Consumer Insurance (Disclosure and Representations) Bill [Lords]
Chris Leslie Excerpts(12 years, 8 months ago)
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Chris Leslie (Nottingham East) (Lab/Co-op)
I beg to move, That the clause be read a Second time.
It is fortunate that we have the opportunity to debate the Bill on the Floor of the House on Report and Third Reading for a number of reasons. First, the Committee stage of the Financial Services Bill is currently under way upstairs in Committee Room 12, where the Financial Secretary, who usually deals with these issues, is answering the debate and addressing the many amendments that I and my hon. Friends have tabled. It is a shame that the Government saw fit to put only one Minister on that Committee, because it means that he is unable to join us in this debate. I have popped down briefly. It is a pleasure to see the Economic Secretary fielding the questions on his behalf. I have a number of them for her on the detail of the Bill.
Secondly, it is fortunate that we are having this debate on the Floor of the House because, rather bizarrely, the Government chose to take Second Reading upstairs in Committee. I did not know that such Bills could have a Second Reading debate on the Committee corridor, but apparently, under one of the more arcane Standing Orders of the House, Law Commission Bills can be debated upstairs in Committee on Second Reading and never usually see discussion on the Floor of the House. I do not believe that it is right for primary legislation not to have a hearing on the Floor of the House. That is an important principle. However, despite my objections, the Second Reading debate happened upstairs. I challenged the Financial Secretary to hold the Report stage on the Floor of the House and he eventually relented, under extreme pressure. I regard that as one of my greatest triumphs in opposition. It turns out that the Report stage could also have been taken in Committee, so this piece of primary legislation need never have seen the Floor of the House of Commons.
I realise that I have digressed, Mr Deputy Speaker, but I just wanted to show how fortunate we are to have the opportunity to debate the Consumer Insurance (Disclosure and Representations) Bill here today.
This is a broadly positive Bill. I place on the record my thanks to the Law Commission and the Scottish Law Commission, which in 2009, when the previous Administration were in office, published a joint report entitled, “Consumer Insurance Law: Pre-Contract Disclosure and Misrepresentation”. That report resulted in this Bill.
The new clause is simple and, I hope, relatively uncontroversial. I hope that the Government will accept it as a positive step forward. The many hon. Members who have joined us for this debate will know that consumer insurance is incredibly important to all our constituents. We are talking not just about life insurance, which members of the public might want to take out, but more day-to-day insurance such as household and contents insurance, building insurance, motor insurance, flood risk insurance, personal effects insurance, health insurance and even pet insurance. There are a number of insurance schemes that the Economic Secretary or my hon. Friend the Member for Clwyd South (Susan Elan Jones) may have taken out. Consumer insurance is, therefore, incredibly important.
Although superficially it looks as though the Bill changes only small aspects of contractual matters, it nevertheless gives us the opportunity to take stock of the state of the consumer insurance market and to ask where it is heading, particularly in the light of its provisions. The Bill has a number of important purposes, which I will touch on at Third Reading. Essentially, the story goes back to the 18th and 19th centuries, when a degree of common law had accrued and there were questions about a new contract for insurance. At the start of the 20th century, it was felt that the Marine Insurance Act 1906 needed to be placed on the statute book.
Chris Leslie
I note that the hon. and learned Gentleman recalls that from his history studies. Although, strictly speaking, the 1906 Act applies only to marine insurance, it has since been generally understood that it applies to all forms of insurance. Essentially, its provisions are the building blocks of the contractual process that is involved in the consumer insurance trade.
Stephen Phillips
The hon. Gentleman will know that the 1906 Act, which was drafted by Sir Mackenzie Dalzell Chalmers, is commended to the House by many insurance lawyers as a wonderful piece of drafting. I suppose, as this is my first intervention in this debate, that I should refer the House to my entry in the Register of Members’ Financial Interests; I am an insurance practitioner. Does the hon. Gentleman think that it is a good idea for Parliament to intervene in this way, given that there are certain respects in which the 1906 Act altered the common law? For example, the test of loss in relation to marine insurance now differs from the test of loss in relation to non-marine insurance.
Chris Leslie
I am grateful to the hon. and learned Gentleman for bringing his experience to bear on this debate; it is incredibly useful. I suppose that, to a certain extent, we all ought to declare an interest in these matters as consumers, because some of our arrangements may be affected.
The hon. and learned Gentleman is right that the 1906 Act has stood the test of time for a considerable period, indeed for more than a century. I confess that I do not have a copy of it in front of me, but I will paraphrase its arrangements. It enshrined in law certain principles of disclosure. In particular, it placed a considerable emphasis on the requirement for the party seeking insurance to disclose any issues that might be broadly relevant in the insurance process. It did not require the insurer to ask a series of specific questions about the particulars of the individual being insured. That was left to the discretion of the insurer. That is part of contract law. Of course, common law has accrued since that time. Some serious problems have developed in recent decades in relation to where the balance is struck between the insurer and the person being insured. The onus falls perhaps too heavily on the person who is being insured.
For example, if you have taken out household contents insurance recently, Mr Deputy Speaker—I am not sure whether you have, but I suggest that you do, because it is a wise thing to do even though it can be quite expensive—you may have been asked a number of questions about the type of mortice lock you have and other things about your place of residence. If you did not volunteer particular data about the building in which you reside, how frequently you are away on business and so on, an insurer with a beady eye on avoiding an obligation to pay up could invalidate your insurance should you be unfortunate enough to be burgled and need to make a claim. That would be through no fault of your own, other than your failure to disclose a number of matters to the insurer.
Chris Leslie
A llama? I did not know that. I am not sure I needed to know it, either, but the hon. Gentleman may choose to take out insurance on his pet llama. You might well ask yourself where this is going, Mr Deputy Speaker, but the key question is whether that is a luxury insurance product, or whether the hon. Gentleman has such affection for that pet llama—
Chris Leslie
In that case, he will feel that it is an absolute necessity to ensure that his llama always has pet insurance. He may well find that under the Bill, rather than simply taking out a generic insurance contract, he is asked a series of specific questions about his pet llama. They could include how long he has kept the llama, its age and the environment in which it is kept. He may well think to himself, “Well, this insurance could become quite expensive,” and feel that of all his insurance products, he can leave that one and take a risk. Poor old llama—it may well just have to take its chances.
Jonathan Evans (Cardiff North) (Con)
Before the hon. Gentleman frightens my hon. Friend the Member for Lichfield (Michael Fabricant) away from insuring his llama, I will follow my hon. and learned Friend the Member for Sleaford and North Hykeham (Stephen Phillips), who declared his interest, and point out that I am a former director of NFU Mutual. That farming insurance company would find no difficulty whatever in providing insurance for a llama.
Chris Leslie
I think a deal has been transacted on the Floor of the House. However, under the provisions of the Bill, a series of disclosures may be requested from hon. Members seeking such insurance.
My point is simply that we need to know the impact that the Bill will have on pet insurance and other discretionary insurance, but also, perhaps more importantly, on essential types of personal insurance that we all want our constituents to have, such as household insurance, flood risk insurance and motor insurance. In those cases, there is less wiggle room for individuals to decide not to take out insurance.
There are separate discussions to be had in another place about the problem of certain drivers thinking, “Well, the fine that I get for driving uninsured is less than the cost of motor insurance, so I will take my chances and drive uninsured.” In my view, the penalty for driving uninsured needs to be higher than the cost of getting insurance. That is a pretty straightforward point, but you would be surprised, Mr Deputy Speaker, by the small fines that are sometimes issued to people who drive uninsured. I am sure that hon. Members will know of cases in which constituents have unfortunately been involved in accidents caused by uninsured drivers. When those uninsured drivers are prosecuted the fines are a pittance, which sends the message, “Why bother with insurance?” We must return to that issue, but it is a moot point whether it would fall under the scope of a review under the new clause.
Mandatory types of insurance are particularly important in the Bill. I can foresee circumstances, particularly with car insurance, in which the insurance sector feels that it is not getting much return. Many of our constituents howl with derision at the sheer expense of motor insurance—the AA recently said that it rose by about 16.4% in 2010. The Bill will make provision for the disclosure of certain extra pieces of information, even though people have no choice but to take out motor insurance if they want to drive; it is a legal requirement.
People will be surprised to find that even though motor insurance costs are escalating—that problem needs to be tackled in a number of ways—the insurance sector says that motor insurance is not massively profitable. The Association of British Insurers has described it as one of the most challenging products for insurers. I believe it has stated that premiums amounted to £10.7 billion and claims to £10.3 billion in 2010, so often the margins are not particularly great.
It is difficult for hon. Members, as non-experts in that trade, to know whether insurance companies are making significant profits, but let us take them at their word that they are not doing so. I can envisage a situation in which insurance companies say, “We want to back out”—pardon the pun, Mr Deputy Speaker—“of the motor insurance trade.” They might feel that in order to do so, they will deter new contracts for motor insurance. One way of doing that would be by placing a series of extra hurdles in front of customers wanting to obtain such insurance.
Many young drivers will know to their cost how difficult it can be to get insurance cover for their vehicles. I do not know whether the Minister has a driving licence—
The Economic Secretary to the Treasury (Miss Chloe Smith)
indicated assent.
Chris Leslie
I am glad the hon. Lady has insurance—I would expect nothing less. The Government car service will certainly have insurance. Not so many years ago, when she was under the age of 25, she might have found it extremely difficult even to find companies that would insure her. She is doubtless a very careful driver with an unblemished record, and she might find it easier to get insurance as a woman driver, but many young male drivers find getting insurance incredibly difficult. My point is simply this: we need the ability to review the impact of the Bill to test what is happening in motor insurance, particularly for those drivers who struggle to get insurance.
Additional hurdles could be placed in the way of those drivers. I do not object to the shift in the balance of disclosure in the Bill—I want to put that on the record—but it is important that we take time to recognise that there could be circumstances in which those seeking motor insurance find it more difficult to get as a result of these measures. We just do not know, which is why we need a review one year after the commencement of the legislation.
Another aspect of a review would be households subject to flood risk. Apparently—I did not realise this until I researched it—one in six homes in the UK are subject to the “at risk” category in respect of flooding. Amounts paid out by insurers since 2000 exceed £4.5 billion. A recent article in This is Money said that annual flood damage claims are running at more than £1 billion each year, and that 200,000 homes could become uninsurable by 2013 if an agreement cannot be reached between the Government and the industry on high-risk areas. That is incredibly important to the affected individuals, whether in Hull, where people recently had difficulty in gaining insurance, or elsewhere.
