Chris Leslie
Main Page: Chris Leslie (The Independent Group for Change - Nottingham East)Department Debates - View all Chris Leslie's debates with the HM Treasury
(14 years ago)
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Chris Leslie (Nottingham East) (Lab/Co-op)
I, too, congratulate the Backbench Business Committee and my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) on setting up this thoughtful and well-tempered debate. A number of good ideas have been shared among all parts of the House. In fact, there has been much more consensus between the Back Benchers on both sides of the Chamber than between the Front Benchers. We will see whether policy can be shaped by the virtues of our debate, because there has been quite a lot to take away from these discussions.
It is important to reflect on the wide-ranging set of reforms needed to bolster our banks against a repeat of the credit crunch and, as we all want eventually, to create a financial services industry that is sustainable and diverse, and that serves the best interests of both savers and borrowers. There are a number of significant systemic reforms that it is important to reflect on. I shall touch on many of the comments that have been made, but the first point is to look at the motion that is before us. As we can see from the Order Paper, the Government and the Opposition each tabled an amendment to the motion, although neither of us were fortunate enough to have our amendment selected. For our part, although we agree almost entirely with my right hon. Friend, the element in the motion touching on derivatives requires a little more thought.
Many commentators have rung alarm bells about the swirling volumes of derivatives activity in the past decade, with multi-trillion dollar flows and British banks holding at least £l trillion in derivatives. However, derivatives are, for good or ill, a reality of the modern global economy whereby companies and other investors gain exposure to an underlying asset or offset their exposure to that asset without actually buying or selling that asset in the first place. Derivatives are supposed to be designed to reduce risk and volatility for companies, employees and consumers. For example, an airline can hedge—or insure itself—against volatility in fuel prices by taking out a futures derivative, thereby offsetting its exposure to price changes. However, as my right hon. Friend and others have said, the problem is that betting on the future prices of financial assets has proved irresistibly alluring to traders and bankers, who can make billions off the back of this market without having to own the assets on which they are gambling.
There is therefore quite an irony in the fact that products that are intended to help alleviate risk have in many ways massively increased the systemic risk to the economy. Add to that the sheer complexity and opacity, as many hon. Members have mentioned, of some derivative products—collateralised debt obligations-squared, and so forth—and we end up with companies holding derivatives positions that their own management do not understand, failing to appreciate the risks involved. That is why the history of recent collapses has been intricately tied to that problem—including at Bear Stearns, Lehman Brothers, AIG, Long-Term Capital Management and even Barings—yet we have still not properly grappled with it.
The reason why we on the Opposition Front Bench cannot quite support my right hon. Friend’s motion is that it essentially calls for an end to over-the-counter derivatives trading and the introduction of a central clearing house. I can see the attraction of that—the standardisation of products and the stronger likelihood that the regulator could peer inside and comprehend the nature of the risks involved—but the downsides are that derivatives could not be easily tailored to the specific needs of the buyer. With the vast majority of derivatives currently privately traded between two parties, the consequences of that structural requirement for exchange trading in all circumstances could be disadvantageous. For instance, could there be a constraint on the specific maturity of the futures options? Would we be unwittingly re-injecting risk into the economy by constraining the ability to hedge responsibly?
The Opposition need, however, to recognise the urgent and far-reaching reforms that are required. Do we need an urgent and thorough review of derivatives and policy on them? Yes, absolutely: both regulators and markets need more transparency in over-the-counter derivatives activities, particularly given the possibility of greater exchange trading. By the way, we also need greater scrutiny of the role played by the credit rating agencies, as the hon. Member for South Northamptonshire (Andrea Leadsom) and others said, given that they have blessed many products with triple A ratings that did not necessarily translate into reality. Should we require greater registration and transparency in these over-the-counter deals? Yes, absolutely. There is too much secrecy, and the consequences for the taxpayer are ultimately too great.
Chris Leslie
We do not necessarily need to end all bilateral trading of derivatives, but to pick up where the G20 in Pittsburgh left off in 2009. It resolved to move towards greater exchange trading, but not necessarily the end of all over-the-counter trading. I know that we disagree on this specific point in the wording of the motion, but it is important that we should be responsible when considering some of the reforms that are being suggested. It is good that the Backbench Business Committee has enabled this debate to take place today.
I have doubts about the Government's policy on this because they are leaving it very much to the European institutions to lead on this matter, and leaving it up to the European market infrastructure regulations, which are now emerging as the only likely vehicle for reform. It is striking that Ministers are happy to be led, rather than showing leadership on this matter themselves, especially as the UK financial services industry is at the forefront of many of these activities. I urge Ministers to be far more front-footed on these reforms, rather than hanging back and complaining that details and policy are being foisted upon them.
We also need to consider some of the other regulatory shortcomings that have been raised in the debate, including those relating to bonuses, to management incentives skewing behaviour, and to transparency. I do not want to be too partisan, but I find certain aspects of this situation astonishing. My hon. Friends the Members for Streatham (Mr Umunna) and for Leeds East (Mr Mudie) said that the Government needed to show more leadership on banker remuneration. We have seen the appalling confusion and weak will of Ministers even over listing the number of bankers earning more than £1 million. Even that seems to have been a difficult step for them to take.
