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
(11 years, 11 months ago)
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Chris Leslie (Nottingham East) (Lab/Co-op)
I beg to move amendment 75, page 43, line 16, at end insert—
‘(3) Within a year of Royal Assent to the Financial Services Act 2012, the Treasury shall publish a report on measures to improve the stewardship of institutional investments, which may require amendment under subsection (1).’.
Madam Deputy Speaker (Dawn Primarolo)
With this it will be convenient to discuss the following: Amendment 45, in clause 14, page 64, line 8, at end insert—
‘(3A) In section 73, subsection (1), insert at end:
“(g) to foster ethical corporate behaviour, including respect for internationally-recognised human rights.”.’.
Amendment 38, in clause 22, page 82, line 10, at end insert—
‘(c) provide for a requirement that an employee representative should be a member of the remuneration committee of a relevant body corporate, and
(d) provide for a requirement that the remuneration consultants advising on remuneration policy shall be appointed by the shareholders of a relevant body corporate.’.
Government amendments 5 to 8.
Amendment 73, in clause 40, page 127, line 38, at end insert—
‘Complaints by small businesses
234I Small businesses—complaints and proceedings
‘(1) The Treasury and Secretary of State shall bring forward proposals within three months of Royal Assent to the Financial Services Act 2012 in the following areas—
(a) to introduce provision for collective proceedings before the court in respect of financial services claims made on an opt-out basis by small and medium sized enterprises; and
(b) to introduce provision for complaints by small and medium sized enterprises to the FCA that a feature, or combination of features, of a market in the United Kingdom for financial services is, or appears to be, significantly damaging the interests of small business.’.
Government amendment 9.
Amendment 74, in schedule 5, page 204, line 37, at end insert—
‘(2) In subsection (1) after “approved persons”, insert “and the standards of stewardship expected of approved persons who are institutional investors.”’.
Government amendments 13 to 17.
Chris Leslie
This important Bill took a considerable amount of time in Committee, but it was still insufficient to cover many of the amendments that will be necessary to ensure that it is fit for purpose and able to fulfil the job for which it was designed. The Opposition believe that the Bill can still be improved, so many of the proposals we did not reach in Committee or that were not addressed on day 1 on Report are in today’s amendment paper.
This long group of amendments under the generic title, “Stewardship, etc.” covers a few issues, so I would be grateful, Madam Deputy Speaker, if you would bear with me while I touch on the details. Although amendments 75 and 74 relate to stewardship, other amendments are on different topics, which I should also like to address under this group.
On amendments 75 and 74, it is important to take the opportunity to ensure that the Bill properly improves institutional investors’ stewardship of pension funds or other savings or investments. Such funds are looked after by others on our behalf. In an ideal world, those who have pensions or other savings would spend time considering where they are invested, and whether they are invested ethically or in sustainable organisations and so forth. For reasons of practicality, however, that is often impossible, and investments are often grouped together in a basket of different products, so following the detail of where funds are invested is incredibly difficult.
That is why many people choose to use institutional investors—to ensure their best interests are being served. That means ensuring a good and strong rate of return, but many people care about where their money is invested. Most of British industry is partly owned by the collective pension funds of our constituents. They have voting rights through the shares and equity they hold, but they are often exercised without reference to our constituents and delegated to institutional investors to make decisions on their behalf.
The previous Administration and this one have therefore sought to address the quality of stewardship by institutional investors. Amendment 75 is on the threshold tests in the Bill and the Financial Services and Markets Act 2000 on whether people are suitable or fit and proper, whether they have adequate resources to fulfil their responsibilities, whether they have close links with others in the sector, and so on. The Opposition felt it would be a good idea to ask Ministers to consider whether the array of reforms that should be made to corporate stewardship should be reconsidered in the light of those threshold tests.
Amendment 74 also looks to the 2000 Act and the general rules of conduct of approved persons and seeks to amend the Bill so that it addresses key aspects of the good stewardship agenda. We argued in Committee and earlier that the Bill is a missed opportunity radically to improve the stewardship of some of the key players in corporate Britain, especially those large firms—banks and institutional investors—that have such a direct impact on society at large.
The stewardship code was brought into force in 2010. We have had reasonable progress, with around 230 asset managers, asset owners and service providers signing up in the first 18 months, but sadly, the Bill does not reference the Financial Reporting Council, which is the UK’s independent regulator responsible for promoting, among other things, high-quality corporate governance. We want the Bill to do more to give regulators a proper and clear mandate to strengthen the stewardship code where appropriate and give them sufficient teeth to ensure that significant culture changes can happen. These things do matter. We have to build a framework that roots out bad habits and addresses what some people have called the principal agent dynamic—the fact that shareholders are often very fragmented and, when faced with unified managers, are often unable to make any headway. Senior executives can sometimes respond only if there is a 50% plus one coalition of shareholders.
