, we have to this day still not had a comprehensive review by the Bank of England of its role in the financial crisis. That is amazing. It begrudgingly had three minor reviews dragged out of it—it was like getting blood out of a stone—considering small particular areas where it had some failings. Those reviews concluded that there were serious issues to be addressed, and one of the individuals conducting one of those three small arrangements talked about the fact that the governance arrangements in the Bank of England were still too centralised. I hope that the Government will think more carefully about crisis management provisions.

[Alison McGovern]

I thank my hon. Friend for being so generous in giving way again. This is a crucial point: Parliament rarely discusses the strategic role of the Bank of England and rarely legislates, in part because the independence of the Bank of England is still a valid economic principle on which we hope to rebuild our economy. We must therefore get the discussion right at this time.

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Fifthly, the Governor’s central and enhanced position is unaffected and the Bank’s hierarchical nature, with him at the apex, will remain. He is a single institutional point of systemic risk in the new governance arrangements. The danger of group-think will remain. Bill Winters recently drew attention in his review to that hierarchical problem and the need to place a requirement on the Governor to consult others, particularly the deputy governor.

[Alison McGovern]

May I take the hon. Gentleman back to his fourth point? He mentioned the Treasury Committee’s ability to get information from the Bank. What specifically is he concerned about, and does he think that his Committee ought to be able to access data from the Bank as part of its oversight role? First, how would he improve on that point? What specifics of governance does he think we must look for? Secondly, is it a question of getting data out of the Bank so that group-think can be laid bare and investigated? Am I right to take those points from what he has said?

[Mr Tyrie]

If the hon. Lady will forgive me, I will not linger on those points for too long, because the Committee has set that out in some detail in a number of reports. On her first point, in a nutshell, one need only look at the corporate governance arrangements of almost any public sector body, or indeed any public company, to see that the lines of accountability are powerfully drawn between their non-executives and the executive arm. That is almost completely lacking in the court, whose role is heavily circumscribed and, until recently, involved nothing more than oversight of the Bank’s budget. Indeed, I have been told informally that until recently an unspoken requirement of membership of the court was to have no great knowledge of financial matters, and certainly not to interfere with them. That strikes me as the negation of genuine oversight, but perhaps those who whispered such thoughts in my ear were making mischief.

On the hon. Lady’s second point, it is of course crucial that somewhere in the accountability framework there is a group of people who are capable of asking for detailed information in order to make the scrutiny meaningful. The Treasury Committee, in our investigations into Royal Bank of Scotland, found that we needed to send specialist advisers into the FSA to obtain the necessary papers to ensure that they were taken into account in its report on RBS. I do not think that it would be a healthy state of affairs if the Treasury Committee ends up having to send specialist advisers into the Bank of England to perform such a role. It would be far better to have a group of non-executives in the Bank of England whose explicit task is to look for those documents and to be available to help us do the scrutiny directly. My reply to her questions touches only the surface of the more detailed reply that could be given, but it has been set out in some detail in at least two Treasury Committee reports.

Next year we will have a new Governor. He could, of course, grasp the opportunity to improve all this, and no doubt he will form views about governance, ones that might benefit from legislative change. The Banking Commission will also make recommendations on standards, culture, competition, governance, regulation and sanctions for rule-breaking by bankers. Any or all of those might require statutory action. I would be grateful for an assurance on that from the Minister, so will he commit the Government to broadening the scope of the banking Bill to ensure that further amendments to FSMA, including in the areas I have just mentioned, can, if necessary, be made next year?

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[Chris Leslie]

Indeed, that is the case. Anxiety is spreading and rumours are circulating that people with credit impairments or county court judgments against them are finding it increasingly difficult to access basic bank account services. One of the most shocking changes has been the way some of the big banks have started gradually to pull out of the LINK cash machine network. That network depends on all the banks taking part, because, if some big banks withdraw, as has happened, more of the cost of maintaining the network falls on a minority of banks, which, as a result, are more likely to walk away. I have worries, therefore, not just about the basic bank account networks, but about the LINK cash machine system, and I would be grateful if the Minister set out to those banks in no uncertain terms that, given their social duties and responsibilities as a utility, we expect—as a de minimis requirement—that they maintain those basic, fundamental activities.