The changes on disclosure could well affect the ability of individuals to take out an insurance contract. Many who have taken out flood insurance might have found, unwittingly, that they were unable to receive a payment even though a catastrophe had occurred—a flood, a river bursting its banks or whatever—because they did not realise they were supposed to disclose certain aspects.
I want a review of the Act after one year. The provisions will, I hope, improve the situation and we will find that more people can take out flood insurance in a way that means they and insurers are assured that the contract will be fulfilled and that payouts can be made following floods and other such eventualities, but we do not know what the impact of the measure will be.
The Bill is relevant to flood victims, for whom the cost of insurance—if they can get flood insurance at all—could increase 500%. It is therefore very important that we have a review to see what happens in such circumstances. It is important that we see what is happening in the market for discretionary types of insurance as a result of the Bill, but we also need a review of the essential, mandatory, roof-over-the-head types of insurance. For those reasons, it would be helpful if the Minister accepted that such a review will take place.
Stephen Phillips
I rise to make only a short contribution. The new clause is misconceived. The Law Commission did not think it necessary, and with the greatest respect, the hon. Member for Nottingham East (Chris Leslie) has undermined his own case, because only in circumstances in which claims that ought to be paid have not been paid might there be any adverse impact on the costs of the types of insurance contract that the Bill covers.
I say to the hon. Gentleman and the whole House—to be fair, there is no one but him and the Opposition Whip on the Opposition Benches—that in this day and age, I am pleased to see the Bill before us. It is not only long overdue, and perhaps I shall speak to that on Third Reading, but it is inconceivable either that it will remove products from the market or add greatly to the costs of the type of insurance contract that it is designed to cover. I cannot help feeling that the hon. Gentleman will not wish to press the new clause to a Division.
Chris Leslie
I hear the hon. and learned Gentleman’s points, and I do not wish in any way to denigrate the importance of the Bill—it is an extremely positive and important measure—but the fact that it originated with the Law Commission does not necessarily make it perfect or negate the need for a review. He should not be under that illusion. Just because those fine minds at the Law Commission introduced the Bill does not necessarily mean that we should not scrutinise it.
Stephen Phillips
I am not for a moment suggesting that the Bill should not be scrutinised.
Insurance companies ought to pay claims that they have not paid previously as a result of an inadvertent misrepresentation or non-disclosure—everyone wants that change, which is the reason for the Bill. The only way in which the costs of the types of insurance contract that the Bill covers will increase is if claims that ought previously to have been paid—legitimate claims—are paid. Disreputable insurance companies—I venture to suggest that there is none left in this country—currently might decline to pay a claim on a specious basis. For that reason, the review proposed in the new clause is unnecessary. I anticipate that the Government will not wish to carry it out, and the hon. Gentleman is rather hoist on his own petard because of the argument he has made in support of the Bill.
Chris Leslie
I am grateful to the Minister and other hon. Members for taking the time to reflect on my new clause, which I do not think would be particularly onerous. It is important that we should have the opportunity to test the impact of the Bill, which is quite significant, given some of the changes—albeit welcome ones—that it is making to the contractual process.
In the new spirit of accord with the hon. Member for Christchurch (Mr Chope)—in which I so frequently find myself, particularly given his recent comments about the Government’s ridiculous plans for child benefit—I am quite taken by his suggestion of post-legislative scrutiny. Ensuring that we properly reviewed certain provisions in statute would be a useful initiative to take; indeed, in many ways that is why we tabled this new clause. The Minister has helpfully set out the Government’s view in those areas on which I want a review to focus. She believes that the Government are taking steps to deal with some of the difficulties in motor insurance, but I have to say that I disagree. I do not think that enough measures are being taken to help consumers who find that market particularly difficult. Also, the cuts in the flood defence budget are raising the prospect of householders being flooded more frequently, about which many constituents will be concerned.
However, I understand the Government’s general commitment to keep an eye on the issue. The Minister implied that the new clause was not necessary. It is a shame that she was not able to accept it, but given that we have at least had the chance to air the issues, and on the Floor of the House too—despite the ridiculous provisions of the Standing Orders of the House—I am more than happy not to press the new clause. Obviously we do not want to dwell on it for too long, and I think the point has been made. I therefore beg to ask leave to withdraw the clause.
Clause, by leave, withdrawn.
Clause 2
Disclosure and representations before contract or variation
Chris Leslie
I beg to move amendment 1, page 1, line 22, at end insert—
‘(3A) It is the duty of the insurer to show regard to the principle that a burden or restriction which is imposed on a consumer through requests for particulars before a contract is entered into should be proportionate to the benefits, considered in general terms, which are expected to result from the imposition of that burden or restriction.’.
If hon. Members look at line 22 of page 1, right at the foot of the Bill, they will see a simple provision that states:
“It is the duty of the consumer to take reasonable care not to make a misrepresentation to the insurer.”
It follows a provision in clause 2—one of the most important in the Bill—that refers to the “disclosure and representations” that consumers need to make to an insurer
“before a…contract is entered into or varied.”
I tabled an amendment in Committee that was specifically designed to challenge the Government in respect of the burden that might fall on consumers under the new provisions in this Bill.
I support the Bill; I think it is important. I want more clarity and disclosure, as the contractual arrangement needs to be clearer and more transparent. However, there is a small alarm going off in the back of my mind—I have a minor anxiety—that we might unwittingly create circumstances in which an individual faced with having to answer a barrage of extra questions, or fill in page after page of forms that they perhaps did not have to fill in before, may well think, “I can’t be bothered with this particular insurance cover,” especially if they feel it to be a discretionary area of cover, rather than a mandatory area, such as car insurance. Faced with that weight of administration and bureaucracy, those individuals might say, “I just don’t have the time or the inclination for these dozens and dozens of questions,” and might therefore go without insurance cover when that would be neither a prudent nor wise thing to do.
Faced with a constituent in one of our surgeries who asked, “Should I take out household insurance cover?”, “Should I take out contents and building insurance”, and so forth, most of us would say, “Absolutely you should. You don’t know what’s around the corner. There could be any number of things that fate could bring upon your shoulders. Therefore, you really ought to regard this as essential.” In the dreadful economic circumstances that the Government are presiding over, many hard-pressed families might decide that certain things will have to give, and I am sure that the cost of insurance is on many people’s minds. Adding to the consideration of cost the idea that people have to go through onerous processes and jump through hoops to get the insurance could take a certain category of person to a tipping point. Such a consideration could be the straw that breaks the camel’s back, leading them to conclude that they just cannot be bothered to fill in the forms for that insurance cover at that point. Many of us will have been there. We will have seen a particular product and made a note in the diary to investigate it, but, when faced with the hurdle of filling in the forms and getting involved in the bureaucracy, we have found that it falls down our list of priorities. That is the point that I want to test with the amendment.
In Committee, I framed the amendment incorrectly. The amendment that I tabled at that point related to circumstances in which a consumer varies a contract that they have already taken out. As the Minister will know, when she reapplies for her car insurance, the insurer will already have details of her address and driving habits on record. Renewing an insurance contract is therefore not particularly onerous, because not all the questions need to be asked afresh. She will be able to tick a box to “re-answer” them. In Committee, the Minister explained that my amendment was unnecessary as there were ways of varying contracts quite efficiently.
I have therefore tried to reframe the amendment so that it relates particularly to new insurance contracts. It is aimed at the individual who has perhaps not had car insurance or owned a house before, and who decides to start from scratch with a new insurance contract. In the amendment—I hope that hon. Members will forgive the slightly flowery legislative language that is sometimes used in such provisions—I have proposed the addition of a new subsection:
“It is the duty of the insurer to show regard to the principle that a burden or restriction which is imposed on a consumer through requests for particulars before a contract is entered into should be proportionate to the benefits, considered in general terms, which are expected to result from the imposition of that burden or restriction.”
I know that many hon. Members have concerns about regulatory burdens, but we must be careful, because regulations are sometimes necessary for the protection of individuals and of society at large. We should always keep a watchful eye on the burdens that such regulations impose, however.
The regulatory impact assessment that accompanies the Bill shows that the costs that will fall on the consumer will not be particularly onerous, which is why I support it in general terms. In pounds, shillings and pence terms, the costs will be negligible. The assessment estimates that an additional £700,000 a year will be saved by the insurance sector as a result of the provisions in the Bill, and that if there is an extra charge to consumers, it will probably be 2p or 3p for every £100 of insurance. I am therefore not concerned about the cost as a burden. The burden that I am flagging up is the administrative burden, the non-financial burden, that might fall on the shoulders of the consumer.
Mr David Nuttall (Bury North) (Con)
Will the hon. Gentleman tell us who will be responsible for determining whether the new duty that the amendment seeks to impose is being fulfilled?
Chris Leslie
Ultimately, the courts would have to be the arbiter in relation to those arrangements. This is the kind of thing that tends to get drawn into a judicial review, although I would hope that it will not need to be tested in that way. I am simply introducing a principle that I would like insurers to have regard to when they frame the questions, the tests and the requirements that they place on the shoulders of the consumer.
Mr Nuttall
So, in reality, the only way for a consumer to enforce this duty would be to take the company to court; otherwise, he would be relying on the good nature of the insurance company, would he not?
Chris Leslie
Indeed, that is the very nature of the measure, but that does not mean that, in the course of changing the disclosure requirements, we should not try to frame the duties that insurers have to abide by. I do not know whether hon. Members have visited moneysupermarket.com or confused.com recently. They are aggregator websites on which a number of insurance companies share the questions that people have to answer in order to take out an insurance contract. The websites show the range of insurance contracts that are available. Quite honestly, I think that the way the aggregator companies will deal with the Bill is another matter, but I challenge any hon. Member to say that their boredom threshold has not been reached after they have filled in 15 or 20 pages of a form. Having said that, I think that many hon. Members—especially those who are in the Chamber at the moment—must have particularly high boredom thresholds. I know that from many hours of experience in these debates. Notwithstanding that propensity to sit through long, technical discussions, however, I believe that form-filling is quite a different matter.