We need to rekindle that dynamic. Some have said that it is time for a shareholder spring or awakening, and there have been some suggestions recently that certain company shareholders, at the annual general meetings and elsewhere, have begun to ask fundamental questions of the senior executives. It is the mismatch between the power that senior executives can have and the lack of power of—paradoxically—the owners of some of these large companies that needs addressing. In legislative terms, we often have debates about firm rules and fixed ways of doing business. Obviously, it would be preferable if the dynamic between owners and managers were able to ensure that we had a healthier, more open and transparent way of doing business.
I commend those institutional investors who show an active interest in how they use the voting rights of their investors and use that leverage to try and influence positive corporate behaviour by the relevant companies. It must be tempting for many institutional investors, when faced with a company perhaps with a management dysfunction or some behavioural failing, to sell up and walk away from that company. That is too often the history of such shareholding. It would often be far better if shareholders, as owners, could stay and try to fix the culture of the organisations that they own. It is that sort of change that we need to find a way of addressing. Yes, some shareholders will not want to say publicly that they disagree with senior executives, because that could affect the share price and they would therefore be affecting their own financial interests in some ways, but there are several ways in which institutional investors need to have the ability, directly or indirectly, to influence what is going on.
Protests in recent months have, in some cases, seen the rejection of some of the larger pay deals in big companies—for instance, the executive remuneration packages at Trinity Mirror, Pendragon and Aviva. The banking sector has also seen some significant shareholder disquiet, including at Citigroup with the rejection of the chief executive’s pay package. Nearly a third of Barclays shareholders voted against the pay policies in that particular company.
So there have been some signs that shareholders are becoming interested in that more active role. This is perhaps to commend the work of the Association of British Insurers, which has done good work recently in encouraging its members to take a more active role. Those members account for some 15% of the stock market, and they recently wrote an unprecedented letter to the chief executives of some of the major banks in particular, saying that they were not happy and would no longer tolerate a “business as usual” approach when it came to remuneration, especially for executive directors.
Those moves are very positive, but we should not feel that the balance between shareholders and executives is sufficient. The persistent imbalance needs addressing in a number of specific ways. For a start, a shadow is often cast across the Atlantic as many institutional investors feel that what are known as the “acting in concert” rules affect them here. To what extent can institutional investors come together and discuss with each other their ability to voice common concerns about the behaviour of managers? I have sometimes heard concerns expressed that this may somehow be in conflict with anti-trust regulations. If the Government could clarify the “acting in concert” rules, it would help to send a clear signal to institutional investors that it is possible to have those discussions, to come together to form a significant majority and to express a view about corporate behaviour.
Stewart Hosie (Dundee East) (SNP)
Is the hon. Gentleman concerned that, if the amendment is passed, financial institutions might stop providing the hedge products against interest rate changes or forex changes that SMEs might need and from which they might benefit? Is there not a slight risk of those products no longer being available, adding to the risk for SMEs over a period of time during which interest rates and foreign exchange rates might change?
Chris Leslie
I am grateful to the hon. Gentleman, but no, I do not think that is a risk. Amendment 73 does not propose to outlaw interest rate swap products; indeed, it is not specifically related to those particular products. It is really about the powers of small firms to complain and to take proceedings if they feel that they have been mis-sold a particular product.
On the particular issue in the news about interest-rate swap products, there are some serious questions that the Financial Services Authority and the Minister need to answer. Were those interest-rate hedge products a requirement of loan agreements, or were they optional? Were the minimum and maximum parameters fair and balanced, or was the downside risk always likely to hit the consumer more than the banks? How frequently was there a mismatch between the term of the loan agreement and the term of the hedge product obligation? Sometimes the term of the hedge product obligation continued even though the loan term had concluded. Were there asymmetrical rights to cancel? In other words, could the banks cancel the arrangement for a particular product, with which the consumer or small firm had to continue? Those are some of the key questions.
David Mowat (Warrington South) (Con)
The hon. Gentleman is right to raise this serious issue. What I do not understand in his amendment, however, is what additional powers it would effectively give to a small business, given that the Financial Services Authority can already investigate all these things. Am I missing something?
Chris Leslie
When it comes to complaints procedures, particularly about market failure, which the Financial Conduct Authority can look at, there is a trigger that small firms could have, but it is not available in the Bill. Just as the Minister has given super-complaint powers to a certain number of consumer bodies, so a case can be made for doing a similar thing for representative bodies of small firms. I am not claiming that the amendment is drafted to the perfection that the Minister’s officials might want, but I hope he gets the gist—that there is a gap here. Small firms might have written to him, expressing the fact that they feel that they have no power. I have certainly had some of them writing to me to say that they feel intimidated about complaining—to the regulator or to their bank—because of the sheer power that the bank has to withdraw lines of credit if it feels that the boat is being rocked.
There is an important underlying issue here, which the business community wants addressed. To what extent were small firms told to seek independent advice before signing up to the swap contracts? How widespread was the take-up of these particular agreements? I know that the Financial Services Authority is beginning to look at these questions, but I want to see more action and a swifter response from both the Government and the regulator.
