Financial Services Bill

Chris Leslie Excerpts

Monday 23rd April 2012 Commons Chamber

[Mr Hoban]

Part of the challenge is that such schemes are part of a subset of advance payment schemes that are not necessarily covered by the Bill. These issues are consumer issues and I shall certainly raise with my hon. Friend the Minister with responsibility for consumer affairs where he feels that the best opportunity might be to do that and whether there are some non-statutory alternatives to regulation that will help protect the customers of such schemes.

Before I speak to Government amendment 3, I can let my hon. Friend the Member for Enfield North know when the research will be published. The research project will conclude this summer, and given that the transfer of consumer credit to the FCA will not take place until 2014, that gives us time to act. That is not to say that nothing is happening in the meantime in the regulation of consumer credit: the OFT is doing a great deal of work in that area. I am as keen as he and others are to ensure that the matter is brought to a head as soon as possible, so that the right protections are put in place for our constituents.

Government amendment 3 aims to improve the drafting, following the close and valuable scrutiny in the Public Bill Committee. In Committee, questions were raised about the appropriateness of “supply”, and the amendment clarifies the Money Advice Service financial education function so that it should include the promotion of awareness of the financial advantages and disadvantages relating to issues that may arise over the lifetime of the product, not just to the initial purchase or supply of a particular good and service. The function might include, for example, promoting awareness of the financial advantages and disadvantages of a person exercising the right to receive part of their pension savings as a lump sum, or the financial advantages or disadvantages of the various options open to a person who is having difficulty paying their mortgage.

I am confident that the Bill as it stands already provides for such matters to be covered by the Money Advice Service financial education function, but the amendment helpfully clarifies the scope of the MAS’s specific duty to promote awareness of the advantages and disadvantages of particular goods and services. I am grateful to the Members who raised the matter in the Committee, and I hope that the amendment addresses their concerns.

Amendments 37 and 55 would affect the functions of the MAS. Amendment 55 would require the MAS to support the provision of legal advice in relation to personal debt, with funding received from the Ministry of Justice to support that work. The amendment would reinstate changes to legal aid in the Legal Aid, Sentencing and Punishment of Offenders Bill. For the reasons clearly set out by my right hon. and learned Friend the Justice Secretary, we cannot use the Financial Services Bill to compensate for reforms to legal aid in the other Bill as a roundabout way of maintaining funding for not-for-profit bodies; moreover, effectively reinstating those categories in the scope of legal aid means reinstating legal aid for all legal advice, not just for those in not-for-profit organisations.

Amendment 55 is not required because the Money Advice Service already has sufficient responsibility and funding to assist members of the public with debt management. The MAS and other organisations provide debt advice directly, including by advising people who are facing difficulties with debt on the options available to them and the possible legal ramifications. For example, they provide advice to people who are at risk of losing their home and advice on options to resolve their financial difficulties. Any debt adviser trained to intermediate level can give advice on such matters as a matter of course. In contentious areas of law, such as the impact of insolvency or immigration status, an adviser could seek external advice. Similarly, if a non-debt issue arose, or substantive legal advice was required, an adviser could refer the client to a specialist solicitor. I therefore do not think the amendment is necessary, as the MAS and other organisations, through their debt advice services, already advise people facing difficulties with debt on the impact of the law on their situation.

Amendment 37 would require the MAS to provide

“targeted, proactive and easily accessible advice to those encountering economic disadvantage, financial exclusion or financial exploitation.”

I am sympathetic to the intention behind the amendment: clearly, the service provided by the MAS should encompass such groups of people. However, as I said in Committee, one of the key features of the Money Advice Service is the breadth of consumers it is there to serve. Millions of people can be vulnerable to poor money management at any point in their lives, especially as they experience key life events. Similarly, many people, regardless of their financial circumstances, may not know where to turn for impartial financial advice, or may not know that they need information and advice in the first place. I therefore do not think it appropriate for the legislation to prescribe which groups are in most need of the service. By focusing the Money Advice Service on particular groups, we risk neglecting others who may be equally in need.

It is clear to me, from discussions I have had with the management of the Money Advice Service, that they recognise the need to provide support across a wide range of people. They also recognise the importance of face-to-face debt and money advice and the importance of ensuring the right channels of support are there to help those in need of financial advice—for example, those who need guidance on how to get out of debt or how to protect their families in the long term. I believe the MAS is acutely aware of its broader social obligation.

The group of amendments before us raises important issues that impact on many in our constituencies. The action that we have taken to tighten the consumer credit regime by moving consumer credit from the OFT to the FCA is the right way to proceed. This is a dynamic and changing market, and one of the great advantages that the FCA brings is the opportunity to keep issues such as the cost of credit under review and to make sure that it responds in a timely manner to help protect our constituents in these difficult areas.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

I suppose the Minister is right in one respect. This long group of amendments under the catch-all heading “Consumer protection” raises many issues about which our constituents care deeply. It is just a shame that the Minister is resisting and rebutting almost all of them, except the Government amendments. But I do not want to sound too churlish. He has conceded—we have managed to extract—one minor concession from the Government in Government amendment 3. I therefore feel that all those hours and weeks in Committee were productively spent, and for that small measure I am grateful to the hon. Gentleman.

Time is short so I will comment on the series of amendments tabled by the Minister, and then on those in my name and that of my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson). Government new clause 4 sets out a series of order-making powers for the Treasury in respect of the transfer of regulation of consumer credit matters from the Office of Fair Trading to the Financial Conduct Authority. I am grateful for the clarification of the Government’s intentions. My comments on this and the consequential amendments in the group relate to the time scale for these arrangements. The new clause sets out the paving changes rather than the regulations, saying that the Treasury may well make these orders in due course. It gives a sense of the architecture of those and the fact that most of the powers available to the OFT under the Financial Services and Markets Act 2000 will be available to the FCA and so on, but we do not yet have the time scale for those orders to be made and to take effect.

Many loose ends remain, even after the amendments. How will the local weights and measures authorities dovetail with the new arrangements, the FCA and so forth? What is holding the Government up in making those changes, publishing the new arrangements and making it clear to those who may be slightly concerned that the transition period could create a sense of limbo in which a number of issues fall between the gaps? We do not want consumer credit arrangements to be put on the back burner during the transfer—quite the opposite. We need this time more than ever to help consumers who are under strain on various fronts, as is pointed out in the amendments tabled by my hon. Friend the Member for North Ayrshire and Arran (Katy Clark), the hon. Member for Eastbourne (Stephen Lloyd) and others.