My point is about the administrative burden in relation to new contracts. I want us to ensure that we protect the section of society that I have been describing. I can envisage us all being visited at our surgeries in the years ahead by constituents telling us that they did not take out insurance not because of the cost but because the form-filling was just too much for them. They will tell us that they regret that, but that there were just too many questions to answer. I hope that the Minister understands why I have framed the amendment in this way. It is an important provision, and I hope that she will address it.
Mr Chope
The hon. Member for Nottingham East (Chris Leslie) has again done the House a service in raising this issue. He has spoken of the need for proportionality. I disagree with the way he has worded his amendment, however, as it is rather hard in law to place a duty on an insurer to “show regard” to a principle. Given all the other qualifications in the amendment, it would, in practice, by unenforceable.
Miss Chloe Smith
I shall answer a few questions. On this amendment, I am indeed with my hon. Friend the Member for Christchurch (Mr Chope) and my right hon. Friend the Member for East Yorkshire (Mr Knight), as I believe that the market will assist us in this area. I shall deal with the amendment principally on that basis.
The amendment, as hon. Members will have seen, would create a duty for insurers to make disclosure requests that are proportionate to the benefits generated. Following discussion in Committee, we return to the issues today; I hope I shall be able to add to what my colleague, the Financial Secretary said there.
There is no disagreement with the principle that the burdens on consumers should be as light as possible. That applies to the group of consumers mentioned by the hon. Member for Nottingham East (Chris Leslie) and, indeed, to all others who wish to purchase insurance. As the amendment rightly recognises, there is a balance to be struck between burden and benefit. The Government believe this balance is best struck by the Bill as it stands, with commercial pressures operating as a factor in that case.
I shall recap those points shortly, but I want to set out some background information on the types of questions currently asked, as I know Members were interested in that topic in Committee. They were particularly interested in the average number of questions asked when consumers enter into different types of insurance policy. I was able to take only a rough look at such things, but for some current policies it can take about 13 to 18 questions to underwrite home insurance and 12 to 18 to underwrite motor insurance. Requirements linked to these straightforward, mass-market products do not on this rough measure appear to be at all excessive. Simply counting questions, however, rather misses the point.
If insurers asked only a single question, this would be far more burdensome for consumers. I think it is much easier to answer a series of short, targeted questions—and this Bill sets out that they must be specific and clear—than it is to answer a single general question like “Has anything changed?” or “Is there anything I need to know?”
The Law Commission undertook a more sophisticated analysis of burdens on consumers, which was contained in its first discussion paper and has informed the development of this Bill. It discovered real problems in 2007 with the questions being asked in life and critical illness insurance. For example, one insurer asked, “Have you had any physical defect or infirmity, or is there any ailment or disease from which you suffer or have suffered or to which you have a tendency?” This seems impossibly difficult to answer and appears to require the consumer to begin at birth and work through every single visit to the doctor. Yet that might qualify as proportionate under this amendment because it is only one question. Reassuringly, there have been significant moves in this sector to improve the questions since 2007. The design of this Bill will further promote this improvement.
It is worth explaining briefly—I think the hon. Member for Nottingham East referred to this earlier—that different consumers face a different set of questions in order to purchase a similar policy by virtue of the channel they choose, whether it be through an aggregator, by telephone or face to face in a broker’s office. There is a need for insurers to tailor the requests they make in these different ways.
The burdens placed on consumers form the nub of the issue, and there is evidence that insurers already pay careful attention to those burdens. It has already been argued tonight that this is partly driven by market pressure, so let me add to those arguments. Clearly, a consumer has the choice to purchase from an alternative provider if disclosure burdens are too high. Indeed, some insurers have advertised products on the basis that they are easy to purchase. Comparison sites consistently study these drop-off rates and try to make the process as easy as possible.
It strikes me that no business wishes to run the risk of losing a customer entirely—the scary scenario that the hon. Member for Nottingham East has set out. No business would wish to do that because it would represent the loss of a customer. We hope that no consumer would wish to be in that position, as they would not then get the security of the product that they are looking for.
There are, of course, some savings to be made for insurers who get the right balance between getting the information they need and making it easy for consumers to purchase their product. The cost of asking another question is not insignificant, and insurers are well aware of that when they design their questionnaires. I refer the House to a PricewaterhouseCoopers report in November 2007, which considered the financial impact of the Law Commission’s insurance project as a whole. It estimated that increasing underwriting by two to three minutes per policy would equate to up to an extra £3,600 per 1 million of gross written premiums—equivalent to around an extra £150 million spent in the UK general insurance market alone. That does not include other costs associated with asking more questions, such as for the gathering and processing of the data. It is clear that there is a strong existing incentive for insurers to ensure proportionality.
I shall deal briefly with the Bill’s other provisions, in case Members do not already find the arguments about market pressures compelling enough to rely upon tonight.
Two further features of the Bill mean that if insurers impose burdens on consumers, they might undermine any right they have to refuse or reduce a claim. Under clause 4(1)(b) an insurer is not entitled to a remedy unless they can show that a consumer’s misrepresentation induced them to enter into the contract—at all or on its current terms. As a result, the Bill creates no benefit for insurers if they ask questions to seek answers on which they would not need to rely. Furthermore, under clause 3, a long and complicated questionnaire might have a bearing on whether a consumer has taken reasonable care not to make a misrepresentation. Insurers are at greater risk of having to pay claims, despite not having been given the correct information, if they make things difficult for the consumer. So in my view, there is no danger that the Bill will place extra burdens on consumers—as a result of those two measures in addition to the market forces mentioned earlier. Our impact assessment does not expect the Bill to result in significant changes to the questions asked by insurers. Rather, the Bill brings the statute into line with existing best practice and regulation. It is fair to say that we are updating the law, not altering the approach of insurers.
I do not believe that it would be beneficial for this Bill to go further than it does by seeking to change practice by prescribing the content and number of insurers’ questions. If we were to prescribe or limit the information insurers were able to seek, it might even increase premiums. Let us take, for example, the recent European Court of Justice ruling—one hon. Member has already referred to it—on the use of gender in insurance pricing, which shows that limiting the risk factors that insurers can use will increase the average cost of insurance.
Creating a duty for insurers in primary legislation would not be the appropriate solution. We continue to work closely with the insurance industry on this issue and with consumer groups on a range of issues. Where there are specific concerns about practice in certain parts of the market, the Government have worked with the industry on guidance. Accepting this amendment and creating a provision is unnecessary. It will throw out the careful balance in the Bill, and it is not the most effective way to make sure that consumers do not face excessive burdens. I therefore ask the hon. Gentleman to withdraw his amendment.
Chris Leslie
I hear what the Minister says, but I do not agree that she needed to dig through the barrel of reasons to resist the amendment. I know that officials tend to list a number of reasons—typically to address drafting or other deficiencies—but when she talks about upsetting the balance of the Bill as a whole simply to place a duty on insurers to show regard to a principle about the imposition of a burden or restriction being proportionate to the benefits, I think she is going a little too far. However, the aim of the amendment was to test the position.
Chris Leslie
I join the Minister in welcoming the Bill. It was prompted by a Law Commission report in the days when we had a Labour Administration. The recommendations were made back in 2009, and I am glad that the present Government have seen fit to accept them,
As I said earlier, these are incredibly important changes. They put some of the more opaque and obscure elements of common law and voluntary codes into a more statutory form, thus placing them beyond doubt. They update the law in relation to pre-contractual disclosure and clarify the rules about misrepresentation, making a distinction between consumers who, perhaps unknowingly, misrepresent their circumstances, and those who knowingly mislead insurers.
There have been circumstances in which insurers have used the opacity of the common law to take advantage of consumers who were unable to make a claim because they did not disclose a particular aspect of their lives to the insurer at the time of the contract. In some particularly insidious examples, people who had developed cancer or multiple sclerosis were unable to receive insurance payments because, although they had not known that early symptoms might develop into a more serious long-term condition, their insurers told them that they should have mentioned a tingle in their feet, or some other symptom that no one would expect to be the beginning of a more serious disease. I am glad that the Bill will close some of those loopholes.
We do not want consumers to have to have recourse only to the Financial Ombudsman Service to gain redress. The current rules are inadequate, we need the courts to be able to rely on clearer legal statute to clarify the arrangements, and the Bill achieves that. It abolishes the consumer duty to volunteer information in a more general, non-specific way. It also clarifies arrangements for group insurance, life insurance and rules on intermediaries. We therefore think this is an important Bill. I am glad we have touched on some of these important questions, including the state of the motor insurance industry and why more action needs to be taken to help consumers in that regard.
Jim Shannon (Strangford) (DUP)
In this Bill, has consideration been given to the differentials in prices across the United Kingdom? Northern Ireland has the highest insurance premiums in the entire United Kingdom. Is it not time to have the same competition in Northern Ireland—
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. We are now on Third Reading, and questions must be relevant to that stage.
Chris Leslie
That was an important point, however. There are regional disparities in consumer insurance. We tried, through an amendment, to—
Mr Deputy Speaker
Order. The hon. Gentleman is an experienced Member and he should know that on Third Reading we cannot discuss what was not in the Bill. We must make progress.
Chris Leslie
Your strictures are very firm, Mr Deputy Speaker, and I would not in any way want to stray out of order. Suffice it to say that this Bill will, I hope, help all parts of the country, especially the regions where we need to ensure that insurance standards rise.
It is a shame that the hon. Member for Lichfield (Michael Fabricant) is no longer in the Chamber. We were talking about pet insurance, and I did not realise that he owned a llama. Perhaps he has gone to groom his llama.
This has been an important debate, and I am grateful to all Members who have contributed. Although we must keep an eye on the impact of its measures, we support the Bill.
Mr Deputy Speaker
I hope we will have no further mention of the llama of the hon. Member for Lichfield (Michael Fabricant).
Financial Services Bill
Chris Leslie Excerpts(12 years, 9 months ago)
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Chris Leslie (Nottingham East) (Lab/Co-op)
First, I congratulate hon. Members who have taken part in the debate this evening, particularly those who served so diligently on the pre-legislative scrutiny Committee and on the Treasury Select Committee, many of whom are in warmer foreign climes at present. I thank in particular the right hon. Member for Hitchin and Harpenden (Mr Lilley) for chairing the pre-legislative scrutiny Committee and my right hon. Friend the Member for Newcastle upon Tyne East (Mr Brown) and my hon. Friend the Member for Leeds East (Mr Mudie), who contributed to the debates, for their work.