David Mowat
Many of us want to see more action, but what I do not understand is the extent to which the hon. Gentleman believes that the FSA does not have the powers to investigate mis-selling of this type. If mis-selling has occurred—the hon. Gentleman provided some good examples of unfair and asymmetric contracts—surely the FSA is already able to investigate it.
Chris Leslie
Indeed it can, but it is the way of triggering an FSA investigation that is the case in point. The FSA can choose not to listen to the voices of dozens or hundreds of small businesses, not necessarily in regard to this product but in regard to other products in the future. It is a question of giving some power to small firms, as consumers, to trigger an investigation by the regulator. This is not just a pro-consumer amendment; it is a pro-business amendment, as I hope can be agreed on all sides.
I have spoken about the amendments tabled in my name; there are others on the list. I shall be interested to hear what the Minister has to say.
John Hemming (Birmingham, Yardley) (LD)
Let me begin by referring Members to my entry in the Register of Members’ Financial Interests. I think that I should declare registrable holdings in RBS and Lloyds as regulated entities. I have just checked my entry in the register, and note that I have a declarable interest in Highway Capital. It is a stock exchange rather than a parliamentary interest, but I think that it should be declared because it is relevant to the debate. I also founded, and still chair, John Hemming and Company LLP, which supplies software to the financial services sector. Although it is not itself regulated by the FSA, it trades with FSA-regulated entities, so I think that interest should be declared as well.
My hon. Friend the Member for Solihull (Lorely Burt) sadly cannot be here today, although she attended 16 of the Committee’s sittings. She has, however, passed me certain comments that she has received from interested parties, which she wishes me to raise with the Minister.
Payday lending has been a substantial issue throughout the debate. My personal view is that it is not a good thing, because it traps people in many circumstances. The question of what is the best way of dealing with it is a complex one, and I think that the Government are entirely right to ask the University of Bristol to investigate it. However, I have spoken to companies in my constituency and have said that I do not think that it is a very good thing.
In Committee, my hon. Friend the Member for Solihull said that the Bill should explicitly encourage the Financial Conduct Authority to seek to maintain and extend consumers’ access to financial services that meet their needs, and that when making regulatory decisions, it should assess their impact on markets and consumers. It should place value on policy proposals and regulations that increase access to savings, protections and other financial products, and also on financial advice. In the absence of such a requirement, there would be a risk of the FCA always being steered towards a risk-averse regulation. Markets might be restricted to large groups of consumers to avoid any consumer getting sub-optimal products.
The Government seek to encourage the development of simple financial products. If we are to succeed, we must have a regulator working with the grain of the policy rather than acting as an obstacle to it, as appeared at times to be the case with the last Government’s stakeholder products initiative. Does the Minister agree that the FCA now has the “teeth” to engage with the industry and engage in issues such as the maximum number of rollovers that a payday lender should be permitted to allow? Could the FCA set a threshold for market entry? Could it impose on companies real penalties that hurt, rather than the £50,000 limit imposed on the Office of Fair Trading, and make lenders pay compensation to consumers who have suffered detriment?
Let me now turn to the reflections of industry practitioners. The smallest businesses are keen to ensure that the cost of the regulation to them is not disproportionate. Forty per cent. of credit licence holders are sole traders. What cost-benefit analysis has been carried out for the smallest practitioners?
What about the implementation time? The Finance and Leasing Association has observed that the less far-reaching Consumer Credit Act took four years to implement. It estimates that implementation of this legislation would take between five and seven years. I am sure that the Government will work with all the professional bodies in devising a sensible implementation plan, but I should be grateful for any reassurance the Minister can give.
The Association of Independent Financial Advisers is fearful about the lack of a limit on time for complaints, which it says will place a burden on provisions that it will need to make to cover this open-ended provision—
Mr Hoban
As a consequence of the reforms that we are introducing, we are giving the FSA, and now the FCA, tougher powers to tackle these problems. The FSA has a much-reduced appetite for risk and a more interventionist approach to tackling matters where there appears to be consumer detriment. Some people feel very uncomfortable with this, but it is right for the FSA to act vigorously in defence of consumers and to take the necessary action to ensure that consumers get a fair deal. The Bill takes that one step forward and that is why we have been keen to ensure that we give the FCA more powers, which it has demonstrated the appetite to use.
Amendments 5 and 6 require the FCA and the PRA to publish a statement explaining how they consider making the proposed rules compatible with the principles of regulation set out in new section 3B. Given the important framing role of these principles, I agreed with the suggestion made by the hon. Member for Nottingham East in Committee that the Bill should be explicit about the regulator’s duty in that regard, and I committed to tabling the appropriate amendments when the Bill returned to the House. I am sure that the hon. Gentleman will be keen to support them.