New clause 9 in my name seeks, as the Minister mentioned, to require the Financial Conduct Authority to produce recommendations within a year of the commencement of the Act to phase out the practice of directly charging consumers fees or charges for the provision of debt management plans.

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[Lorely Burt (Solihull) (LD)]

I have a huge amount of sympathy with the hon. Gentleman’s points about some companies that prey on some of the most vulnerable in our society who are in fear of the debt collector knocking on the door. However, would he tar every debt management company with the same brush? I have experience of companies that behave responsibly and extend a great deal of help to people to manage their financial affairs.

[Chris Leslie]

That is a fair intervention. No, I would not say that they are all the same. There are companies, even those that may for some reason be using this fee charging process, that want to do the right thing, but my point is that that business model has had its time and needs to go. There is a better way, whether it is a for-profit or a non-profit avenue, for debt management consolidation to take place, and that is to tell the creditor that this is a way for them to get some money back, albeit not necessarily the full amount, from those heavily indebted customers who may owe them something, and in exchange for getting something back they have a duty as a creditor to stump up some of the cost for the administration of that consolidation. It is time to end the business model that has a propensity to cause hardship, not in every single case, but in too many cases, and that is why the Opposition believe that this is a perfectly reasonable new clause to bring forward.

New clause 10 concerns mortgages. People may well ask where the problem is at the time being when mortgage rates are at a low level, partly because the Bank of England is printing so much money that we end up with a low base rate. But the Governor of the Bank of England has been warning in a number of reports that this is an unsustainable situation and that over the medium term he expects interest rates to normalise. From the Bank of England’s point of view, whether the normalised interest rate is 4% or 5% is moot, but it is certainly much higher than the current rate.

My anxiety is that many consumers up and down the country might be under the false impression that this is a normal period, but it is not. If the mark-ups that the retail banks charge on the wholesale cost of borrowing are maintained as base rates or LIBOR rise to a more normal level, the mortgage rates that our constituents pay could end up being significantly higher, at 6%, 7% or 8%. I suspect that the difference between the price the banks pay wholesale for their money and the amount they charge customers upfront has been growing and is too wide. As soon as LIBOR creeps up, if that mark-up is maintained, we could be in serious difficulties, which is why the new clause is essential at this time.

This is a stitch-in-time new clause. We have tabled the proposal because we believe that now is a good time to require all the banks to forewarn their customers about a number of possible scenarios so that home owners with mortgages have the information necessary to prepare for them. Often when those of us with mortgages get information from lenders it is a set of retrospective information, for example on how much we have paid to defray the cost of our mortgage. We believe that it is now essential to forewarn customers about what could come in future, because we have to find a way of ending shocks to consumers, especially when changes to standard variable rates can sometimes be made with as little as two weeks’ notice.

[Alun Cairns]

I am trying to follow the hon. Gentleman’s argument, but how on earth could any individual or organisation predict with certainty what will happen in future?

[Chris Leslie]

The hon. Gentleman is right that it is impossible to predict with certainty, but this is about scenario planning and preparedness. He will know that the Governor of the Bank of England has been saying what he regards normalised base rates to be, broadly speaking. Does the hon. Gentleman not think that our constituents, especially those on variable interest rates—this might not apply to all customers with mortgages, some of whom might have fixed rates—ought to be able to see when their rates fluctuate because of the fortunes of the base rate or, as is often the case, the standard variable rate determined by their bank, and does he not think that those banks ought to help their customers plan for the future? If we end up yet again with a cycle in which people find that they cannot make their payments and their homes are repossessed, we will all have those constituents in our surgeries.

Let me give the hon. Gentleman an example. A couple of weeks ago Halifax announced that it would increase its standard variable rate by 0.5% from 1 May. RBS NatWest has done similarly, as have Clydesdale bank, Yorkshire bank and Bank of Ireland. In my view, all those increases are the result not of base rate changes, but of the fact that those banks are looking to repair their balance sheets not by squeezing remuneration and bearing down on the senior executive management costs that we all know they have, but by trying gradually to take a little more money from consumers. That is why we need a warning for customers in these circumstances.

[Alun Cairns]

I fail to understand the logic of the hon. Gentleman’s argument. If someone’s financial position at the time they take out a mortgage is relatively precarious, they probably should not have the mortgage. Furthermore, to take the logic to the next step, surely a fixed rate product would be better for those people and they should not have been on the variable rate product in the first place, so why on earth are we asking banks through additional regulation to make such predictions when it is meaningless in the reality of life?

[Chris Leslie]

We are doing this because the hon. Gentleman and I are here to represent our constituents, some of whom will be on variable rate mortgages in these circumstances. All we are saying is that we want all the banks to warn of the potential impact of rate changes across a range of scenarios. It is about helping customers anticipate what might be around the corner. It is as simple as that. The banks will give all sorts of reasons for increasing their standard variable rates. For example, they claim that costs make it difficult and often cite the special liquidity scheme, which is now beginning to taper off so the taxpayer safety net is beginning to come away, but taking more and more from consumers is in many ways unfair. I think that Lloyds bank recently borrowed many billions from the European Central Bank as part of its long-term refinancing option, so there is cheap money available wholesale for the banks. We have to keep an eye out for the way they sometimes seek to make an excessive profit off the backs of ordinary mortgage customers.

[David Rutley (Macclesfield) (Con)]

I appreciate the rationale that the hon. Gentleman is putting forward and that he is trying to protect customers, but I have to agree with my hon. Friend the Member for Vale of Glamorgan (Alun Cairns) on the impracticality of the proposal. There now seems to be a tendency to make proposals on single products, but the Bill is about financial stability in the round, which we are trying to achieve, so is he seeking to introduce a similar forewarning system for savers on fixed incomes, who find interest rate changes equally worrying?

[Chris Leslie]

There might well be a case for that, but we are talking about people’s homes and the roofs over their heads. Repossessions can seriously hurt people, especially if they were unable to anticipate the situation because of a shock or unpredicted changes to their interest rates. As I have said, this point in the cycle is the right time to make this sort of change. It is about preparedness and information for home owners, and I feel strongly that we ought to have that in statute. If the Minister does not agree, this is certainly one of the issues on which we want to test the will of the House.