[Alison McGovern]

Will my hon. Friend slightly broaden his comments about the LINK system? In too many of our towns and cities, cash machines in the most deprived areas are the ones that charge. Unfortunately, the principle that those with the least pay the most is creeping back into financial services. If we do nothing else this evening, let us send the message to the financial services industry that such a principle is wholly unacceptable.

[Chris Leslie]

That is true. The Opposition take the view that the financial services sector needs to move away from the old model of essentially extracting profit on the basis either of the ignorance or lack of awareness of customers—basically taking advantage of the inertia in the system—or of the fact that the consumer has no other choice. We need to support a financial services sector that genuinely adds professional value and acumen to products fairly and transparently. That is the modern sort of financial services sector that this country deserves and can have. We need to get away from that old era, in which the banking system essentially raked in multiples of small penny packets of income and profit off the backs of people who were not necessarily aware they were being charged 25p or 50p for cash withdrawals. That is the sort of bad practice we need to move away from.

The Opposition have called for action to ensure that pockets of the country are not left isolated and on their own. In the United States, they have clear safeguards requiring banks to reinvest in communities and provide basic coverage. That counts not only for consumers, but for small businesses, which, as we know, also struggle to access affordable loans.

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[Alison McGovern]

My hon. Friend mentioned ethics a moment ago. Although we need a financial services system that is internally ethical and that has the right culture, there is a broader problem. The LIBOR scandal bit in the way it did not because it was a usual Whitehall story, but because the Government rely on LIBOR, among other indices, to know what is going on in financial services. This might not be the part of the Bill that has been most hotly debated this evening, but we are all reliant on these indices. Is that why my hon. Friend is suggesting that we should cast the net a little wider and try to get ahead of the problem rather than constantly chase ourselves?

[Chris Leslie]

My hon. Friend makes an excellent intervention. She is right. In our debates about financial services we sometimes talk in rarefied or esoteric technical terms, but this issue is certainly of relevance to all our constituents, whose mortgage rates, the interest they pay on loans, and, in the case of oil markets, the price they pay for petrol at the petrol station and the price they pay to heat their homes, as well as prices in the gas and food markets—the price of a loaf of bread, for example—are all too often rooted in the costs of these commodities and investments, as determined by the global trading environment.

This is what it boils down to: it is a question of trust. Hitherto, people assumed that all the market benchmark arrangements were simply transparent exchanges of data and prices that showed the true value of an investment, product or commodity, and that people were buying and selling in an open and fair process. It turned out that those in the know, who were often highly paid traders in the bigger banks—incidentally, even more revelations will come out over the coming months about the banks that might have been involved in LIBOR—knew how to wangle the system and play the market in a way that helped not only the profits of their particular company, but that boosted their own personal bonus arrangements. It was a question of using other people’s money in order to shift massive volumes of trades. Even if the changes in price were fractional and seemed irrelevant, when they were multiplied by the billions of trades that were taking place they could have massive financial advantages to those traders involved.

It was alleged recently that banks rigged electricity markets in the United States and record fines have been issued. That involved British institutions, so British regulators should be explicitly equipped to tackle attempts to rig commodities trading, whether it be spot trading, forward contracts, futures contracts or hedging arrangements. Global commodities markets include a vast range of products, such as grains, fibre, other food, precious and industrial metals, energy, carbon offsets and so on.

As I have said, British households are affected by commodity market manipulation—perhaps even more than attempts to rig LIBOR. Commodity speculation has contributed to the record costs of staple foods in recent years. In fact, some people argue that the riots and social unrest in Egypt, Tunisia and other countries were influenced by pricing issues and distortions.

Last month, after the Energy Secretary made a statement to Parliament, the Financial Services Authority and Ofgem confirmed that they were conducting an inquiry into claims that British companies manipulated the wholesale gas market on 28 September. The Government have said that it would not be appropriate to use legislation to cover pure commodities, such as gas, but that if commodities are referenced by derivatives or other financial instruments, it is covered by the definition of investments. However, a derivative instrument may essentially be a traded instrument and there is no reason for it to fall within that definition. It could be regarded as an insurance product and so does not fall clearly within the definition of investments in Lords amendment 119.

