Financial Services (Banking Reform) Bill

Debate between Alison McGovern and Pat McFadden

Monday 11th March 2013 Commons Chamber

[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.

Department for Business, Innovation and Skills (Performance)

Debate between Alison McGovern and Pat McFadden

Wednesday 2nd February 2011 Commons Chamber

[Alison McGovern]

As my right hon. Friend knows, Vauxhall Motors is close to the southern end of my constituency. Will he comment on the previous Government’s approach in setting the ground work for electric vehicles and ensuring that high-tech manufacturing, which is employing people in my constituency, is part of this country’s future and not part of our past?

[Mr McFadden]

My hon. Friend is right. The sad fact is that whereas we wanted to support General Motors in its plans for restructuring in Europe, by the time the current Government got round to making a decision on that, Vauxhall had decided to go away and sort out its own financing.

Let me turn to some of the issues that have arisen since the election. We could trade quotes from Sir Richard Lambert all day, so let us be candid about what he said last week. He said that he agreed with the Government on the deficit reduction strategy, but he thought that there was no wider vision for the economy and there was a danger that the Department was turning into a “talking shop”. That is a fair summary of Sir Richard Lambert’s speech.