[Mark Garnier (Wyre Forest) (Con)]

Will the hon. Gentleman give way?

[Chris Leslie]

I will give way, but there are a number of other amendments I have to talk about.

[Mark Garnier]

I am incredibly grateful to the hon. Gentleman. He talks about an incredibly significant problem in this country: the £1.2 trillion-worth of mortgage debt for all the people of this land. What he is describing is a steepening in the yield curve, but that could also be the result of an increase in deposit rates, so what could be taken away with one hand could be a result of giving with the other hand. What I am really struggling with in the new clause is how he envisages mortgage lenders being able to deliver the warning, given the fact that he defines a shock in interest rates as something that cannot be predicted. Moreover, how does he envisage this working in practice?

[Chris Leslie]

The hon. Gentleman might know that in annual pension statements, for example, in the key facts documents a number of scenarios are put forward for what the pension might be worth under a range of growth options, such as annual growth of 3%, 5% or 9%. All I am seeking to do is ask the Financial Conduct Authority to consider a way of giving a range of scenarios and helping to provide information for customers, which would not be impossible. That is why I think that that is necessary for mortgages. I hope that hon. Members on both sides of the House will support what is a pretty modest change. It is something that I know we are all concerned about. The Government definitely need to go away and look at the issue again.

Amendment 37, which also stands in my name, relates to the Consumer Financial Education Body, which we now call the Money Advice Service. We are seeking to amend the Bill so that it specifically targets

“proactive and easily accessible advice to those encountering economic disadvantage, financial exclusion or financial exploitation.”

In our view, it is vital that the Money Advice Service focuses as much effort as possible on the vulnerable and those susceptible to problems, whether as a result of misinformation or choices made in financial investments. We know already, from examples in our surgeries, that those on the lowest incomes—the most vulnerable in society—need to be better protected in legislation, and that is why the new clause has been tabled.

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[Chris Leslie]

I appreciate the hon. Lady’s comments, but if she cannot support the new clause, will she at least join me in encouraging the regulator to ensure that all banks think about informing customers of potential interest rate changes as a matter of course? One bank doing it would not be enough; we need them all to engage in that forward planning.

[Lorely Burt]

I agree entirely, and we already have a provision to enable that to happen.

My hon. Friend said that one building society requires customers to save with it before getting a mortgage there. When I had my first mortgage, more years ago than I care to admit to, that was the norm. People were expected to be a customer of a building society before getting a mortgage from it, which encouraged a way of saving that we seem to have lost in many areas of our society. I support the sentiment behind the new clause, but I do not believe we need it.

New clause 12 calls for a review of prepayment schemes, including an analysis of whether customers should be preferential creditors in the event of insolvency. The Farepak issue, and the tragedy of its customers, is emblazoned on our minds. Victims of other financial schemes such as Equitable Life still write to me virtually every week, but the new clause relates particularly to prepayment. Many structural issues contributed to Farepak’s demise and they need to be addressed. Many unsecured creditors suffer when such a company collapses. I am attracted to the idea of giving prepayment scheme customers a form of secured creditor status, as the hon. Member for North Ayrshire and Arran (Katy Clark) suggests. The Minister has advised that such a measure is not appropriate within the remit of the Bill, because a prepayment company is not a financial services company, but perhaps he could advise us on an appropriate route for looking at the proposal in a little more depth.

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The mortgage market review is currently out to consultation. One of its provisions requires lenders to think about the impact of interest rate increases on the ability of borrowers to service their mortgage debt. That is a helpful move, because the hon. Gentleman was right to make the point that interest rates could increase and that that could have an impact on family finances. Tools should be available to help families to budget and to think about the impact of mortgage rate changes. Lenders should ensure that that is easily accessible, and the Money Advice Service and others operating in this field should ensure that calculations or ready reckoners are in place. I do not think provision for that is needed in the Bill, but I do think it is an important topic that we must consider.

[Chris Leslie]

I welcome the Minister’s comments. Setting aside whether he thinks the new clause should be added to the Bill, he seems to be saying that he agrees it would be a good idea in principle to encourage all banks and other lenders to engage in some sort of forewarning of customers. Does he agree that if he says that is a good idea and the Opposition think it is a good idea, that sends a signal to the new regulator to make that a priority?

[Mr Hoban]

I do not think this needs regulatory action. I think it is in the interests of lenders to provide the right information to their borrowers to enable them to plan ahead, however, because it is not in the interests of lenders for borrowers to fall into arrears as a consequence of increases in interest rates. That is why it is important that potential changes in interest rates are considered in lending decisions and that information is available to help borrowers to think about the impact on their circumstances of changes in interest rates. I do not believe that is necessarily a regulatory matter; rather, I think it is in the interests of firms and their borrowers that such information be available.

On the issue of consumer credit, I do not think amendment 40 is necessary. The Treasury is confident that a range of powers is in place to help people in respect of payday lenders and high-cost lenders. I do not believe new clause 10 is necessary either, but I think it is in the interests of lenders to ensure that the information in question is available.

On new clause 12, the hon. Member for North Ayrshire and Arran (Katy Clark) spoke very powerfully about the Farepak issue and how to protect such consumers in future. We must recognise, however, that there is a cost attached to any additional protections for consumers, and that it will, to some degree at least, be borne by consumers.

The question of the regulation of prepayments is complex, as was evident from the work done by the previous Government after the publication of the “Pay now, pay later” report by Consumer Focus. There are no simple solutions, particularly when we want to ensure that vulnerable consumers or those on low incomes can still access the goods and services they want. Introducing some form of set-aside or ring-fencing of funds or some form of insurance in order to be able to compensate consumers in the event of an insolvency can impose significant additional costs on businesses and therefore potentially on consumers. Several industry sectors have concluded that the gains from increased consumer confidence outweigh the costs, however, and have gone ahead with sector schemes. We will continue to monitor this topic. My hon. Friend the Member for Solihull (Lorely Burt) asked who was the right Minister to pursue in this regard: I suggest it is the Minister responsible for consumer affairs, the Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for North Norfolk (Norman Lamb).