My hon. Friends have spoken on a number of topics this evening, but it would be invidious in the short time left for Front Benchers—only 10 minutes each—to try to discuss them in more detail. But do not worry Mr Speaker, because we will have about 10 hours in every one of the four weeks when we consider this Bill in Committee, so we can elaborate on each other’s comments then. Let me just note that my hon. Friend the Member for Walthamstow (Stella Creasy) rightly spoke about the need for reforms to high-cost credit and that my hon. Friend the Member for Rutherglen and Hamilton West (Tom Greatrex) spoke about the collapse of Arch Cru and the need for lessons to be learned, and made a reasonable call for a Treasury inquiry into those matters. My hon. Friend the Member for Islwyn (Chris Evans) emphasised the need for more action on financial education and my hon. Friends the Members for Glasgow North East (Mr Bain) and for Foyle (Mark Durkan) talked about the current difficulties in the banking sector, particularly with high executive pay. Also, my hon. Friend the Member for Edinburgh East (Sheila Gilmore) spoke about the importance of addressing financial exclusion and access to basic bank account services.
The Bill is a significant piece of legislation and we support the moves to a prudential regulatory approach with improved systemic oversight, but there are serious misgivings about the proliferation of agencies and the confused responsibilities in the Bill, which are far from ideal. As we have heard, we are moving from a tripartite system to a quartet system, and the acronyms abound. That might work, but we need clear lines of accountability. That was the point that my right hon. Friend the shadow Chancellor was making. There are issues with complexity, and risks associated with putting all our hopes on placing regulation in the hands of the Bank of England. The formation of the Financial Policy Committee is sensible, but we need to ensure that it has the right composition, with fewer Bank of England officials in its membership, and that appointments reflect the balance across the economy.
We have touched on a number of issues relating to the economy, such as responsibility and long-termism, and we have heard about consumers of financial services, many of whom are, after all, constituents of ours, for whom we have an obligation to speak. There will undoubtedly be a debate about the objectives of the Financial Conduct Authority and whether they are sufficiently focused on the fairness, transparency and efficiency we need in the system. There is some confusion in the Bill regarding the FCA’s powers when it issues a warning notice, and the extent to which such notices will be published. Will it be known to consumers or will there be a nod and a wink, with notices going privately to the companies concerned? Is that the right balance? I am not entirely sure that that works.
We have to do a lot more to emphasise other consumer protection matters. We must surely grasp the nettle and take this opportunity to do what we can to improve financial education in all our schools up and down the country. We must also make sure that the information available to customers more generally is accessible, intelligible, clear and understandable so that we can try to do something about the asymmetry of information that hon. Members have discussed.
My hon. Friends the Members for Islwyn and for Foyle suggested that a fiduciary duty of care should be placed on providers of financial services, and we think that there are compelling arguments in favour of such a change, particularly as some important points about pensions and charges need to be brought out in the debate, as the hon. Member for Warrington South (David Mowat) mentioned.
My hon. Friend the Member for Walthamstow continued her campaign to introduce a time limit and a limit on high charges for credit, particularly for the vulnerable in our constituencies. I agree that it is time to ensure that the FCA has powers to take action in that regard and on fee charging, debt management plans and further safeguards for depositors.
When it comes to responsibility and the long-term changes that are needed to ensure that financial services address the real economy as well as the needs of consumers and constituents, it is important that we learn the lessons of the past. Therefore, we must look at the FSA’s report on RBS and take action in the Bill to end the bias in advisory fee structures in takeovers. We must take the opportunity to reform acquisition and merger rules, as the FSA has recommended. To what extent can we use the opportunity presented by the Bill to enhance the role of the Financial Reporting Council, and possibly the FCA, to support sound stewardship and shareholder accountability and to improve the corporate governance that many hon. Members have talked about, never mind the reforms that are so overdue to executive pay, the bonus culture and the remuneration committees that have been so much in the news in recent days? It is also important to take the opportunity to do more to support a diverse financial services sector, supporting mutuals and building societies, many of which do not fit into the neat capital requirements and plc structures imposed on them by current regulatory arrangements. Those are some of the changes that we will want to introduce in Committee.
It would be wrong not to take this opportunity to talk about one of the fundamental vacuums in the Bill: the insufficient attention to jobs, growth and finding ways to support our economy. The action taken by the Financial Policy Committee and the Bank of England will undoubtedly have a big impact on the availability of credit, not least because the Government have signally failed to do anything to encourage bank lending: Project Merlin has already fallen by the wayside and credit easing has still not commenced. The FPC has the objective of protecting and enhancing stability, but we believe that it should also be guided by the objective of promoting employment and the long-term growth prospects of the economy. That is something that the CBI has argued for, and it happens in similar situations elsewhere around the world.
Perhaps the Government’s difficulties stem from their partisan design of these structures when the Chancellor was in opposition. As we heard in his speech, the Government have tried to tell a domestic political narrative that pins the failures of the credit crunch solely on the previous Administration, and suggest that it is something that happened only in this country. In his revisionist attempt to re-write history, not even once did he mention the problems in other countries, or the fact that there was a global financial crisis. He suggested that what happened, happened only here in Britain—as if the then Prime Minister got on a plane and caused all the problems in America, Spain, Germany and elsewhere, as well as in the UK. The Chancellor’s analysis of the history of the credit crunch is lacking, to say the least. It would have been better if he had redesigned regulation in a way that recognised the casino culture of the global banking sector at the time of the financial crisis.
We are faced with a Bill that contains a number of problems, but ones that we hope can be amended and improved. The regulatory structure fails to sit adequately with the international and European regulatory environments. The EU’s supervisory bodies are split thematically to deal with banking, pensions and insurance, rather than mirroring the conduct and prudential arrangements set out in the Bill. Given that the EU drives the vast bulk of the regulatory agenda that will be able to overrule the domestic regulators that we are debating, it is important that the Government state clearly how they will ensure that our voice is not marginalised in those regulatory environments—if, indeed, it is possible to be even more out in the cold than the Chancellor is at present.
Chris Leslie
I am afraid that I have only one minute before the Minister has to speak, in which time I shall also emphasise the points that my right hon. Friend made about the lack of Bank of England accountability in the proposals before us.
The hon. Member for Bury St Edmunds (Mr Ruffley) correctly pointed out the problems of a lack of a proper supervisory function in the court of the Bank of England, and they absolutely have to be addressed. There are problems also with the regulatory structure, which on the one hand describes itself as twin peaks, but looks as though it has at least four elements to it—the quartet model, which we have heard about today. Will we hear the voices of those four institutions in their own right, or will they be subjugated to the voice of the Governor of the Bank of England?
One of the most important issues for us in the House of Commons is accountability to Parliament. We are investing an enormous amount in the Bank of England, with quasi-legislative powers being placed in its hands, and my hon. Friend the Member for Leeds East was absolutely right about the need for us tread carefully in relation to those accountability questions.
We will not object to the Bill this evening, and we hope that it gets a Second Reading, but it is right that we shall spend time debating its contents in detail. Some serious amendments are needed, and we want stronger regulation that is fit for purpose, has sufficient checks and balances, delivers financial stability, promotes employment and growth, protects consumers and safeguards the interest of the taxpayer. The whole country wants to see banks that serve the best interests of the wider economy and society, and we hope that Ministers will listen and amend their Bill accordingly.
Connecting Europe Facility
Chris Leslie Excerpts(12 years, 10 months ago)
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Chris Leslie (Nottingham East) (Lab/Co-op)
I beg to move amendment (a), in line 5, leave out from ‘2014-20’ to end and add
‘believes that there should be no overall increase in expenditure compared with current levels; takes note of the concerns about the Eurozone economy expressed by Standard and Poor’s that “a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers’ rising concerns about job security and disposable incomes, eroding national tax revenues”; calls on the European Commission to reduce its proposed budget and the proportion of the Multiannual Financial Framework set aside for the Common Agricultural Policy and to reorder the Connecting Europe Facility proposals to phase capital infrastructure components so that they enhance employment and economic growth within a more limited multi-year budget; supports action to promote EU competitiveness and review the impact of the structural funds; and calls on the Government to develop more effective deficit reduction strategies at home and across the EU by advocating urgently a credible plan for growth.’.
I am glad that the amendment has been selected, because the Government’s motion is missing a rather important component—something conspicuous by its absence. To give hon. Members a clue, it is a word missing not only from the motion but from our economy.
What problem do the Conservative party, and those very full Liberal Democrat Benches, have with the concept of economic growth? The lack of growth is the reason the Government say they have to borrow £158 billion more than planned last year. It helps to explain why in the three months to November unemployment was at its highest level since 1994; and, of course, it explains why business confidence has collapsed. The Government are either ignorant of the negative impact that an austerity obsession here and in Europe is having on the prospects for growth, or they are wilfully pulling the rug from underneath the economy in the twisted expectation that that will somehow restore confidence and deal with the sovereign debts created in the wake of the global financial crisis.
The European Commission’s plans before the House are revealing of the current approach to economic policy across Europe and of the Government’s lack of influence and lack of interest in showing a positive lead. We are all agreed on the need to reduce the planned budget for the multi-annual financial framework for the years until 2020, and we too believe that there should be no overall increase in expenditure when compared with current levels, but why are Ministers totally failing to make the case for a proper growth strategy in Europe with our main trading partners, with whom we need to do well if our exporters are to succeed?
Mr Cash
I am extremely interested in the shadow Minister’s approach to the question of growth. When Labour was in government, over several years I raised the question about lack of growth and the vast increase in indebtedness, but there was no response or attempt to deal with over-regulation—over-regulation being one of the main reasons we are not getting growth. Does he accept therefore that it is difficult to stomach any lectures from him on growth? I have criticisms of the failure on growth in Europe and in this country, but we certainly do not want any lectures from him and his team.
Chris Leslie
I hope that I am not striking a lecturing tone. I am simply imploring the Government to pull their finger out and do something about economic growth in the UK and Europe. I am making the point that what happens in Europe affects our economy. The regulatory debate did indeed go on for many years. The Minister himself called for deregulation and light-touch approaches across the City and elsewhere. We have to get regulation issues correct, and we all have lessons to learn from what went wrong in that regulatory debate. We have admitted that mistakes were made, but I am still waiting for the Minister to accept that he too made poor decisions in calling for deregulation, particularly in financial services.