Amendments 13 and 14 are minor and technical and are designed to maintain a position currently provided for in FSMA whereby the FSA is not required to make rules for the FSCS that provide cover over all regulated activities. The amendments ensure consistency with section 214(1)(g), which provides that the scheme may in particular provide for a claim to be entertained only if it is the type of claim specified by the scheme. These are technical changes and I hope that hon. Members will support the Government amendments and reject those tabled by the Opposition.
Chris Leslie
I am sorry that the Minister has not reacted to the importance of the issues in the amendments that we have tabled today, particularly when it comes to the need for small firms to have a greater capacity to complain or to make collective proceedings when there is lack of clarity about their capability to do so. The issues were raised not only by the Opposition; Government Members also felt it necessary to clarify these issues. The Minister should at the very least have committed to write to hon. Members so that they could pass on to the businesses in their constituencies a clear route map for communicating some of these questions, such as interest rate swap mis-selling. All we sought was that small firms that feel aggrieved should have their concerns taken seriously as consumers of financial products, but hopefully the point has been made in the debate.
I am sorry that the Minister felt it necessary to reject our amendments on stewardship issues. It is not good enough for the Government to rebut such questions. The Prime Minister had plenty of warm words in January when this issue was high on the media agenda, but we have seen precious little action subsequently. The Government are not taking the stewardship issue seriously and it is important that they do so, particularly with regard to the remuneration committees of some of the largest corporations and our banks and the idea that these obscene bonuses and excessive pay packages can continue to roll on. As my hon. Friend the Member for Edmonton (Mr Love) said, the remuneration committees are self-perpetuating. Would it not be a good idea to broaden them out and try to put an employee voice on their panel, and make sure that they appointed consultants in a way that did not conflict with their own management’s vested interests?
After we have voted on amendment 40, which we debated on day one of Report, on the need to regulate some of the excessive high-cost credit arrangements, I will press to a Division amendment 38 on remuneration committees, because it typifies one of those areas on the stewardship agenda where we need to see action most swiftly. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 22
Rules and guidance
Amendment proposed: 40, page 80, line 2, at end insert—
‘(2A) The FCA may make rules or apply a sanction to authorised persons who offer credit on terms that the FCA judge to cause consumer detriment. This may include rules that determine a maximum total cost for consumers of a product and determine the maximum duration of a supply of a product or service to an individual consumer.’.—(Stella Creasy.)
Question put, That the amendment be made.
Chris Leslie
I beg to move amendment 72, page 130, line 38, at end insert—
‘(g) making provision for the increased diversity of the financial services sector and promotion of mutual societies, including arrangements to measure the number of members of mutual societies, and the market share for mutual societies as a proportion of the UK financial services sector.’.
This simple amendment suggests that within six months of Royal Assent the Treasury should bring forward proposals to foster diversity in financial services and promote mutual societies. For the avoidance of doubt, Mr Deputy Speaker, I should declare that I am not only a Labour Member of Parliament but a Labour and Co-operative party MP. Inasmuch as there are interests involved in that, I am proud to support the Government’s stated intention to promote mutuals. I have before me page 9 of the coalition agreement—I am sure that all hon. Members have it emblazoned on the walls of their offices—where it says:
“We will bring forward detailed proposals to foster diversity in financial services, promote mutuals and create a more competitive banking industry.”
It is perhaps not clear that the Prime Minister, the Chancellor and the Minister remember that they made that commitment. Therefore, in an act of generosity—the Minister will recognise the positive spirit in which we have tabled the amendment—we felt it important to suggest that the Treasury might want to enshrine that coalition pledge in statute and to make arrangements to measure the progress that it is making in promoting the mutual societies model. For example, each year the Treasury could publish the number of members of mutual societies so that we could see whether good progress was being made, and publish the market share of the mutual society sector as a proportion of UK financial services.
The amendment is fairly innocuous, and I hope that it can gain some cross-party support. After all, let us not forget that the mutual sector is all about ensuring that members own and govern their own financial institutions, have a stake in their future, and can set their agenda. That member-owned and member-governed ethos rightly ought to be promoted. Sadly, we have a small mutual sector, but it should be encouraged to grow, and that is the purpose of the amendment.
Mr Gareth Thomas (Harrow West) (Lab/Co-op)
My hon. Friend is right to say that the Government made that commitment in the coalition agreement. Following their decision not to take seriously the case for Northern Rock to be converted into a mutual, many people, like him, doubt the coalition’s commitment to financial diversity. Is that not a further reason for the Government to take seriously his amendment to put right what they might see as a mistake in the public mind?
Chris Leslie
I thank my hon. Friend, who is entirely correct. He is an assiduous campaigner for the mutual sector and the mutual model, and he knows more than most about the Government’s failures over the past two years to make headway on this issue, on which they made a promise that remains to be fulfilled. Indeed, he recently wrote an article about how the Queen’s Speech could have been an opportunity to promote the mutual agenda in which he talked about ways in which the sector could be put more at the heart of banking reform. He said that we should consider expanding the credit union and CDFI—community development finance institution—sectors to reconnect banking with its local communities, and that we should look beyond the financial services sector to think about energy co-operatives, employment ownership measures, and co-operative housing tenure.