The hon. Member for North Ayrshire and Arran also asked about credit hierarchy. That is an important subject, and I am very conscious of delays in making payments to the Farepak creditors. We must, however, bear in mind the fact that one of the aims of insolvency law is, as far as possible, to achieve an equitable distribution among the unsecured creditors. Those unsecured creditors could, of course, include small suppliers for whom the debt from a prepayment scheme could result in the failure of their business. There is therefore a difficult balance to strike.

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[Mr Tyrie]

I am grateful for that support from my Committee colleague. Competition is now one of the operational objectives, but the punch of the FCA’s three operational objectives has been diluted by the fact that an overarching strategic objective has been placed above them, and it could be used to trump the operational objectives and enable the FCA to avoid a primary duty to take account of competition. I completely agree with my hon. Friend.

The PRA veto on the FCA’s work as a whole is another issue that the Committee has raised from time to time, but I must admit that it is not covered by this group of amendments. I shall therefore move on swiftly before I am ruled out of order.

It is now common ground that the proposed governance and accountability of the Bank and the FCA are defective and need to be strengthened. The Committee is determined that they should be strengthened. We regret that they are not already in much better shape, and there is a great deal of work for the other place to do to the legislation. As a Committee, however, we showed by our decision on the need to obtain a full explanation for RBS’s failure that we would not hesitate to take new steps in order to get information that we think should be in the public domain. We took the unprecedented step in that case of sending specialist advisers into the FSA to conduct a full investigation. It should be made clear now that we will not hesitate to do the same with respect to the Bank of England if this legislation remains defective. Sending in specialist advisers was a somewhat cumbersome route to getting to the facts of the RBS issue, and it would be far preferable to improve the Bill so that such action by the Committee would no longer be necessary.

The bottom line for improving Bank accountability, to its own board and to Parliament, should be judged by two criteria. First, does the proposal hold out the prospect of improving the performance of the institution—that is, the quality of public policy? Secondly, does it help secure public consent for the decisions that that body takes? The latter is particularly important for an institution as powerful and as remote, in many respects, as the Bank of England. The Committee believes that new clause 1 would meet both those criteria and I commend it to the House.

[Chris Leslie]

I thank the hon. Member for Chichester (Mr Tyrie)—or is he right honourable? If he is not, he should be. I thank him for his eloquent and powerful advocacy of new clause 1. The Treasury Committee has done sterling work in trying to cajole and persuade the very reluctant Bank of England to move from the 18th century to the 19th century. If we could speed things up a little through his new clause, that would certainly be welcome. The hon. Gentleman is not exactly asking for the moon on a stick; he is simply asking for the publication to a reasonable degree of the minutes of the court of the Bank of England—shock, horror—and for proper internal scrutiny in the Bank and a review of how it has performed. The hon. Gentleman is entirely correct that it is appalling that the Bank of England has never conducted a review of its role in the 2008-09 crisis. Every other branch of government, including the FSA, has done similarly and I would have thought that such a review would be a pretty basic prerequisite for moving on, especially if we are moving to a new era when the Bank of England will be incredibly powerful thanks to the great news powers that the Government wish to bestow on it.

The Bank of England is an old institution. It started life in 1694 with just 17 clerks and a couple of gatekeepers, and it has subsequently been modernised by a number of Acts of Parliament. It is time, however, for it to become less of an honorific institution. The court should be made up of individuals who really take seriously the responsibility to scrutinise the performance of the executive of the bank, and the hon. Member for Chichester made his points perfectly well. As he says, it is like getting blood out of a stone. Some sort of oversight committee might, as the Minister said in Committee, be able to conduct retrospective reviews. The hon. Member for Chichester is entirely correct that it is ridiculous for only a record of the minutes to be published.

I will support the hon. Gentleman’s new clause, if it comes to it, but I suppose we should wait to hear what the Minister has to say. I shall not dwell on the new clause, though, as the group includes many other amendments which address a range of issues on the governance of the Bank of England and the new regulatory structures, and we have a very short space of time in which to debate it. I have, I think, 11 amendments in the group. I will not dwell on them all; I will focus on the key ones.

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[David Rutley]

There is a sense of déjà vu, as the Bill Committee spent a lot of time debating this measure. The hon. Gentleman talks about what he perceives is the present Government’s blind spot, but the previous Government’s was clearly a regulatory system that was woefully inadequate to cope with the challenges that came its way and was found wanting. What the Bill aims to address is financial stability and to make it a core focus. Why does he want to diffuse the focus at a time when the key element we have to tackle is financial stability? Government policy more generally tackles what he wants.

[Chris Leslie]

This goes back to the odd statement from the Minister in Committee, when he said it would be wrong for the Bank of England and the FPC to be asked to have regard to the impact of its decision on economic growth and employment. I ask the hon. Gentleman to pause and reflect on what he is saying, which is that it is not the Bank’s and the FPC’s job to think about jobs and growth. If he goes to his electorate and says that that is what he is legislating for, I doubt he will get much of a response, but it is important. The FPC will be a vital player in our economy. The Monetary Policy Committee has this objective in its remit; it seems only reasonable to have it mirrored in the Financial Policy Committee’s remit.

This attitude, which we called the Fareham doctrine of compartmentalism, that it is for the Treasury alone to think about jobs and growth—that it would be wrong and somehow dangerous for the Bank of England to think about such issues too—is an extremely dangerous way to think about this vital and extremely powerful institution. The Chair of the Treasury Committee said that, in certain ways, the Governor of the Bank of England could become even more powerful than the Chancellor of the Exchequer. I want all the players in our economy to be thinking about the impact of their decisions on our constituents, their employment prospects, their business prospects and the prospects of growth.

I think the amendment should be made. It is exceptionally important, and I feel strongly that we should press the matter. In a sense, it is similar to amendment 24. In the Bill, we enter new verbal territory with descriptions of how policy will be made. I know that many Members are intimately familiar with macro-prudential regulation, but essentially, it is that suite of rules and powers that the Bank of England and the FPC will be able to use to intervene in their systemic oversight of the economy as a whole. We suggest simply that every time the Bank of England produces a financial stability report it should give an assessment of the impact that each of the new macro-prudential measures will have on employment and growth—a simple assessment of their impact on the real economy. As the Bill stands, there is no requirement on the Bank of England, when exercising those massive powers, to provide that assessment. As the House knows, in many policy areas, we require frequent regulatory impact assessments to be made; this is a parallel requirement. We want the Bank of England properly to analyse the impact of the measures.