Total, the French oil company, recently made open allegations against one of the PRAs. That is not the PRA as we know and love it—the Prudential Regulatory Authority—but another acronym. Price reporting agencies are companies or organisations that essentially gather information, almost as a journalist might do, and figure out broadly what is happening in the market. However, it is not necessarily a true reflection of what is happening. Total alleged that there were erratic processes involved and that it was not a true reflection of the state of the market. There were also questions over the methodologies of the price reporting agencies. Does the Minister think that price reporting agencies need to be within the regulatory ambit? Again, they are important component players in the financial services sector, but are not familiar to all our constituents—but by goodness, they would become familiar to all our constituents if they were not trusted or were seen to be failing in some way.

[Chris Leslie]

I do want to see more transparency. Electronic data exchanges certainly have the potential to provide the regulators, including the Bank of England, with more real-time transactional information about what is actually happening. I do not necessarily want to see regulators wading through reams of information, but I want to ensure that, if need be, they have the scope to act. It is not clear that the Financial Services Bill, as it first entered Parliament in February, would have captured the LIBOR benchmarking situation within the regulatory perimeter. There were suggestions from the FSA that it was not something that it could deal with. That was not good enough and the Government have come forward with amendments. I want to ensure that those amendments allow the regulators to trigger inquiries and oversight for all benchmarking indices and arrangements, especially in the commodities market.

The hon. Member for Harlow (Robert Halfon), who has been campaigning on oil and petrol prices, has called for an OFT and FSA investigation into manipulation by oil firms in recent times. The United States Commodity Futures Trading Commission has raised questions about price fixing and manipulation in the silver market. That study was inconclusive, but questions linger over metals markets more broadly. The Minister’s good friend, the European Commissioner for Internal Market and Services, Commissioner Barnier, has suggested that all commodity indices should be covered in this way. Rather than waiting for European regulators to ensure that this happens, why do we not take this opportunity to deal with the issue?

We should not just say that benchmarking means investments; it is vital that we put it beyond doubt that the question of commodities is included. It is a stitch in time to ensure that we cast the regulatory perimeter correctly. I commend amendments (a), (b) and (c) to Lords amendment 60 to the House.

[Alison McGovern]

I promise not to test your patience, Mr Deputy Speaker, or that of the House by speaking for too long. Some, I know, will be of the view that indices and benchmarks are dry, dull, technical subjects—[Hon. Members: “Never!”] Hon. Members may say that, but I suspect them of sarcasm.

I begin with an explanation of why I think this part of the legislation so important, and why the amendments tabled by my hon. Friend the Member for Nottingham East (Chris Leslie) are crucial. In my view, they relate directly to the subject that currently fills our newspapers and television screens—the indignity and horror of food banks. The reason my constituents, and those of other hon. Members, cannot just pop to the shops and buy food is that food costs more than the amount of money in their pockets. In the long term, the answer to that problem is not charity—grateful though we are for those efforts—but a food system that provides sustenance for people to buy in shops at a price they can afford. Price is not a technical, dry issue that ought to be left to economists in the academy; it should be of importance to every family, as I know it is to every MP.

Food prices unite those who are finding life difficult at the moment both at home and far away. Although I applaud the efforts of those who try to help people out, in the end we must seek a better solution. Whether we like it or not, since the 18th century this country has taken part in global trade. We had a strategic role in that which I will not bore the House with, but part of it means that we, more than others, have a special responsibility to understand global trading systems, not least the one that ensures there is enough food for us to buy here at home, and that farmers in this country and far away get paid a fair price.

This morning I was with the UN Secretary-General’s special representative for food security. He described two current problems in the commodity market that I hope will help people to realise why we must understand that phenomenon. First, global food prices are currently extremely volatile. Secondly, although prices are moving sharply up and down, they are trending upwards. That means that those most vulnerable to the price change in that commodity face an ever-worsening scenario as they try to feed themselves and their families. How can benchmarks and a better understanding of the data help? Well, when we understand those movements we can try to find out what is behind volatility in global prices.

Briefly, let me take hon. Members back in time to about 2005 until the end of 2007. Economists around the world were busy writing papers on derivatives and what we now call shadow banking, and saying that sharing risk in that way was a good idea and helped to manage investment and the finance markets globally. We now know that facts and information were available that we could not see, and my question concerns what is going on now that we cannot see, specifically in relation to food prices. Is there an issue with derivatives based on commodities? My hon. Friend has already given some indications of why we might think that.