It is an important time for us to be debating the issue, because, as you will know, Mr Deputy Speaker, this is the international year of the co-operative.
David Rutley (Macclesfield) (Con)
The part of the Bill before us is mainly about transferring powers between the FSA, the FCA and the Prudential Regulatory Authority, and adding new powers, so I am not sure that it sits very well with the hon. Gentleman’s amendment. Will he explain in more detail why legislative measures are required when such objectives can be measured in other ways?
Chris Leslie
We are trying to ensure that the Government fundamentally address the question. These provisions give the Minister and the Treasury the power to make by order amendments to many of the rules, statutory instruments and suchlike that affect mutual societies. We think that they should have the capability to measure progress on mutuality in order to help to smooth progress towards fulfilling the coalition’s pledge.
Given that we have before us a financial services Bill, our constituents would expect us to be talking about firm and defined measures to make progress on diversifying the financial services sector. Unfortunately, they would be disappointed by the Treasury’s progress on that. The Treasury website has a very scant, short set of paragraphs stating the coalition agreement’s desire to promote mutuals. It says:
“The Treasury is developing policy and delivering legislative changes to…meet this aim.”
That is basically it—a statement but no substance. I want the Minister to tell us what progress is being made in fulfilling that objective. It is not good enough merely to talk about consolidating existing rules or legislation and wrapping that up as though the Law Commission’s recommendations somehow fulfil Government promises. We want to see more action.
Geraint Davies (Swansea West) (Lab/Co-op)
Given that there is an appalling sovereign debt crisis in Europe affecting Greece, Spain, and so on, with the possibility of contagion, and given that we learned the lessons about the stability of mutuals following what happened in 2008, does my hon. Friend agree that it is remarkable that the Government are not pressing forward to reduce such risks by increasing diversity and promoting co-operatives?
Chris Leslie
My hon. Friend is entirely correct. When the Government have an opportunity to return to the market state-owned assets that the Treasury took in the height of the financial crisis, they simply look for a return to the vanilla plc model. They take a business-as-usual approach rather than taking the opportunity to rethink how we might have diversity in the financial service sector and in business operations. Yes, we need some organisations run on a plc model, and we have plenty of those, but why not think about opportunities to promote the non-profit or mutual sector? Northern Rock was a classic case in point. No adequate consideration was given to that option. A member buy-out suggestion would have been entirely feasible, but it was not considered seriously enough.
At this point, I pay tribute to the all-party group on building societies and financial mutuals. It made a series of recommendations a year ago, urging the coalition to adopt
“a comprehensive policy strategy to implement its Coalition Agreement commitment to promote mutuals.”
It stated that the Treasury should be proactive in promoting the interests of financial mutuals within the Government. One of the first conclusions in the summary of its report was:
“HM Treasury appears to have taken a reactive stance to the mutual sector beginning to deal with important issues such as building society capital, but little else of substance.”
I do not want to labour that point, because time is short.
Mr Mike Weir (Angus) (SNP)
For cross-party purposes, may I say that we will support the hon. Gentleman’s excellent amendment? It is important to push forward credit unions, in particular, as an alternative to high street lenders, which are currently not lending to many people. The Treasury needs to take a more proactive approach to building up existing credit unions as well as creating new ones.
Chris Leslie
The credit union sector deserves far more support and encouragement than it receives, and previous Governments of all parties have failed to do enough to promote it. The demutualisation agenda of the 1980s and early 1990s significantly reduced the size of the building society sector, and compared with other developed countries mutual providers have a very small market share, particularly in the financial services sector.
Geraint Davies
We used to hear about the share-owning democracy, but there have been tidal shifts in people’s desire to take risks and own shares. Does my hon. Friend agree that we have a moment in time at which we can change direction and have more diverse ownership among the population and a new culture of business? The Government are missing a trick.
Chris Leslie
Now is the time to think about the culture change that we want to see in the financial services sector. Yes, there are some good plc structures, but we have an insufficiency of good mutuals, building societies and so on. There should be new entrants of that type, and current ones should grow to provide some proper competition to the big banks.
Mr Thomas
My hon. Friend is being characteristically generous. One big concern examined in some detail in the all-party group report that he mentioned was about the future of friendly societies. Does he agree that the debate provides the Financial Secretary with a good opportunity to set out how the Treasury is responding to concerns about the effect that a particular interpretation of case law by the Financial Services Authority is having on the future of friendly societies? Their proportion of the insurance market is at risk of going into reverse because of how the FSA has approached the matter, and the amendment may well help to achieve a culture change in the FSA and get its lawyers to adopt a slightly more helpful mindset.