Let me give hon. Members some examples, so that they understand what macro-prudential regulation is. It is about setting maximum leverage ratios; sectoral capital requirements; rules on the terms of or the conditions on a loan, either to businesses or to consumers; loan-to-value ratios and loan-to-income ratios in mortgages; haircuts on secured finances or derivative transactions; disclosure requirements; and minimum credit card repayment levels. All those things are of real and great concern to our constituents. If the FPC and the Bank are able to assess the impact of their policies on credit availability, they should also be able to assess and analyse their impact on jobs and growth. Amendment 24 would achieve that.

[David Mowat]

I thank the shadow Minister for his lecture on macro-prudential tools. I was on the Joint Committee and I certainly did not recommend the inclusion of a growth objective, because I believe that stability and growth are potentially competing objectives. We are passing the Bill because of what happened in October 2008. I was concerned that anything that diluted the absolute requirement for stability might give an excuse for failure, which I did not want to arise.

[Chris Leslie]

It was the Chancellor of the Exchequer himself who warned against the stability of the graveyard. We have to have joined-up Government and co-ordinated economic policy—I hope hon. Members accept at least that much. It should not be impossible to ask the Bank of England simply to have regard to Her Majesty’s Government’s strategy—not the Opposition’s; obviously, ours would be different—and objectives on growth and jobs. That is all we are saying. We are not saying that that should overrule the broader stability objective of the FPC. It is a simple bit of wiring to make sure that we have joined-up Government and that all the branches of Government talk to one another.

[Stewart Hosie (Dundee East) (SNP)]

I support the amendment in principle, but surely it should have referred to a range of impacts, in the sense of a fan chart? It is not just macro-prudential tools, of course, but the impact of those with monetary policy, which may change —it may tighten or loosen—and fiscal policy, which may also have the impact of tightening or loosening monetary policy.

[Chris Leslie]

I accept that. It gets to the nub of the issue. There is no single variable that has an impact like pulling a lever and an economic outcome comes along down the track. A number of factors combine to create an economic outcome. That is why people say it is sometimes more of an art than a science, but in so far as there is an ability to make projections or to measure, that assessment is needed. I hope it could be as sophisticated an assessment as the hon. Gentleman suggests.

[Guy Opperman (Hexham) (Con)]

I endorse the points made by the Chair of the Treasury Committee. Is it the accepted view on the shadow Front Bench that the promotion of competition is the key objective?

[Chris Leslie]

We want to see more competition in the financial services sector. That is an important aspect of improving choice and reducing costs for consumers, but essentially the amendments that I have been discussing relate to prudential regulation. I do not think the competition argument necessarily supersedes that.

I agree, and there is cross-party support for this, that we need to improve prudential regulation within our financial regulatory system. There is a degree of consensus in that area, which is why we did not vote against the Bill on Second Reading, for example. The question is how that pans out. The Chair of the Select Committee began his comments by saying that the Bill is defective in a number of regards and needs significant improvement. Amen to that. I agree. That is the problem and that is why I have so many concerns about aspects of the Bill, particularly in clause 5, in respect of the way the Government are choosing to divide up the regulators.

I must move on. Another area about which I have concerns is the Government’s refusal to accept that the Bank of England should be under a duty to minimise the use of public funds—to minimise the recourse to taxpayers’ money—in order to support or rescue parts of the UK financial industry. If we were all to go back to our constituencies and explain what we were doing on Monday, we would say that we had been talking about the Financial Services Bill. Most of our constituents would say, “Good. Does that mean that the taxpayer is not going to be on the line to bail out all those banks again in the future?” and of course we would all want to say yes. That is the whole purpose of what we are supposed to be doing here.

One of the most important things we need in the Bill is a provision to ensure that the system is designed such that any changes or rescue arrangements will not burden the taxpayer in the future. It is important to specify that the Bank of England should take responsibility for minimising that likelihood. It is a pretty straightforward amendment. These should not be partisan issues. That aim should be at the heart of the Bank’s financial stability objective. We know about the costs of bailing out the banks and how those have hit public finances.

Having heard the Minister’s entreaties in Committee, the hon. Members for Wyre Forest (Mark Garnier) and for West Suffolk (Matthew Hancock) and others said that the our earlier amendment was deficient because it would have placed a duty on the Bank of England to minimise the use of public funds. I have thought about that carefully and come back with an amendment that simply requires the Bank to have regard to the need to minimise that. I hope that removes any worry about justiciability, which was one of the arguments upon which the Minister relied to rebut the suggestion in Committee. I do not think it is reasonable to say that it will blur or confuse the issue if we ask the Bank of England to keep in its mind’s eye the impact that any of its decisions will have on public funds. Ultimately, most of our constituents would expect us to legislate today to minimise the recourse to public funds. I hope the Minister will accept the amendment. If not, the other place will return to the issue.

The hon. Member for Chichester pointed to amendment 53 in my name and that of my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson) about parliamentary scrutiny. For this House, it is an incredibly important issue and I know that Members on the Government Benches feel strongly about it too. We are giving the Bank of England extensive new powers that will affect businesses, consumers and our constituents. We still do not know what these macro-prudential tools will be. We had a report from the Bank of England last December intimating that they may touch on certain aspects of loan-to-value ratios, although Paul Tucker, the deputy governor at the Bank of England, said the other day, “This looks like hot stuff. Maybe it’s too hot for us to handle at the Bank of England.” Maybe that is for the Treasury to decide. I think the Bank of England recognises that there is an accountability deficiency. That golden threat of accountability does not lead back to Parliament, as it should.

[Mr Hoban]

We have spent a lot of time discussing the issue. Does the hon. Gentleman not remember that the power to grant macro-prudential tools is subject to the affirmative procedure? There is a role for Parliament to play. My right hon. Friend the Chancellor said on Second Reading that he hoped that that debate would take place on the Floor of the House.

[Chris Leslie]

That was a minor concession but, as we can see, we have possibly an hour and a half to debate a major macro-prudential tool—and only the Treasury’s order to enact the power in principle for the Bank, not the actual use of that power by the Bank. That would be delegated to the Bank.