Nothing in the Government’s motion seeks to steer the Commission towards a more activist role in boosting and stimulating European economies, particularly in the short term. There is no sense that the Government are seeking to influence this connecting Europe facility in order to re-phase capital investment and bring real help now to an economy on the brink. One-dimensional collective austerity, as advocated by our Government—and also, unfortunately, by the Germans and others—makes it harder to get deficits down, not easier to reduce public debt.
Hon. Members do not have to take my word for it. Six days ago, the credit ratings agency Standard & Poor’s, after downgrading the status of some eurozone nations, stated that
“a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers’ rising concerns about job security and disposable incomes, eroding national tax revenues”.
Even the credit rating agencies are now worried about the lack of growth in the European economy and about whether the eurozone has the right strategy for building its way out of the fiscal hole in which it finds itself.
Jacob Rees-Mogg (North East Somerset) (Con)
Given that we are net contributors to the EU budget, which puts a great burden on our taxpayers, will the hon. Gentleman explain how building a railway in Romania would help the UK economy?
Chris Leslie
It is important that the European Commission, and the eurozone in particular, focus on getting economic growth. My simple point is that it is not happening. An austerity-only approach is being taken, but it is not working, just as it is not working in this country. Of course we have to ensure that we reduce the proposed budget increases—we do not disagree with that—but there are ways to stimulate an economy within that envelope, including through a phased approach towards the European spending review process. That is my point. It is the glaring omission from the Government’s plans so far.
Mr Redwood
Will the shadow Minister bring us up to date with Labour thinking on the IMF having more money to lend to save the euro? Does Labour think that it would be a good idea because it would promote growth, or a bad idea because it would damage the British budget?
Chris Leslie
We are all waiting to see what proposals come forward. The Chancellor has said that he will come to Parliament and let us have a say on many of these things. Indeed, perhaps the Minister can help us out with the timing of those proposals—[Interruption.] If he would care to listen to my questions, perhaps he could also tell us when we will get the Bill to enact the European financial stabilisation mechanism permanent bail-out fund. We are all waiting for that. The eurozone countries are supposed to be rolling together the European financial stability facility and the EFSM into that permanent arrangement, but as I understand it we will have to legislate for that. Will he tell us when that will happen, because it is related to this question about potential IMF funding? We need clarity from the Government—and from the IMF as well.
Graham Stringer
I completely follow my hon. Friend’s logic, but surely this is not the largest issue facing the future of the European economy. The largest issue is that the people running Europe are determined to keep a political project going by competitive deflation in the countries of Europe. The best solution for the whole European economy is for an orderly break-up of the euro, particularly for those economies, such as Greece and probably Italy and Portugal, that are, in effect, bankrupt.
Chris Leslie
I do not agree with my hon. Friend that the break-up of the euro would be in the UK’s interests, but there are dangers with a permanent deflationary lock in the fiscal policies of the eurozone countries. That is why, both in the UK and across the eurozone, far more must be done to get growth into those economies. They have to grow in order to build their way out of the hole that they are in. In that sense, the ambitions, which many people share, of improving infrastructure across the EU, while laudable, need to be seen in the context of the affordability criteria that must be applied to them. We have to act to unblock the clogged arteries of Europe, connecting the major cities of the continent, making it easier for business and opening new opportunities for growth in the single market. Capital investment in infrastructure is extremely important as a driver for growth.
What progress are Ministers making in shaping the European spending review? That is absolutely at the heart of today’s debate. After December’s phantom veto—the first veto in history that stopped precisely nothing—the UK has to pick up the pieces and try to influence the important EU budget process. The Minister was throwing around history lessons about the common agricultural policy and various other things. However, we need to know what exactly this Government are going to do about the common agricultural policy. What is he going to do about the spending proposals? Rather than walking away before the negotiations even begin and leaving another empty chair, the Minister has to raise his voice, build some alliances and secure a more appropriate level of expenditure that also shifts priorities.
Mr Bone
We have an excellent shadow Minister, who is always on top of his brief, but I do not think he was here when Tony Blair gave a commitment that the CAP would be reformed, so that our net contributions to the EU now would be at the same level as they were then. Clearly that was wrong. Would the hon. Gentleman and his party support our most excellent Minister going into battle and saying, “We’re not going to pay any more than our initial subscription was to the EU”?
Chris Leslie
I did not quite hear that from the Minister. If that is the Government’s position—perhaps the hon. Gentleman has a hotline to the Prime Minister on these matters—I would be very interested to hear it.
I agree that the proposed budgets for EU institutions are still too high. Export refund practices have to be cut back. We have to change agriculture policy so that it is fairer to smaller farmers and ends the ridiculous tobacco and wine subsidies that are lavishing payments on some of the very wealthiest players in the wealthiest EU countries.
Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)
I wonder what the hon. Gentleman’s proposals might mean for crofters in the highlands and islands of Scotland.
Chris Leslie
We have to change the common agricultural policy. My point is that the CAP is far too heavily involved in subsidising the big multinational farming institutions, which are the largest agricultural producers, and is not fair enough on some of the smallest farmers and crofters.
Kelvin Hopkins
One simple point, which I have made before, is that if the common agricultural policy were abolished, we could continue to subsidise farmers at the same level and be net beneficiaries.
Chris Leslie
There is much agreement on the need to reform the common agricultural policy. More should have been done in the past, but more needs to be done now. I want to hear the Government’s strategy on that. I want to hear how they are going to win some concessions and what they are doing to change the negotiation stance. They are certainly doing nothing about refocusing growth priorities or reforming the common agricultural policy.
We have to re-order the connecting Europe facility so that we can phase capital infrastructure components and enhance employment and growth. While the 26 other countries are busy negotiating their new economic treaty without the UK taking part, they will realise that the EU budget is highly relevant to their economic predicament, particularly in the eurozone. I would therefore like to ask the Minister an important question: how will he ensure that he keeps track of all those discussions on the sidelines—all those deals being done in meetings that he will not be party to—so that the UK voice is part of the process?
We are discussing an important series of proposals, which touch on broadband, transport and energy policy. A year ago, the Government unveiled their broadband strategy. It is becoming clear that the vast majority of local authorities are not likely to meet the Government’s universal broadband target by 2015, which has already slipped by a couple of years compared with the target that we set when in government. We tabled some freedom of information requests before the Christmas break and discovered that 70% of local councils said that they had
“not made any plans, provisions or budgeted to take advantage of the Government’s funding allocation for broadband provision,”
and that 74% had had no assessment made of the likelihood that the roll-out of superfast broadband in their areas would be completed by 2015. The Minister therefore needs to explain why a quarter of local authorities say that they have not even been contacted by BDUK—Broadband Delivery UK—about the need to secure funding; indeed, only a quarter have made plans to finance universal broadband roll-out. Even the Countryside Alliance and the Federation of Small Businesses agree that the Government are not doing enough to support Britain’s digital future.
Charlie Elphicke (Dover) (Con)
It was the previous Labour Government’s policy to have a telephone tax. Does the shadow Minister still believe that the telephone tax is the right way forward? Yes or no?
Chris Leslie
I really do not think that anybody was proposing a telephone tax in the sense that the hon. Gentleman characterises it. We have to find ways to fund improvements in broadband communication, but my question to him and the Government is this: what exactly is their target for broadband roll-out? They have still not said. The EU is talking about some 30 megabits per second and 50% at 100 megabits per second by 2020, which is quite an ambitious target, and we had our targets for 2012. Perhaps the Minister can consult his colleagues on that.
Chi Onwurah (Newcastle upon Tyne Central) (Lab)
Will my hon. Friend give way?
Chris Leslie
I will give way to my hon. Friend in a moment, but perhaps the Minister can listen to this. What exactly is the Government’s 2015 target, by megabits per second, for broadband roll-out? I would be very interested if he could elaborate on that. I will give way to the Minister if he has an answer to that, but perhaps my hon. Friend can also help me.
Chi Onwurah
My hon. Friend is making some excellent points. It should also be pointed out that the Labour party’s target for universal broadband was fully funded from the digital switchover. The Minister talks about the need for targeted infrastructure investment. Does my hon. Friend agree that what businesses need right now, particularly rural businesses up and down the country, is a decent broadband speed to enable them to get online and contribute to growth as part of our recovery?
Chris Leslie
My hon. Friend is absolutely correct. It is imperative that rural businesses should have that connectivity and that level of dialogue, e-mailing and information exchange as soon as possible. The data must be able to get out from those businesses and their localities. This delay and prevarication from the Government, in a strategy that does not even seem to have a target, is entirely atrocious.
On transport, no one would disagree—there is quite a lot of cross-party consensus on this—that we have to tackle bottlenecks and missing cross-border links, and promote new ways of improving the single market. We agree with the Government that there are potentially added elements of bureaucracy in the proposed project management of the core networks which conflict with the principle of subsidiarity. There is a risk that the comprehensive networks, and not just the core corridors that the EU is focusing on, might lose out if structural funds are not available for UK transport infrastructure projects. We want the trans-European network policy to concentrate not just on jobs and growth, but on decarbonising the transport sector—a modal shift from road to rail, particularly for freight—on greater connectivity within networks and, of course, on improved transport safety. A transport infrastructure that addresses economic disparities, and is aimed at delivering jobs and tackles the pinch points, gaps and capacity constraints in the EU networks is essential to tackling Europe’s continuing economic issues.
The Commission is probably correct to highlight the infrastructural deficiencies in our collective electricity and gas networks. However, there are some highly prescriptive elements of the Commission’s proposals, which may not allow the right degree of flexibility to accommodate some of the domestic UK projects and procedures that are already under way. For instance, there is a danger of overlap of activity on the North sea interconnector, which is currently being examined for feasibility. As for planning issues, much of the streamlining process has already been dealt with through the Planning Act 2008, despite the fact that the Government have already stepped away from some of the benefits of the Infrastructure Planning Commission. We see no benefit in overlaying anything on that, leading to duplication and slowing processes down. We suggest that the Commission should instead concentrate its energy infrastructure proposals on the carbon capture and storage agenda.