It is a particular shame that the Business Secretary is not here tonight—at least we have a couple of Liberal Democrats representing him here—especially as he was so vociferous on this subject exactly a year ago in his article in the Daily Mail. He described the proposal to disclose simply the number of bankers earning more than £1 million as a “whitewash”, saying that it would represent only “a small advance”. He went on to say:
“Shareholders who own the banks and the taxpayers who guarantee them have every right to know who is being paid how much and for what…Directors of public companies are already required to declare their earnings…The failure of Walker to grasp this is compounded by Alistair Darling’s meek acceptance of his recommendations. There are splits in the Government…Taxpayers sign the bankers’ bonus cheques, so we must see the names and numbers on them.”
We clearly do not need to wait to see the Business Secretary’s appearance on the Christmas special of “Strictly Come Dancing”; he is perfectly able to perform his volte-faces, somersaults and U-turns one after the other. He is performing spectacular political cartwheels more often than ever before.
Stephen Williams
Let us see whether the hon. Gentleman can pirouette his way out of this one. During the last Parliament, probably the largest piece of legislation that went through was the new Companies Bill. Given that my right hon. Friend the Member for Twickenham (Vince Cable) called at that time for more disclosure in companies’ reports about directors’ remuneration, why did not the previous Government rectify that anomaly?
Chris Leslie
It is difficult for the hon. Gentleman to criticise the previous Government, when they put the statute in place ready to be triggered by the present Government. It is baffling to my constituents and to his that we cannot allow them to see the simple figure of how many multi-millionaire bankers there are. I am not suggesting that we reveal their names, just the number involved.
Chris Leslie
I am hoping that the hon. Gentleman is going to concede that that needs to happen.
Matthew Hancock
The hon. Gentleman is making an argument for rejecting the Walker review. I was not in the House during the last Parliament. Could he just tell us who commissioned the Walker review?
Chris Leslie
I am not making an argument for rejecting the Walker review. It recommended the disclosure of the numbers, but it is true that Walker has since changed his tune. The reliance on what he calls “regulatory arbitrage”, and the suggestion that if we were to make that change here in the UK alone, we would suddenly see an exodus of the banking community, are absolutely fallacious arguments. We have a responsibility to show a lead, and surely the Government should be able to do that. It would be invidious if that were not the case.
In the short time available to me, I also want to walk through some of the other proposed changes that hon. Members mentioned. They raised issues about proprietary trading, and there are even more Government Members who are in favour of the Glass-Steagall split between investment and retail banking. There has been an interesting consensus on that. That might not necessarily be the right thing to do, but it is certainly worth consideration by the Vickers commission.
The structure of the sector has also been mentioned, as has the question of whether we need to revisit the issue of competition. My hon. Friend the Member for Edinburgh East (Sheila Gilmore) asked how we could remove some of the constraints on mutuals and credit unions, and on others entering the sector, given that the barriers to new entrants are too high. Indeed, I note the very thoughtful speech from the hon. Member for South Northamptonshire (Andrea Leadsom), who mentioned a number of interesting ideas about how reforms might take place. I was quite taken by her suggestion about consumers’ current account numbers being portable. Other interesting suggestions were also made.
Basel III and the question of cushions and reserves are clearly important for guarding against failure and reducing taxpayer liability, but do we need to pay similar attention to liquidity, as the hon. Member for Bromsgrove (Sajid Javid) and my hon. Friend the Member for Wirral South (Alison McGovern) suggested? Should certain institutions have greater cushions and reserves than others? Perhaps that is the subject for a more sophisticated debate at another time.
Other components have to be addressed as well, including the financial capability of consumers and consumer responsibility. Yes, consumers have a right to know more about the products and companies involved, but perhaps it is also important to have a debate about the responsibilities of consumers. That needs to be acknowledged. We need to revisit the question of fairness for the taxpayer, and for public service users, indirectly, as well. Unfortunately, we have heard too much back-pedalling on the banking levy and on the role that the banks need to play in repairing the public balance sheet—[Interruption.] The Minister suggests that he is not back-pedalling, but from what we read—albeit in the newspapers—it sounds as though the Government might reduce the percentages that they want to implement, as announced in the Budget, if they are going to stay within the proposed 0.04% in year one and 0.07% thereafter. I would be more than happy to give way to the Minister on that specific point if he wants to clarify that position once and for all. But perhaps he will keep that for another day. He has also been back-pedalling on net lending targets of the business, although that was in the coalition agreement.
It is important that we have these debates. They show that there is a thirst for democratic accountability on financial services policy. Perhaps one of the lessons that we learn is that simply delegating many of these issues to European institutions or to the regulators is inadequate. There is a democratic deficit, and Parliament has a role to play. Hon. Members who try to find out information on Financial Services Authority reforms and regulations sometimes struggle to get the necessary documentation from the Vote Office, which is not good enough. We need to recognise our role as legislators, because our constituents are watching how we behave. They are watching how we set policy, and they expect us to do that. We should not be blown around entirely by the regulators, by Europe and by the markets. Politicians need to lead, and Ministers need to show greater leadership, and I hope that the Government will do that.