[Andrea Leadsom]

Will the hon. Gentleman give way?

[Chris Leslie]

I will give way to the hon. Lady as I know she has thought about the matter in great depth.

It is important that we look at the work of the European Scrutiny Committee, for example. As hon. Members know, there is a steady stream of regulations coming from Brussels. Members of the Committee try their best to grapple with those, pick the most important ones and have a debate, albeit upstairs in Committee. When there are important issues, the measure is brought back to the Floor of the House for a vote. Ideally, I would like the Treasury Committee to deal in the same way with the sets of regulations that come on the conveyor belt from the Bank of England, but it has enough on its plate as it is. Perhaps we need a sub-committee of the Select Committee. Some sort of financial services scrutiny committee is required, with the time and space to go through the ramifications properly and thoroughly. Yes, then let the measure come back down under the affirmative procedure, but it is super-affirmative procedure that is necessary. That is essentially what we are doing.

We cannot amend the Bill to affect the Standing Orders of the House. That must be decided as a separate arrangement. What I am doing in amendment 23 is suggesting that there should be a longer period of time to allow the House to conduct its own inquiries into these issues. Essentially, I have cut and pasted the procedure under the Public Bodies Act which was recently passed by the Government, whereby if they wanted to abolish any quangos, the relevant Select Committee should have time and space to conduct its inquiries. That is, I hope, an appropriate way of allowing space for better parliamentary scrutiny.

I apologise to the hon. Lady; I know she wanted to come in.

[Andrea Leadsom]

I am grateful to the hon. Gentleman. He has probably given me the reassurance that I was seeking. It is not that we do not want the Bank of England to have those powers. In the past a lack of accountability and of central management has led to some of the problems that we saw during the financial crisis. It is not a question of focusing the authority and the powers within the Bank. It is a question of the accountability of the Bank in implementing those powers. Does he agree?

[Chris Leslie]

Absolutely. That is right. We are not saying that these powers might not be necessary. However, let us say, for example, the Government and the Bank consider it necessary to lean against a consumer credit bubble. They want to change the minimum repayments that our constituents make on their credit cards from 2% a month to 5% or 10%. That will have a big effect on our constituents. Imagine us going back to those constituents when they complain to their Member of Parliament, as they undoubtedly would, and ask, “Whose decision was that?” We would say, “It was the Bank of England’s decision. We voted on this in theory a couple of years ago, but now the Bank has pulled the lever and pressed the button, and this has happened.” There would be great anger. The public would expect us, at the very least, to have had the opportunity to debate and discuss that in more thorough and substantive detail, albeit in a Committee. That is all we are suggesting in the amendment.

[Stewart Hosie]

The hon. Gentleman is absolutely right that there would be anger, but there would also be economic consequences. If one of the macro-prudential tools invoked was a change in sectoral capital ratios, which impacted to ration mortgages, and there was a 60-day consultation period, the impact in the market, either with deals being rushed through or deals being abandoned, might be as bad. Has he considered the downside of putting such information into the public domain for such a prolonged period?

[Chris Leslie]

I did indeed consider the downside of having parliamentary scrutiny that might in some way impact adversely in an emergency scenario. We have not sought to amend the provision that would allow the Treasury to bring forward those orders in an emergency situation. It could do that. We could have retrospective scrutiny of that order once it had come into place. These are for ordinary, normal times scenarios. The amendment may be imperfect. I would have liked a proper way to deal with the issues, but there has been significant resistance along the way for such measures.

[Mr Tyrie]

Does the Opposition spokesman agree that what we really need is a commitment in principle to a super-affirmative procedure in normal circumstances for the majority of these macro-pru tools?

[Chris Leslie]

I totally agree with the hon. Gentleman. That is the very least that we should have. I simply counsel the House that many hon. Members are already under significant pressure because of the European rules and regulations that seem to come from an unaccountable place. It is not entirely unaccountable, but it can sometimes feel that way to our constituents. If we end up with a situation where we do not put in place at this stage the right parliamentary scrutiny arrangements, we are potentially opening up another front where a powerful institution, unelected and seemingly very distant from our constituents concerns, could have a major impact on their day to day lives, and we would be sitting here twiddling our thumbs unable to do anything about it, never mind even to debate it. We have had debates in the past on the retail distribution review and other examples where there has been massive frustration in the House about the lack of an accountability thread between parliamentarians and regulators. That would be magnified many times over if we did not put in place the right arrangements.

[Mr Hoban]

Does the hon. Gentleman believe that Parliament should override the detailed rules of regulators?

[Chris Leslie]

In certain circumstances, Parliament should be sovereign. That is an important principle in our constitution. I do not think that regulators should be able to override Parliament, if that is the Minister’s suggestion. I am pretty sure it is not. Ultimately, in certain circumstances, Parliament should be able to make the final decision. That is an important cornerstone of our constitution.

[Alun Cairns]

It would helpful if the hon. Gentleman could outline some of the circumstances in which Parliament should overrule the regulators.

[Chris Leslie]

It is entirely hypothetical. Of course we cannot do that at this stage, but there might be circumstances. I will remember the hon. Gentleman’s intervention for the many years that he will be in Parliament for when the time comes, if it comes, that he disagrees with a particular outcome of a regulation as it affects his constituents.

Amendment 35 talks about the impact of many of the changes within the regulatory system on consumers, particularly those on lower incomes. We believe that the FCA should have enshrined in its objectives a commitment to consider how easily consumers are able to find products that are appropriate to their income, and more broadly, products that provide value for money. In difficult times as incomes are squeezed it is right that consumers feel that they have a regulator that is on their side. If we are creating a genuine consumer champion in the FCA, it is important that it has a set of objectives and values that reflect that, particularly for those on the lowest income. It is a similar argument to that made in the previous group of amendments in respect of the Money Advice Service. We have seen excessive overdraft charges, high interest rates, and charges for hidden services. Those require a genuine consumer champion and this amendment would help to create that.