Existing procedures for bidding for EU funding are under way, but the value of the funding is affected by the carbon trading regime. In recent months it has fallen, making the available investment worth less. Carbon capture and storage could make a significant difference to the viability of fossil fuel electricity generation, and has yet to be proven on a commercial scale. The role of EU funding in this area is becoming more significant since the collapse of domestic carbon capture and storage projects here in the UK in the past year. Despite the Government’s promise that the £1 billion funding would remain available for CCS, it has now been reallocated to the wider infrastructure fund announced in the autumn statement, leaving carbon capture strategy in the UK in some doubt.
The Minister mentioned the fact that the proposals touch on innovative financial instruments. There is a serious lack of clarity on what exactly the Commission is proposing, and what exactly the Government’s principles are on innovative financial instruments. We need more substantive debate on this matter, and more information ahead of the discussions. The Commission needs to reduce its proposed budget, and the Minister needs to get off the sidelines and step into the negotiations. The Government should be doing far more to reorder the phasing of the capital infrastructure schemes here in the UK and across Europe. Above all, they should develop more effective deficit reduction strategies at home and across the EU, with an urgent and credible plan for growth.
Prevention of Nuclear Proliferation
Chris Leslie Excerpts(12 years, 11 months ago)
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Chris Leslie (Nottingham East) (Lab/Co-op)
As the Minister has outlined, events in Iran in recent months and weeks have been deeply concerning. It is right that we have a debate today on the nature of the British response to those troubling developments. Elements within the Iranian regime have been fomenting public discontent outwards towards other countries, partly in an attempt to stop the Iranian people looking inwards at the regime itself. The increased fuelling of hostility to the outside world is a worrying move, to which neither we nor the international community can afford to turn a blind eye.
Last month, the comprehensive and unequivocal report from the International Atomic Energy Agency made clear the fact that there is an accumulating body of evidence regarding the possible military dimensions of the nuclear programme in Iran. As the Minister has said, in the light of that, it was right that the UK, along with the US and Canada, took the decision to increase diplomatic pressure on the regime in Iran.
We welcome the Chancellor’s announcement that the UK would sever all ties with Iranian banks, including the Central Bank of Iran. As the Minister said, a position came into force on 21 November and is now formally before the House. Since then, important developments have taken place. Following the announcement of the further sanctions, the Iranian Parliament approved a Bill that called for the downgrading of diplomatic ties between Iran and the UK, and several MPs in the Iranian Parliament chanted “Death to Britain” as the measure was adopted. Within a few days, hundreds of demonstrators overran the city centre compound of the British embassy in Tehran. They looted and vandalised the homes of embassy staff and set fire to the main buildings, while Britain’s second embassy compound in the north of Tehran was simultaneously attacked and looted.
I echo the Minister’s comments. I also fully support the remarks made on 30 November by the shadow Foreign Secretary, my right hon. Friend the Member for Paisley and Renfrewshire South (Mr Alexander), about the “unyielding professionalism and… bravery” of our UK diplomatic staff in Iran.
The notion that such an assault against our embassy could take place without permission, and indeed instruction, from elements in the Iranian regime is too far-fetched to be entertained, and the belated and limited response from the Iranian diplomatic police serves further to discredit such delusions. Let us be clear: this was a co-ordinated attack on two British embassy compounds by a student militia controlled by elements within the regime.
All diplomatic avenues available to the UK and the international community must surely be pursued to increase the peaceful pressure on the regime in Iran to ensure that it fulfils its responsibilities and obligations under international law, and the financial restrictions that we are discussing today should be seen in that light. The attacks on and looting of the British embassy compounds in Tehran following the measures that we are debating serve to highlight the desperation of the regime in the face of increasing pressure and isolation from the international community. It is therefore right for us to cease dealings with Iranian banks and their subsidiaries, and with the Central Bank of Iran, to avert the risk of the financing of terrorism or money-laundering activities emanating from Iran.
Mr Straw
May I say now what I should have said in my first intervention? I declare my interest as a co-chairman of the all-party parliamentary group on Iran, although I have absolutely no financial interest.
I am listening carefully to what my hon. Friend is saying. Does he share my significant concern about the fact that we were joined by only two other countries in advancing this proposal? If the case was as strong as is suggested, we could surely have had many others alongside us, and our diplomats would not have been exposed in Tehran as they were.
Chris Leslie
I understand my right hon. Friend’s point, which brings me neatly to the five questions that I wish to ask the Minister.
The Government say in the impact assessment that they want to press for further international action. They also say that
“there is a risk that the measure will be weakened by financial institutions in other countries providing financial services to Iranian banks, including in support of Iran's proliferation-sensitive activities”.
My question to the Minister echoes some of the concerns expressed by my right hon. Friend. Will he assure us that he and his Foreign Office colleagues will be active in using all available diplomatic channels to put pressure on other countries to impose sanctions similar to those bilaterally imposed by the United Kingdom, the United States and Canada? It is clear that a concerted international effort is greatly needed to put further pressure on Iran to change course.
We think it important to support the order, but some of my questions are important as well, including one concerning enforcement and penalties. We know that there have been instances of financial institutions breaking rules laid down to prevent Iran’s progress towards nuclear capability. Two years ago, in December 2009, Credit Suisse was fined $536 million in the United States for the removal of information in relation to the origination of US-bound transactions from the “Atomic Energy Organization of Iran” and the Iranian “Aerospace Industries Organization”. In January 2009 Lloyds bank was fined a substantial $350 million in the United States for similar breaches involving Iran and other international restrictions, while in August 2010 Barclays was fined $300 million.
Criminal offence and civil penalties will apply in relation to non-compliance with—or knowledge of, and intentional circumvention of—the new requirements that we are discussing. The penalties are the same as those that the enforcement authorities and courts have in respect of non-compliance under the money laundering regulations 2007—fines, imprisonment for a maximum of two years and so on. The Americans clearly take breaches very seriously, as is shown by the scale of the fines they have imposed, so my question to the Minister is: can he reassure the House that the UK will take a similarly robust approach, with penalties on a scale that reflects the seriousness of the offence, both to prevent breaches of the rules and to punish appropriately those who breach them?
My third question for the Minister relates to the explanatory memorandum, which makes it clear that a licence for exemptions from this order can be granted by the Minister on a case-by-case basis. The impact assessment states that
“it is unlikely we will license significant further exemptions for businesses as this would risk undermining the purpose of the measure”.
That is self-explanatory. We recognise that exemptions are not likely to take place on a significant scale, but will the Minister set out in what circumstances exemptions might be made to those restrictions?
My fourth question relates to the fact that the order has a time limit of a year and, under paragraph 38 of schedule 7 to the Counter-Terrorism Act 2008, the Treasury will be obliged to report every year on the exercise of its functions under that schedule. The Minister has said, as does the explanatory memorandum, that the order will be kept under review, but given the fast-moving developments and narrow time scales involved in the situation with Iran, will he commit to reporting to this House before the annual deadline if circumstances change—for instance, if negotiations on the nuclear programme were to improve or worsen? We hope that the latter would not be the case.
Lastly, will the Minister make it clear to the House, and leave no doubt about the message we are sending today to the people of Iran and to the international community more widely, that despite attacks on our channels of diplomacy with assaults on our embassy, we will not be deterred from actively and creatively pursuing all diplomatic options at our disposal to ensure that Iran upholds its responsibilities and obligations under international law? There is a widespread hope that diplomacy must prevail. We, and other nations around the globe, cannot afford to be complacent. The Opposition welcome this measure from the Treasury and hope that, with the Foreign Office, it will, as my right hon. Friend the Member for Blackburn (Mr Straw) said, be proactive in building a broader diplomatic effort across the globe to stop Iran flouting international law.
Royal Bank of Scotland (FSA Report)
Chris Leslie Excerpts(12 years, 11 months ago)
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The Financial Secretary to the Treasury (Mr Mark Hoban)
With permission, Mr Speaker, I should like to make a statement.
Today the Financial Services Authority published its report on the failures that led to the near collapse of the Royal Bank of Scotland. It is a thoroughly detailed report, listing a catalogue of management and regulatory failures that almost felled one of the world’s largest banks. Given the billions of pounds of taxpayers’ money that was needed to bail out the bank, not once, but twice, and for a total sum of £45 billion, it is right that taxpayers are told the full story.
It is fair to say that the report makes for depressing reading. For the shadow Chancellor, it is as damning as it is depressing. The report lays bare the gross failures of the regulatory regime that was devised and driven by the shadow Chancellor and his party.
It is now well known that the tripartite system set up by the previous Government failed spectacularly in its mission to maintain stability. The decision to divide responsibility for assessing systemic financial risks between three institutions meant that in reality no one took responsibility. As the report laments, the FSA was solely responsible for the entire range of financial regulation issues, from the prudential soundness of major systemically important banks, to the conduct of some 25,000 financial intermediaries.
The failure of regulatory culture was equally significant as the failure of institutional design. The report says:
“What was wrong in the case of RBS was the FSA’s overall approach to prudential supervision, rather than the execution of this approach in relation to RBS.”
More than that, the report says that it was an approach that
“responded to political pressures for a ‘light touch’ regulatory regime.”
The report singles out the shadow Chancellor as one of the three senior Labour politicians who were responsible for this “sustained” pressure. It quotes his first speech as City Minister in which he said
“nothing should be done to put at risk a light-touch, risk-based regulatory regime.”
It was political dogma at the cost of prudential regulation, and it left us hamstrung with a complacent regulator, powerless against the risks in the financial system. It meant that the FSA failed sufficiently to challenge RBS management over its decisions, and was over-reliant on the firm’s own assessment of its position. Rather than exercising judgment and foresight, the FSA adopted a tick-box and reactive approach to regulation.
Left to its own devices, without proper regulatory oversight, RBS got away with some of the most shocking decisions taken by any bank in the years and months leading to the crisis in late 2008. Poor judgment was fostered by a style of management and governance that promoted a culture of aggressive risk-taking over prudence. That was most clearly demonstrated by RBS’s decision to grow its investment bank by aggressively expanding its structured credit and leveraged finance activities. That build-up of risk was compounded by RBS’s relentless pursuit and purchase of ABN AMRO. The current chairman of RBS said that the acquisition was
“the wrong price, the wrong way to pay, at the wrong time and the wrong deal.”
As the House is aware, it was the losses in the RBS investment banking arm that crippled the entire bank. As the credit trading losses mounted, the bank’s excessive reliance on short-term wholesale funding and its weak capital position were brutally exposed, and led to its near collapse.