Chris Leslie
It is important that we have some metrics by which to measure the Financial Secretary’s performance on his coalition promise. After all, it is there in black and white—the Government said they would bring forward not just proposals but detailed proposals for promoting the mutual sector. This is his moment. We want him to explain to us what those measures will be. I am sure he does not believe in putting such promises in an agreement straight after an election and then letting them drift as though they did not need to be attended to. Many people want to see greater diversity in the financial services sector, and it is important that he is held to account.
Steve Baker
Looking at the amendment, I wonder whether it illustrates the tensions in the contemporary labour movement. On one hand, this should be a time of celebration for all those who believe in mutuality, co-operatives and voluntary self-help, because Members of all parties are signed up to the idea. There is a Conservative co-operative movement, and many of us are very serious about it. On the other hand, Labour insists on top-down control and state direction. It wants to enshrine in legislation measurement, management and the direction of Ministers’ performance.
Is it not time that, rather than insisting on the production of numbers and pretending that the Financial Secretary can direct people to help one another voluntarily and mutually, we eliminated barriers to entry, accepted spontaneous order and encouraged people to build up the bonds of friendship and mutual co-operation? Ministers cannot direct or legislate for those bonds.
Mr Cash
It may well. It behoves the Government to take this kind of amendment very seriously, despite drafting imperfections. It is important to the integrity of our financial system and, above all else, the sense of individual ownership in a mutual context for this movement not merely to be nudged along but to be massively encouraged. The more people have a stake as a result of being in a mutual condition, the better society will be.
I am completely in favour of capitalism—that might disappoint Opposition Members—but each category of activity in financial markets requires its own remedy, and the mutual system is vital to ensuring that there is a proper balance in society and that those who, for one reason or another, cannot get on to the capitalist ladder in the way that some can have the benefit of mutuals and can share in the prosperity that others provide. I regard that as a very important objective.
Even if the amendment is not perfect, the intention behind it is important. Wrapping the whole thing up in jargon—some of us are very familiar with jargon—will not solve the real problem in the way that mutual societies can. I hope, therefore, that the Minister will give careful attention to the objectives and purposes of mutuals, in the context of the amendment, and not simply say that the Opposition are talking nonsense or that the Opposition spokesmen are trying to be troublesome and criticise the coalition agreement. It is time we grew up, actually. By that I mean that instead of constantly talking about the Opposition as if they were simply trouble making and mischievous, we should recognise that in such matters we are trying to achieve something worth having.
Mr Cash
The Opposition spokesman says, “Hear, hear”, but I do not want to give him too much encouragement. We need to understand, however, that the objective behind the Opposition’s amendment is important, not because of party politics but because it is about having a stable, good and fair society. That is what we should all be seeking.
John Hemming
The amendment does not compel anything to happen; it merely makes it possible, if the Government wish, to change the law if necessary—which it almost certainly is not—to measure the number of members of credit unions. The Opposition may be right that the figure is not being measured, although that would surprise me, as the industry bodies will almost certainly have total numbers of members. If we contacted the Council of Mortgage Lenders, for instance, and asked how many members the building societies in the council had, it would probably give us the answer. Getting the answer should not be that difficult; however, as the amendment does not compel the Government to do anything, it will have no effect if accepted.
I return to the point that we have to welcome the fact that the issue of mutuals is being kept on the agenda. I would be interested if any Opposition Member wanted to liaise with me over the coming months to see whether we could find the answers that the amendment makes it possible to find—which are probably possible to find anyway, if the Government wish to find them. Indeed, I would have thought that the Government would not be that averse to knowing what the market share was.
Chris Leslie
This is a very confusing speech. The hon. Gentleman is in an honoured position, speaking on behalf of the Liberal Democrats. They helped to write the coalition agreement, so he has a responsibility to say what progress is being made on the detailed proposals to promote mutuality. Do the Liberal Democrats agree with that objective, and, if so, what are they doing to achieve it?
Chris Leslie
“Actions speak louder than words”: that is the conclusion that the Minister reached when rebutting this modest amendment. Some Opposition Members said that it was too modest, and not strong enough. You cannot win when you are in opposition. Sometimes Opposition Members propose amendments and are told that they go much too far, but it seems that this amendment did not go far enough.
The aim of the amendment was simply to hold the Government to account in respect of their own promise in the coalition agreement to produce detailed proposals to promote mutuality. The Minister tried his very best. My hon. Friends could probably hear the sound of the barrel being scraped as he listed all the papers, reviews and consultations—half of which, by the way, had their genesis under the last Labour Government, or were thanks to the European Commission.
The Government’s commitment to mutuality is conspicuous by its absence. They have an embarrassing dearth of commitment to the mutual sector. The Minister must do far better than this. As my hon. Friends have said, it is no wonder that the Government do not want to measure the progress that is being made in any modest way. I think it is time that we held them to account.