Amendment 36 would also shift the balance in favour of the consumer. It would introduce what is known as a fiduciary duty of care by authorised persons, by financial services providers, towards the consumers who are their clients. “Fiduciary” means holding in trust, holding in good faith, a concept that would help to rebuild confidence among the public in financial services. There is a serious lack of trust at present that is bad for consumers, providers and society at large. The Bill contains no explicit obligation on firms to avoid conflicts of interest, nor to profit at consumers’ expense without their knowledge and consent, nor to have undivided loyalties and duties of confidentiality to the customer. The pre-legislative scrutiny Committee commented on many of these aspects and recommended that some action be taken. Although the FSA has recently had its treating customers fairly initiative, we do not think that that is enough. We believe that a fiduciary duty of care is necessary, especially in the light of some of the major concerns of mis-selling scandals and the need to learn lessons from those.

Amendments 33 and 34 relate to the costs and expense of establishing the FCA and PRA, splitting the FSA into those component parts. I apologise for rattling through these. We have to minimise unnecessary additional expenses incurred, because ultimately the consumers will pay. The FSA’s budget for 2013-14 has gone up by 15.6%. I accept that the new regulatory system will have some costs involved in that, but the majority of those costs are operational and not necessarily related to the principles of regulation involved. It was a bit of a joke to see in the White Paper the Government say that the running costs under the new arrangements should not be “materially different” in real terms and aggregate from the current FSA. That will not happen. We are talking about extremely significant extra costs.

We suggest that the memorandum between these organisations should contain an estimate of the annual costs involved in administering the FCA and PRA, and compare those to the estimated costs of the administration of the FSA. That is a bit of a crude way of getting a cost comparator, but I would be interested in seeing it. Similarly, amendment 34 talks about minimising the

“unnecessary additional expenses that might be incurred by virtue of the separate administration of the FCA and the PRA, and to maximise any common administrative savings achievable through close co-ordination.”

The PRA is moving to plush offices in Moorgate, leaving vacant space at Canary Wharf, a lease that expires way down the line in 2018. There is a sense in which there is a bit of empire building going on at the Bank of England, which will be responsible for the PRA. The Threadneedle street empire is growing strongly.

[Sheila Gilmore]

Will my hon. Friend also give some thought to those organisations that will be dual regulated and the additional costs that might be incurred?

[Chris Leslie]

That is why it is important that at the very least they have information, and some level of accountability, about the likely costs of this tangle of regulatory structures for them. The Association of British Insurers has voiced its concerns about the costs of the new regulatory system and it is important that we at least know from the Minister exactly what those costs will be. He skirted around the issue in Committee. Even when I asked the cost of the new building for the PRA next to Threadneedle street he said that that might be commercial in confidence. If he can help us with that I will be grateful.

The hon. Member for Chichester also spoke about publication of the minutes of the Bank of England’s court of directors. Amendment 27 seeks to introduce exactly the same for the FCA. If the FCA is to be a consumer champion, at the very least consumers should be able to see what is being discussed, who—potentially—is discussing it and, most importantly, what the nature is of the dialectic and discussions going on in its board. The Financial Secretary said in Committee that that will be a matter for the FCA, even though he could not really argue against the transparency principle, but he did promise that he would think about it. I saw a chink of light at the time and thought that publication of the FCA’s minutes was a simple concession that we might get in the Bill. I hope that he has had a chance to reflect on that.

Amendment 39 relates to the relationship between the new regulators and the European supervisory arrangements. We might think that all these decisions on regulating credit, businesses and financial services are for us to take domestically in the UK, but I am afraid that 80% of the regulatory decisions are in fact taken in Brussels by the European Commission. Commissioner Barnier has his pipeline of proposals, which is very much the driving force behind the regulatory arrangements. Some of those are good changes, but nevertheless many people feel that the UK’s domestic regulators are there merely to transpose what is decided further up the chain, and that is of concern. Therefore, we want the regulators to be fit for purpose and able properly to influence and steer some of the policy decisions that are taken in Brussels.

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[David Mowat]

Will the hon. Gentleman give way?

[Chris Leslie]

I was just coming to my conclusion and am conscious that other Members wish to speak, so I will not give way. I simply urge the House to vote for the amendment in the hope that the House of Lords will improve clause 5.

[Mr David Ruffley (Bury St Edmunds) (Con)]

I rise to support new clause 1 briefly. I had the privilege of sitting on the Joint Committee on the draft Bill and of being a member of the Treasury Committee, which is chaired by my hon. Friend the Member for Chichester (Mr Tyrie)—colleagues have noted that he is not a Privy Counsellor, but as far as many of us are concerned he is right honourable in spirit.

The main purport of new clause 1 is to establish a duty on the court of directors to conduct retrospective reviews of the Bank’s performance. The Governor of the Bank of England, in giving evidence to the Joint Committee and the Treasury Committee, has argued that it would be a bad idea to have a review into anything other than the processes by which certain policy decisions are reached. In other words, he does not want there to be a duty on the Bank to scrutinise retrospectively how good its decisions—meaning the decisions of the Financial Policy Committee or the Monetary Policy Committee—turned out to be. One of the reasons he gave was that there are lots of external commentators, such as outside economists in the City and the commentariat in the fourth estate, but it is fairly obvious that those entities are under no statutory duty to crawl through every decision of the FPC or the MPC and decide with hindsight whether they were good or bad.

The second reason the Governor gave is that the Treasury Committee holds the Bank to account, a point alluded to by the hon. Member for Nottingham East (Chris Leslie). The Treasury Committee, packed with talent though it is on a yearly basis, still has a huge amount of work to do and, not for the want of trying, does not have the amount of technical expertise or the number of macro- and micro-economists needed to conduct work month after month, tracking back and looking at how good or bad the judgment calls of the FPC, as constituted by the Bill, and the extant MPC turned out to be. My word, don’t we need such backward-looking analysis? If it had been present in 2007 and 2008, we might have avoided the difficulties of which we are all too well aware.

The Bill gives the Bank of England unprecedented powers. As a result of it, we will have a Governor of the Bank of England, whomever he or she is in the future, who will be chair of the Monetary Policy Committee, have a place on the court of directors of the Bank of England, chair the Financial Policy Committee and chair the Prudential Regulation Authority. With the creation of the FPC, alongside all the work that the Bank does on monetary policy, a lot of decisions are going to be made.

Not since the creation of the Bank of England in the late 17th century has its senior management and Governor had so much power, and, from even a cursory glance, the Joint Committee’s evidence and the evidence taken by the Treasury Committee in recent months all leads to one thing: one cannot have enough scrutiny of this big beast that the Bank will become as a result of the Bill coming into force.