The British economy is still recovering from the near collapse of RBS and the wider financial system just three years ago. Recovering from that crisis is this Government’s No.1 priority. We simply cannot afford a repeat of it, which is why we have embarked on fundamental reform of our regulatory system. As the House is aware, the Government are legislating fundamentally to reform the failed tripartite system. We are establishing a permanent financial policy committee inside the Bank of England. Its job will be to monitor overall risks in the financial system, identify bubbles as they develop, spot dangerous interconnections and stop excessive levels of leverage before it is too late. It is exactly the kind of judgment and foresight that we needed in the years preceding the last crisis.
We are also abolishing the Financial Services Authority in its current form, and creating a new Prudential Regulation Authority with a focus on micro-prudential regulation. Prudential regulation of banks will go back to where it belongs, under the auspices of the central bank, as a subsidiary of the Bank of England, bringing micro and macro-regulation under one roof.
The PRA will be a focused, expert regulator. Whereas the FSA was responsible for thousands of financial services firms, the PRA will focus exclusively on the prudential regulation of deposit-takers, insurers and investment banks. And when regulating banks, it will have the single statutory objective of promoting safety and soundness. Responsibility for the protection of consumers and the conduct of financial services firms will transfer to the new Financial Conduct Authority, leaving the PRA free to focus first and foremost on stability.
We are also working closely with the FSA and the Bank of England to ensure that the new PRA has the powers that it needs to ensure that banks do not take excessive risks and that directors who act improperly face appropriate penalties. We will consider carefully the further recommendations made in the report, particularly Lord Turner’s suggestion that it should be made easier for action to be brought against the directors of failed banks.
I share the frustration of many Members that it has not been possible to bring action against those responsible for the failures at RBS, but strengthening legal powers in this area would raise some complex issues, and we will want to reflect carefully and listen to a range of views before deciding on any action.
The report into the failure of RBS fully complements our analysis of the faults of the previous regime and supports our wider reforms to the banking system. We will respond to the recommendations of the Independent Commission on Banking next Monday. We have already said, though, that we support in principle not only a ring fence around better-capitalised high street banks to protect them against investment banking losses but, when things go wrong, a bail-in of private investors, not a bail-out by taxpayers. Together with recovery and resolution plans, that means that we are working to ensure that banks can fail in an orderly fashion without any recourse to taxpayers’ money.
We will not make the same mistakes as the previous Government but will ensure that we have a system of regulation that secures our financial stability while protecting our competitiveness, and we have already made substantial progress in that ambition. I welcome the action already taken by the FSA to strengthen its supervisory capacity, to become a more intensive and intrusive regulator and to improve its ability to ensure that banks are well governed.
We continue to lead the international debate to impose higher capital requirements and tougher funding standards on banks across the globe, and we will resist any attempt to unpick Basel III in Europe. With the world focused on the strength of bank balance sheets, this is not the time to pander to vested interests. We will ensure that Basel III is implemented in full and that we can go further to impose higher capital standards where necessary to meet risks unique to our sector.
We know that the financial sector will continue to be a critical part of our economy and our recovery, and we are committed to supporting the sector and protecting the open and competitive markets that have allowed the sector to flourish in the UK, but that success cannot come at a cost to the wider economy. That means getting the structure and substance of regulation right and correcting the mistakes of the previous Government.
Today’s report reminds us of the gross failures of the previous regime and the previous Government. This Government will not repeat those mistakes. We will reform the regime to preserve the innovation that fuels the sector’s success without putting the wider economy at risk and to build a successful but stable financial services sector. I commend this statement to the House.
Chris Leslie (Nottingham East) (Lab/Co-op)
The report confirms that there was institutionalised dysfunction at the heart of the Royal Bank of Scotland and confirms what we all know—that there was a collective failure of regulation not just in Britain but around the world, and that there were failures not just of one individual, institution, political party or Government but failures that allowed irresponsible bankers to take excessive risks and cause a global financial crisis.
Labour Members have accepted our responsibilities, and as my right hon. Friend the shadow Chancellor said, for the part that the previous Government played in that global regulatory failure, we are deeply sorry. Acknowledging our part in those global failings is the right approach to take, so let me ask the Minister: does he accept that the Conservatives got it wrong too? During the 2007 debates on Northern Rock, he beseeched the Treasury
“to counter the pressure for greater regulation”,
and talked of
“the strength of our regulatory regime”
and how it was
“vital that this crisis does not erode that standing”.—[Official Report, 12 December 2007; Vol. 469, c. 391.]
It would be unparliamentary to call the Minister a hypocrite but perhaps he needs some medical advice about his selective amnesia. Let us have some contrition from the Conservative party, which never once called for more regulation or criticised the FSA for not having enough powers. In fact, it argued precisely the opposite. The Chancellor of the Exchequer, who is sitting on the Front Bench, complained constantly of burdensome and complex regulations.
The FSA is clear that there was a collective failure, but there was also clarity about how the regulator was at fault. Specifically, the report says that the monitoring of RBS’s capital position was “reactive”, and that “supervision of liquidity” was a “low priority”. The FSA did not scrutinise the trading book or loan impairments adequately, and the takeover of ABN AMRO was not questioned sufficiently. Can the Minister say, first, whether the FSA had the co-operation of all former RBS directors, and whether they were all interviewed? His statement was somewhat vague about action against those responsible—he says that he will reflect carefully. Can we take it then, reading between the lines of his statement, that the Government will not pursue action to disqualify former RBS directors from sitting on other company boards?
Secondly, the Minister says that he will “consider” tough action to ensure that bankers who jeopardise the solvency of our retail banks cannot escape responsibility. There should be a new strict liability requirement specifically for banking directors. If the Minister does not amend the draft Financial Services Bill to achieve that, we will table amendments to that effect. The report suggests that future bank takeovers should require formal approval by the regulator, which was not required when RBS took over ABN AMRO. That is sensible, so can the Minister say whether he will amend the draft Bill accordingly?
Thirdly, will the Government take steps to strengthen the corporate governance of large public companies, including banks? Regulators have to do a better job, but shareholders also need to be able to exert their authority. Fourthly, will the Minister agree to implement the legislation already approved in law to publish the pay deals of everyone working in the banking sector earning more than £l million? The Government have dragged their feet on this issue. A simple signature to a statutory instrument is all that is needed. Surely it is important to have transparency and accountability for all the high earners in the banks, not just the richest eight in each bank, as he has conceded so far.
Fifthly, the report highlights a culture of incentive fees for City advisers, whose rewards are greatest if large takeovers are completed. The report recommends ending that bias in the advisory fee structure. Why did the Minister ignore that recommendation in his statement? Does he agree that the proposal would make good sense? The FSA and the Government did not see the financial crisis coming, but neither did the Bank of England. Is the Minister certain that putting all the new regulatory powers in the hands of the Bank will work? Is there a risk that the accountability of the Bank of England—an important point—is substandard in his current proposals? Will he accept the suggestions from the Select Committee on the Treasury and others that those safeguards need to be significantly enhanced?
We of course support moves to enhance prudential regulation, but there is always a danger of fighting the last battle, especially when there could be a eurozone credit crunch just around the corner, so is the Minister not taking his eye off the ball? Will he acknowledge that the new European supervisory structures are incredibly powerful and that, by mishandling negotiations in Europe so badly, the Government have jeopardised our ability to influence and steer those European regulations, which can overrule the tougher capital buffers for our banks, as suggested by the FSA here in Britain?
The regulators did not do enough, and we have to learn lessons. However, ultimate culpability rests on the shoulders of the bankers involved. It is astonishing that deeply irresponsible decisions by those bankers should have forced a £45 billion bail-out, and yet no enforcement action is brought and nobody is punished. It is about time that this Government stopped pandering to the big banks and took action to speed up banking reform and rein in the excessive bonus culture.
Mr Hoban
The approach taken by the hon. Gentleman, who seeks to try to blame everybody for the crisis, overlooks the key role that the shadow Chancellor—who is not in his place today—played in the design of the regulatory system that led to the problems we saw at RBS. That design—driven by the shadow Chancellor, who took great credit for it—meant that no backstops were in place when RBS took those decisions.
The other point that the hon. Gentleman should bear in mind is that only three politicians are named in the report as having put pressure on the FSA to adopt a light-touch regulatory regime. One was Tony Blair, one was the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), and the third one—the person who is missing from the Opposition Front Bench today—is the shadow Chancellor, the person who in his first speech as City Minister called on the FSA to adopt a light-touch regulatory regime, a regime that, when confronted with the challenge of RBS, turned from a light touch to a soft touch. It is, of course, the taxpayer who has picked up the bill for the fundamental flaws in Labour’s regulatory regime.
The hon. Gentleman talked about disqualification of RBS directors. It is a pity that the previous Government did not think about that issue in the aftermath of the financial crisis. My right hon. Friend the Secretary of State for Business, Innovation and Skills has referred the report to counsel to see whether it is possible to disqualify the directors of RBS.
The hon. Gentleman talked about approval for acquisition. We will look carefully at the proposal Lord Turner made, but the reality is that the FSA had powers to intervene, but chose not to use them—partly as a consequence of the light-touch regime foisted on them by the previous Government.
When the hon. Gentleman talks about bonuses, let us not forget that it was under the previous Government that bonuses could be paid out in cash and taken straight away. Under the regime in place now, bonuses are deferred, paid out in shares and can be clawed back. Let us not forget that the moment that it was possible to exercise the maximum leverage on Sir Fred Goodwin—the banker Labour knighted—was the moment when it gave away his pension scheme. So I will take no lessons from the Labour party on the way in which we should deal with the problems of RBS.
The hon. Gentleman referred to the Bank of England and seemed to question whether it was able to take on the additional responsibilities. I thought he was moving away from his party’s position of supporting the package of reforms that we have put forward. Let me remind him that it was the Bank of England that identified the problem of the mispricing of risk in the financial markets. The problem was that the regulatory structure it had to deal with meant that the Bank did not have the power to tackle the problem—nor, indeed, did the FSA. What we are faced with is a problem of dealing with the regulatory regime left to us by the previous Government. They chose not to make these reforms when they were in government; we are taking action now to ensure that we have the right regime in place to tackle those risks and ensure that we have a stable, but successful, financial services sector.