Members in all parts of the Chamber care about the mutual sector. I greatly respect the work that is being done by the all-party group, and the commitment of others who believe that it is important for us to take the steps that are necessary to support the mutual and co-operative sector. All that we were trying to do was obtain from the Government some sense of how they were doing in relation to the coalition agreement, but the best that we have been able to secure is a scraped-together consolidation Bill that does some administrative tidying up. It is not good enough, and I therefore wish to press amendment 72 to a Division.
Chris Leslie
Let me start by thanking those of my colleagues who served on the Committee that considered the Bill, as well as the trade bodies, consumer groups and others who made representations about it. In particular, I thank members of the Treasury Committee for the time and attention they gave to trying to improve the legislation. I thank also the members of the pre-legislative scrutiny Committee, who did a phenomenal amount of work in the months ahead of the legislative process, albeit to make a series of recommendations that the Government then promptly ignored. However, we will come to that when the Bill goes to the other place. I pay tribute to my hon. Friend the Member for Foyle (Mark Durkan). His contributions were from a different political party but he made a very constructive contribution to the Committee. I also thank the officials and others who work hard behind the scenes on legislation such as this.
It is a shame that we have had such woefully insufficient time to debate this massive piece of legislation, which consists of more than 300 pages and hundreds of clauses. We tabled more than 200 amendments but the best we could get from the Government, even though they have nothing else going on in the Chamber—they are padding out the legislative process—is one and a half days, with three hours for the second day on Report. We ran out of time to debate some of the key, critical issues concerning how the Governor of the Bank of England and the Chancellor of the Exchequer would manage in a crisis, and we did not even get an opportunity to debate those crisis-management arrangements. However, I am glad that we extracted one major achievement from the Government and No. 10: when it comes to public funds, when there is a direction to the Bank of England from the Treasury, the Government will now require the Bank to report back on its progress on that direction. That is a positive change, which we did not get a chance to debate in discussions on the previous section of the Bill. I am grateful for the change.
When it comes to some of the other problems to do with crisis management, the Government are relying on a non-statutory memorandum of understanding between the Bank of England and the Treasury, which leaves gaping holes in knowing how things would work in a crisis. They say that there will be a temporary standing committee or an ad hoc committee but there is no sense of who will be on it or how it will be constructed. No advance thought is going into that and I worry that if we get into a crisis we might waste hours or even days figuring out how on earth to convene this ad hoc committee.
Similarly, there are serious difficulties to do with whether the heads of the new regulators and bodies that the Bill creates will have a direct line of communication with the Treasury or whether everything will have to be filtered through the Governor of the Bank of England, in whom enormous new powers will be vested under this legislation. There is an irony in that yesterday or the day before the Bank conceded—this was dragged out of it—that it ought perhaps to have minor reviews and partial inquiries into what went on in parts of the financial crisis. We still have not had a fundamental review by the Bank of England about its role in the crisis, and that is a great shame. It should be big enough and have the humility to undertake the review that the Treasury and even the FSA have undertaken. It is time that the Bank also opened up and looked inwardly and seriously at its own capabilities.
There are positive aspects to this legislation. We agree with the concept of prudential regulation and we wait to see the detail. The Minister said that he is going to consult on some of the macro-prudential tools. It is very important that we get right the concept of the greater systemic overview of the system—the eagle-eye view that needs to be taken rather than getting too bogged down in the detail of firm by firm, company by company regulation—but the theory needs to be translated properly into practice. That is where the devil is in the detail. In a number of respects, the Bill falls short and could have done with massive improvement. The Opposition tried their best to make recommendations, including many of those made by the pre-legislative scrutiny Committee and the Treasury Committee. I sometimes see the Minister as—I will not call him an irresistible force—an immovable object resisting time and again attempts to improve the Bill.
We need more transparency and accountability for the regulators that the Minister is creating. The degree to which the new Financial Conduct Authority will publish its minutes is still unclear—we need a firmer commitment from the Government on that—and as I have said, the crisis management memorandum of understanding is still insufficient. There is a severe risk that costs that firms pay in their levies to the new regulators will be duplicated and that there will be inefficiency in the expense of splitting the regulator and having two new regulators. We know that the PRA is already in aggrandising mode, securing beautiful new offices in Moorgate right next door to Threadneedle street because, apparently, Canary Wharf is far too far away. It is about 12 or 13 minutes on the tube, but apparently that is a major problem. So millions more pounds are to be spent on those offices in Moorgate, and the Government have resisted attempts to bring about greater efficiencies by means of the Bill.
The key aspect that is missing is proper attention to the necessary parliamentary scrutiny of those macro-prudential tools. Many of our constituents would baulk at that phrase and ask what on earth it means. It is about the regulator and the Bank of England deciding, for example, that the minimum repayments on their credit card may need to change at a moment’s notice. The Governor of the Bank of England will have the power to say, “I’m sorry, we’ve got a particular issue coming on, so instead of paying back 2% a month, you’ve got to pay back 10% a month on your credit card.” The Governor of the Bank of England will have the power to intervene on business lending, on the terms and duration of loans, and possibly even on the cost of those loans, and will be able to do that at a moment’s notice.