The Treasury Committee argued forcefully for a severe new set of accountability and scrutiny powers. We advocated the creation of a new supervisory body inside the Bank of England in order to replace the court of directors, because the court, as everybody knows, is packed full of amateurs—well-meaning amateurs, but people who simply are not, by any stretch of the imagination, able to hold the Bank of England’s senior executive members, who are on the MPC and will soon be on the FPC, to account.

The court includes has-beens in the City, or “never-was’s”, and people with indifferent reputations in the trade union movement, in manufacturing and in all aspects of public policy. But the evidence shows that remarkably few of them have any expertise in central banking matters, in fiscal policy, in macro-prudential policy or in monetary policy. The court is desperately under-geared, and its intellectual horsepower is not what it should be.

A supervisory body, with a majority of external members, overseeing the FPC’s and MPC’s judgments and undertaking retrospective reviews is the best-case scenario; it is what the Treasury Committee thought would be the best solution for scrutinising this very powerful—all-powerful, I might add—Bank.

I understand why Ministers have concluded that they do not want to go into battle with the Governor and the senior executives about a supervisory body, because it is way too radical, but it is absolutely incumbent on this House to look at the purport of new clause 1 to see that it actually imposes more scrutiny than the Bill currently provides on the policy decisions of not just the MPC, but the FPC. Let us not forget that the MPC has recently acquired, or arrogated to itself, certain very significant discretionary powers over monetary policy—not in setting the bank rate, but in quantitative easing.

How many debates have we had in this Chamber about QE and its merits or relative de-merits? The answer is relatively few. The Monetary Policy Committee is held to account only by the Treasury Committee. It is my suggestion that the Treasury Committee, marvellous and wonderful though it is—I am a member of it, so I would say that—will need the assistance of ex-post reviews to look retrospectively at the quality of the decisions that the Bank, with its new powers, makes. I therefore urge colleagues to support new clause 1.

--- Later in debate ---

[Mr Hoban]

My hon. Friend makes an important point. We need to ensure that the right scrutiny arrangements are in place, but we also need to recognise that the super-affirmative procedure can create delays, because there are times when if the House is in recess the clock stops, so there is a challenge there. In addition, a blanket adoption of a super-affirmative procedure may mean that even minor technical changes are subject to quite a lengthy process. The point that I would take from this debate is that we need to ensure that proper parliamentary scrutiny of these measures is in place, and that there is proper consultation with the public and a proper assessment of the economic impact of these macro-prudential tools on the wider economy. I hope that the Government’s position is clear. I am not ruling out the proposal. There are some issues with it, but we are committed to ensuring that the right procedures are in place to ensure proper parliamentary scrutiny.

I come now to the matters at the heart of new clause 1 tabled by my hon. Friend the Member for Chichester (Mr Tyrie) and his colleagues from the Treasury Committee. I agree entirely that the robustness of the Bank of England’s governance arrangements is vital. Hon. Members on both sides of the House have been absolutely right to point out that it is even more important given the expanded responsibilities provided to the Bank of England under the legislation. There is a consensus that the governance of the Bank needs to be strengthened in order better to equip it for these new roles. The court will need to adapt and evolve in order to operate as an effective governing body, able to oversee the Bank in transition and in steady state, ensuring that the Bank is adequately resourced to meet its new responsibilities, offering challenge to the Bank’s executive and supporting accountability to Parliament. With that in mind, a set of proposals has already been put forward by the Bank of England to help address these concerns.

Last year the Treasury Committee published an in-depth and thoughtful report into the accountability of the Bank. In response to that, the court of the Bank of England set out some positive and constructive proposals to strengthen its oversight of the Bank’s financial stability activities and to enhance accountability. Central to the court’s proposals is the creation of a new oversight committee for financial stability, a sub-committee of the court that will be responsible for overseeing the entirety of the Bank’s financial stability activities. This wholly non-executive committee will have access to the meetings and papers of the Bank’s policy-making committees, including the FPC, and will be able both to review the internal decision-making processes leading to policy outcomes and to commission periodic reviews of policy-making performance from expert external authorities. These reports will be published, unless publication would be contrary to the public interest. We welcome the court’s proposals.

My hon. Friend the Member for Chichester, in his remarks welcoming the court’s response to the Treasury Committee’s recommendations, recognised that there has been change, but he also outlined a number of areas in a report published on 23 January and argued that the court’s proposals did not go far enough, particularly with regard to the policy reviews. Recognising this, the Chancellor agreed with the Governor and the chair of the court that the new oversight body will be expected to commission retrospective internal reviews from the Bank’s policy makers of their own policy making and implementation performance. I think that the Bank has made some progress, but my hon. Friend raised the important question of whether the oversight arrangements should be set out in primary legislation in the Bill.

My hon. Friend the Member for Chichester also mentioned publication of the court’s minutes. The Bank has committed to publishing what it terms a record of future court meetings. It is worth pointing out that the FPC also produces what it calls a record of its meetings, which is a very full account of the debates that go on in the FPC, and we will expect a similar process to be undertaken for the court’s meetings. Let me be clear: I believe that there is a clear need for the Bank’s accountability arrangements to be strengthened through the publication of the court’s minutes and the enhanced scrutiny of the court’s work, although I believe that the changes announced by the Bank help address the concerns raised by my hon. Friend and the Treasury Committee. He made some powerful arguments that have been echoed by other members of the Committee, and we will consider further whether these arrangements should be put in the Bill. We will reflect on these matters and reconsider them when the Bill goes to the other place. I hope that that helps to reassure the House on how seriously we take these matters and our willingness to listen and respond to the concerns raised by Members during the debate, particularly the contributions made by my hon. Friend and others.

[Chris Leslie]

I just want to be clear about what the Minister is saying. Is he saying that when the Bill comes before the other place for consideration he will accept retrospective reviews and publication of minutes or that he will simply consider it?

[Mr Hoban]

We are clear that we want to see the court’s minutes published, which I think is absolutely vital, and that we want to see those retrospective reviews in place. The questions my hon. Friend the Member for Chichester has asked are whether we have gone far enough, whether the proposals should be in the Bill or whether we should just accept the proposal put forward by the court. Tonight I have committed to listening to those arguments—he made a powerful speech—and returning to the issue when the Bill goes to the other place.