--- Later in debate ---

[Sheila Gilmore]

Will my hon. Friend reflect on the fact that trading in commodity derivatives can skew investment and whole industries if not properly regulated? For example, I visited the jute museum in Dundee, where one display made the point that the jute lords made more from trading in futures than they made from production. That might have made them less interested in diversifying their manufacturing industry, which has completely died.

[Alison McGovern]

I thank my hon. Friend for that highly appropriate intervention. When the history of Great Britain is written, it will show that that part of the east coast of Scotland has had a great influence on economics throughout. The example from Dundee is a good one.

All hon. Members look back at global financial trading and markets and wonder how we got to the situation we found ourselves in. When the shadow banking market and complex derivatives and products were created, people became much more interested in them than in the real economy and the fundamentals of our economy. They saw the financial system as a servant to the rest of the economy rather than the other way around. I hope that view is shared broadly on both sides of the House. The Minister is nodding, but I am not entirely sure he agrees with that specific point. I will live in hope and imagine he does.

When the Minister is consulting on whether to broaden the Bill’s reach from the indices that I have mentioned to commodities, will he consider the impact of escalating food and oil prices not only on his constituents and mine, but on those who live closest to the extreme poverty line in the poorest countries? Will he consider the price of maize and wheat in very poor countries, where there is no social support system and no welfare state security net of the sort we have in this country? Will this country take a leading role in properly understanding what is happening in that market?

[Geoffrey Clifton-Brown (The Cotswolds) (Con)]

To use the increase in food commodity prices as an argument for increased control over derivatives trading is a little far-fetched. Surely increased prices have much more to do with the increased world population and the weather than they have to do with commodities trading.

[Alison McGovern]

As I have said, this morning I listened to a presentation from the UN Secretary-General’s special representative on global food security. We discussed the matters that the hon. Gentleman mentions, but there was strong interest in whether the trading of commodity derivatives has played a role or had an impact in increased prices. The hon. Gentleman may suggest that its effect is negligible, and I would be happy to see any evidence he can forward to me. As I try to understand the phenomenon, I am happy to look at numbers and think about the evidence. I am an empiricist if nothing else; we should always consider the evidence. One of the problems to date, however, has been the availability of information, and making it clear and evident for all to see. I have tried to make the point that people looking at the world economy could not, for specific reasons, necessarily see the problems relating to sub-prime mortgages. As my hon. Friend the Member for Nottingham East has suggested, we should try to get ahead of the problem and ensure that there are no longer problems that we simply do not see.

[Gordon Birtwistle (Burnley) (LD)]

The hon. Lady is making a good point, but did the person whom she met this morning give her alternatives to the derivatives and commodities markets? The worldwide food supply is decided by commodities buying. There is a drought in America, so the price of wheat goes up. There is heavy rain in this country, so we have problems ourselves. There are problems in Bangladesh and all around the world that push up the price of food. The same is true for oil; when there is a shortage of oil, the oil price goes up. Did the gentleman whom she spoke to this morning provide an alternative to what we have now? Maybe we could look at it and come up with some suggestions ourselves.

[Alison McGovern]

I thank the hon. Gentleman for his intervention and his compliment that he thinks my point is not wholly without merit, but it might test your patience, Mr Deputy Speaker, if I tried to shoehorn into the debate on the amendment possible solutions to the global food crisis and productivity in agriculture.

On derivatives, in agriculture production there is a need to hedge. There needs to be some kind of financial security to take account of unforeseen weather events and so on, so of course there is a need to hedge, but that is not what I am talking about. The question is whether some of the recent high-volume, high-speed forms of speculation and trading have had an impact on the global food price. I suspect that they might have, but it would be nice to have more information.

[Mark Durkan]

When some of us raised these issues in the previous Parliament, the then Government pooh-poohed the whole problem of speculation in relation to derivatives and so on. Does the hon. Lady share the concern that, as banks, hedge funds and all our pension funds try to work their way towards replenishing themselves after the crisis, there is a danger that they will go back to the bad ways of speculating in all sorts of commodities? Does she think the Government should prioritise this issue during their G8 presidency next year, and discuss with other Governments how to circumscribe the capacity of financial institutions to play dangerous games with this sort of speculation?