We have a bit of a debate about whether loan-to-value ratios and loan-to-income ratios on mortgages will also be in the hands of the Governor. Interestingly, one of the deputy governors has said, “This is a bit too hot to handle. Maybe this is for the Treasury, which is accountable to do that.” The point is that there are phenomenal powers invested in the Bank of England, and we need that thread of accountability to come back to Parliament at some point. This is why we have suggested that there should be a super-affirmative process, rather than a rubber-stamping statutory instrument Committee which many Members have attended and where they know orders go through on the nod with a formal vote.
I detect some cynicism on the part of the Government Whips, but of course they want to nod these things through. We should give Parliament a proper opportunity to consider the impact of those phenomenal powers on our constituents and on the economy. I hope that in the other place the Government will think again about the need to improve the parliamentary scrutiny of the new powers.
When it comes to consumers, the Bill has not properly addressed what we wanted to see, particularly the powers of the Financial Conduct Authority. There has been no movement on compulsory financial education. The Money Advice Service, which is the body tasked with trying to improve the financial literacy of the population, will not be adequately focused in statute on the most deprived in society and those who are most financially excluded. We saw the Government rebut attempts today to give the FCA a proper mandate on the regulation of high cost credit. The Government refused to give the FCA a proper role to take account of social investment, charity finance and other needs. We know they have a chip on their shoulder about charities and philanthropy generally, but it is a shame that they did not recognise those needs in the Bill.
There are a number of consumer aspects, whether debt management plans, helping customers plan ahead for their mortgage finances, or giving firms a fiduciary duty to have regard to the best interests of consumers, on which the Bill should have been improved. We have spoken separately about how the corporate culture in the financial services sector could have been improved. Today we tried to press the Government on improving the stewardship, the corporate governance arrangements and the actions of remuneration committees in reining in some of the excessive bonuses and pay packets.
It is with particular reference to the impact on the economy that I close my remarks on Third Reading. A powerful new committee is created in the Bill—the Financial Policy Committee, which will make the decisions about macro-prudential tools. It will be under no proactive obligation to have regard to growth and employment in this country. We may well see a mismatch between the obligations under which the Monetary Policy Committee remains: it must have regard to the growth and employment objectives of the Government, but the FPC does not mirror that obligation on the MPC. It is told, “Don’t do anything to harm growth”, but it is not given an obligation to have regard to the Government’s proactive—we hope—strategy on growth. Maybe that is because they do not quite understand what the growth agenda ought to be, or they do not know how to get there. They cannot see why that is important. In addition to that general obligation, it is also important that there should be an assessment of the impact of each of the macro-prudential tools on the economy—on growth and employment—but the Government have neglected to do that. Also, there was not a sufficient duty placed on the Bank of England to take care of public funds. Those are some of our concerns.
The Bill does not properly fit with the European level of supervision for financial services. There is the sense that it was dreamt up on the back of a cigarette packet by the Chancellor in opposition, when he wondered how the previous administration, the FSA, could be blamed for all the ills of the global financial crisis. But he forgot to recognise that most of the financial regulations in this country come from Brussels, the EU and Commissioner Barnier, on that conveyor belt as it throws out all the directives and regulations. The regulators that we are creating in this legislation are merely there to transpose a lot of the decisions taken in Brussels. That is essentially their function. The Bill does not properly recognise how our regulators should fit with the European decisions and those realities. We should be framing legislation not just to influence those European decisions, but to steer those decisions. The Government still have not addressed that point properly.
David Mowat
The hon. Gentleman makes the point that the twin peaks structure that we are implementing here does not fit with the European sectoral structure. Is it the Opposition’s position that we should have had a sectoral rather than a twin peaks Bill?
Chris Leslie
I am pointing out that there is a fundamental mismatch. We know that the supervisory authorities have gone for a thematic approach and the Government have gone for a twin peaks approach. Then there is this bizarre committee or secretariat in between to try and be an interlocutor. It is a tremendous spaghetti, diluting our influence on those supervisory decisions. We can already see that the Government have had to cave in on a number of ways in which the European Banking Authority can overrule many of the capital requirement arrangements. Perhaps that is the result of a deeper weakness in the Government’s diplomatic stance.
I am not saying that the Bill cannot be salvaged. There are ways in which it falls short, but there is still time for the Government to listen. The Bill is deficient, but it can be improved, and I hope that the noble lords in the other place will take the opportunity to do so. We agree with the concept of prudential regulation. There is virtue in some of the theory in the legislation. But it is because of the way in which the Government are yet again incompetently putting that theory into practice that we have our doubts. We will not oppose Third Reading, but I hope that the other place, perhaps with the more time that they have under the rules, will do a serious job and pick up on some of the issues that the Government, by timetabling the Bill in such a draconian way, failed to give the House of Commons the proper opportunity to do.