[Alison McGovern]

I thank the hon. Gentleman for his intervention, which was characteristically well made. I share his fear, and his point about the G8 is absolutely correct. It will be great to have the G8 summit in Northern Ireland. I am sure that the Minister has heard the hon. Gentleman’s point and will duly feed it back to the Prime Minister, because there is no doubt that it is important.

In conclusion, underlying what we are trying to achieve is a financial system that has appropriate oversight. Given the importance—we now know this—to our everyday well-being and comfort of what appear to be financial technicalities and bits of information that people do not necessarily connect with the realities of life, I hope that the Government will pay the most careful attention to the results of the consultation on commodities, because we might have a genuine opportunity to set in train rules that will help us to spot the awful crashes and difficult phenomena of the future.

[Greg Clark]

It is a pleasure to respond to this short but important debate.

The hon. Member for Nottingham East (Chris Leslie) referred to the heated exchanges before the summer. They were necessarily heated because they concerned a major scandal that did great damage to the country’s reputation. The whole House feels strongly about this matter because the industry is vital to the country’s economic future. About 2 million people are employed in the financial services and related industries, most of them in capacities far removed from the ability—and still more the inclination—to engage in the kind of behaviour that came to light in the LIBOR scandal. It is a particular source of outrage that many ordinary working people across the UK with careers in the banking industry have been besmirched by the behaviour of people far from them. As a result, in their ordinary working lives and in conducting their activities, they found themselves bracketed with people who were shaming an industry that they were proud to work in—an industry associated with high standards of sobriety and propriety—and it is particularly important that we act decisively and firmly against the perpetrators of the manipulation that came to light in the summer.

The amendments do precisely that. All Members will recognise the pace with which we have responded, given that the allegations came to light in late June. We immediately asked an independent reviewer, Martin Wheatley, to look into the allegation. He conducted his work over the summer and reported in September. The Government considered all his recommendations and have adopted every one of them. The fact that we are here, in early December, reaching the final stages of legislation to act on those recommendations shows that the Government and the House have taken the allegations very seriously and are acting to restore the reputation not only of the City of London, but of the financial services industry in this country. I hope that the world will see that, when something comes to light that objectively is scandalous, we will not stand by and watch it happen, but will take legislative action immediately.

I shall refer to some of the points made by the hon. Members for Nottingham East and for Wirral South (Alison McGovern). Let me deal first with the independence of benchmark providers. There are, of course, lots of different benchmark providers, not all of which—it is important to say—were associated with the problems that LIBOR and the British Bankers Association had. The Wheatley review recommended that the BBA step aside from setting LIBOR. Future administrators, which may be private, commercial or otherwise—there is no restriction—will be subject to the type of regulation powers contained in these amendments. On LIBOR specifically, the tender committee chaired by Baroness Hogg is in its early stages. We will of course update the House on the progress it makes when it considers who will operate the LIBOR benchmark in future.

Bank of England

Alison McGovern Excerpts

Monday 26th November 2012 Commons Chamber

[Mr Osborne]

Depositor preference does not exist in the UK, but it does exist in countries such as the United States and Switzerland. It is something that we are planning to introduce and it was one of the recommendations of the Vickers commission.

[Alison McGovern (Wirral South) (Lab)]

I thank the Chancellor for his announcement and associate myself with the warm words of welcome from both him and the shadow Chancellor. He has already mentioned the ring fence between investment and retail banking. Will he go a little further and tell the House what specific conversations he has had with Dr Carney about the ring fence?

[Mr Osborne]

I think that that would breach the confidentiality of the interview process, but Mr Carney will come before the Select Committee and will no doubt be asked about his views on the Vickers reforms. As I have said, he supports them and it is important—this comes back to a point made by my right hon. Friend the Member for Louth and Horncastle (Sir Peter Tapsell)—that we now have consensus across our regulatory system. John Vickers has provided that consensus. We will introduce a Bill next January. Let us get on and make that important change. We are leading the world and, interestingly enough, a lot of the rest of the world is thinking of following us in that direction.