Northern Rock
Chris Leslie Excerpts(13 years ago)
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Mr Speaker
I apologise to the hon. Gentleman for inadvertently demoting him. I had been advised that this statement was to be made by the Exchequer Secretary to the Treasury, but I realise that the hon. Gentleman is a still more senior man, serving the Government as Financial Secretary.
Chris Leslie (Nottingham East) (Lab/Co-op)
The Chancellor might have chosen to make this announcement when Parliament was in recess, but he really ought to have been here today—[Interruption.]
Mr Speaker
Order. I just say this, once and for all, to the hon. Member for Reading West (Alok Sharma): sit there silently, please, doing your duty. If you feel unable to do so, you have a very simple alternative, which is to leave the Chamber.
Chris Leslie
Thank you very much, Mr Speaker. I was simply making the point that the Chancellor ought to have been here today because there are so many questions to answer about this deal. Obviously it is right that Northern Rock should be leaving public ownership, just as it was right to take it into public ownership in 2008 to avoid a catastrophe, but the decision to sell at this time and in this manner raises some very serious questions. Will the Minister confirm the net loss to the taxpayer from the sale, and that the proceeds will be used in their entirety to pay down the national debt?
On the sale’s timing, I read in the papers, and the Minister said again today, how the Government are blaming Europe and Labour—I am surprised that they have not blamed the civil service yet. These are weak excuses that just will not wash. He should start taking responsibility for some of his own decisions, and he should be doing what is right for the British taxpayer, not hiding behind EU rules. If he felt constrained by the EU requirement to sell by the end of 2013—let us remember that it is still only 2011—why did the Government not try to change that? If he is now suggesting that it was a bad deal for the taxpayer and that he would rather have waited, why did he not ask the European Commission for an extension? With the economy flat-lining, bank shares in decline and a deepening crisis in the eurozone, he could easily have made the case that circumstances had changed. Or does this fire sale suggest that they think that conditions will get even worse?
The Government have a duty to ensure that the deal is good for taxpayers, the economy, the new company and its customers and staff, so why is he scared to issue an initial public offering for Northern Rock? With about £700 million of excess equity on its balance sheets, why on earth is he selling it privately for 66p in the pound? Contrary to the headlines, this deal is funded not principally by Richard Branson, but rather with £250 million from US financier Wilbur Ross, a stake from an Abu Dhabi sovereign fund and—wait for it— £250 million of Northern Rock’s own money, using its existing capital assets in a complex financial swap deal. Is the Minister not a little troubled that the company’s assets are being stripped even before it changes ownership?
What is Northern Rock’s current core tier 1 capital position, and what does the Treasury anticipate it will be in three years? We know that the Financial Services Authority has voiced its anxieties about such a substantial removal of capital. What safeguards will it be given if these capital buffers are to be thinned out so dramatically? The Financial Times reports that Wilbur Ross has paid about 80% of the book value for Northern Rock, yet he is quoted as saying that he would have
“to sell out a few years down the road for 1.5 times book value.”
That is 150%. Is the Minister comfortable with the news that the Government have sold to an individual actively planning to dispose of the bank quickly and nearly double his money? Does that not indicate that the Treasury might be selling prematurely and at the wrong price?
I am amazed that the Minister has agreed to underwrite a further £150 million of the buyers’ payments? I have heard of vendor financing, but agreeing to accept £150 million of debt so deeply subordinated as to be basically unsellable takes the biscuit. Is it not possible that the subsidy will be regarded as further state aid, and is he presumably seeking EU Commission approval for that? Will he at least guarantee that the Treasury will receive a payment every year on that £150 million, and that we will get it all back by the end of this Parliament?
The coalition agreement promised to promote mutuals and financial services, yet no apparent consideration was given to the mutualisation of Northern Rock. Why did Ministers not try harder to develop that option? Will the Minister publish the analysis on the basis of which they dismissed a member buy-out? The concerns about the decision to run down £250 million of Northern Rock’s capital reserves are not just an issue for the taxpayer; they also reduce Northern Rock and Virgin Money’s ability to provide significant credit in a market crying out for mortgage finance. Despite the new owners’ reported assurances, there are no contractual guarantees that branches or jobs will be retained. Savers in Northern Rock will also need reassurance that their new bank’s depleted capital reserves will not bring repeated anxieties if another banking crisis occurs.
The Chancellor opposed the original decision to rescue Northern Rock, saying:
“I am not in favour of nationalisation, full stop.”—[Official Report, 19 February 2008; Vol. 472, c. 186.]
Is this not a golden opportunity for him to hold up his hands and admit that he made a mistake, and do not the growing question marks lingering over this giveaway deal also suggest that his judgment is as wrong now as it was then?
Mr Hoban
That was a lame response to my statement. The previous Government presided over the failure of financial regulation and an irresponsible banking culture that led to the collapse of Northern Rock. Now we have to deal with their legacy, and that includes the agreement that they struck with the European Commission requiring Northern Rock to be sold by 2013. Given the hand we were dealt by the previous Government, we had to do three things: get the best deal for the taxpayer, for the consumer and for Northern Rock and the north-east. The deal that we announced last week did just that.
The hon. Gentleman asked about proceeds. As we have said, this is a one-off transaction, and the proceeds will go towards paying down the debt. He asked whether it would have been better to hold on to Northern Rock longer. The reality is that Northern Rock is currently loss-making, and it is expected to make losses in the first part of next year. The best outcome for Northern Rock is to be acquired by somebody who wants to use the base in Gosforth to expand the business and offer a better deal to consumers and the staff of Northern Rock. David Fleming, the Unite trade union official, said:
“The treasury’s decision to sell Northern Rock to Virgin Money marks a significant moment in the history of this north-east based financial institution. After three years of turmoil and upheaval for the workforce at Northern Rock, Unite hopes that today will be the start of a secure future.”
Let me deal with Virgin Money’s capital position, which the hon. Gentleman raised. Virgin Money has clearly set out to be a strong and dependable partner. Its core tier 1 capital ratio is 15%, which is much higher than that of many existing high street banks, which averages about 10%. Of course the FSA will approve the capital structure and will have to give its approval of the transfer of ownership, and hon. Members should welcome that support.
On mutualisation, I made it clear, as did the Chancellor, that we were open to offers from existing mutuals to buy Northern Rock for a stand-alone remutualisation, but no firm bids were made in the final round. No one came forward with a well worked-out plan on how Northern Rock could be remutualised on a stand-alone basis, and that is why we took the decision we did. It was in the best interests of the taxpayer, the consumer, the north-east and Northern Rock to sell the business to Virgin Money.
Eurozone Crisis
Chris Leslie Excerpts(13 years ago)
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Chris Leslie (Nottingham East) (Lab/Co-op)
I was interested to hear the comments of the hon. Member for Stroud (Neil Carmichael). I have learnt a lot, including Gerald Ford’s attitude to New York city and the history of the Ugandan shilling. At one point in the debate, I was almost feeling sorry for the Minister, given the heat that he is falling under and that he is simply following orders—it is not entirely his fault—but in the short time available, he needs to explain not only the answers to the questions asked, in particular by the hon. Member for Basildon and Billericay (Mr Baron), who gave a thorough and refreshing contribution, but an area of policy that has not been touched on as much as it should have been and that is central to the debate, which is growth. How will we rejuvenate growth, not only in the UK but throughout the eurozone, as a way to solve the crisis?
The Office for Budget Responsibility continues its relentless drive to downgrade economic prospects, and the European Commission has forecast a massive change in our fortunes. Last year, gross domestic product growth was supposed to be 2.2% in 2011, but a couple of weeks ago, that prediction was downgraded to only 0.7%. We are now forecast to have the slowest growth in Europe, with only Greece, Italy, Portugal and Cyprus growing more slowly in 2011. The Office for National Statistics, however, shows that exports to the euro area were rising by 17.3% in the third quarter, so the eurozone alone cannot be an excuse for the UK’s lack of growth.
Given the fragility of our economy and our vulnerability, I accept that prolonged uncertainty in the eurozone could worsen our position, but it would be disingenuous of the Treasury to suggest that our woes are caused by the eurozone situation. I would be worried if it genuinely thought that to be the case.
Chris Leslie
Not in the short time that I have available. I prefer to hear the Minister and to deal with particular issues, some of them raised by a number of hon. Members. For example, the hon. Member for Cities of London and Westminster (Mark Field) discussed bond yields and the dangers of the Government giving the impression that we are a safe haven relative to the rest of the world. I am worried about the complacency shown by the Government. Bond yields are as much a function of our relative independence from the euro and the flexibility of having our own central bank. The director of the National Institute of Economic and Social Research, Jonathan Portes, made it clear recently that our gilt yields declining to an all-time low was partly a result of the economy’s weakness, because safe-haven flows are typically accompanied by a rise in the value of the pound or rising stock prices. He could not have been more concise or clear:
“The reason people are marking down gilt yields is because the economy is weak”.
We should not see that entirely as the be-all and end-all of economic policy. The hon. Gentleman is right that we should see it not merely as a safe-haven function, but as a bubble that may burst at any point.
What should the Government be doing? The crisis is far from over, even though the markets have calmed somewhat this week. My right hon. Friend the Leader of the Opposition rightly pointed out that the European summit—the G20 summit—finished prematurely, without adequately solving the difficulties with the EFSF and the permanent bail-out arrangements, and that a further European summit might be necessary to thrash out the issues properly. We also need a proper strategy for jobs and growth throughout Europe and concrete steps to support demand immediately. We have to end the prevarication about the role of the European Central Bank as lender of last resort and to give proper attention to what it takes to make that EFSF firewall stand behind eurozone members.
Hon. Members mentioned the IMF in some detail. In the summer, before the details of the permanent eurozone bail-out fund had been agreed, the Labour party urged the Government to pause before granting additional funding to the IMF. We called for the commencement of the larger eurozone-only bail-out fund to be brought forward and for the Government to negotiate an end to our liabilities via the temporary EFSM. The Minister at the time did not explain what the UK Government were doing to help to ensure that an adequate and permanent EFSF was put in place and, as I said, the European summits came and went, despite the Prime Minister’s attendance.
Ministers, including the Prime Minister, have repeatedly misrepresented our view of the IMF’s role. Today’s debate shows that our concerns are shared across the party divide. Tim Geithner in the United States and people in many other countries have also voiced their reservations. In principle, because of the IMF’s generally vital role in the global economy, we support an increase in its subscription, but I make no apologies for questioning the Government’s stewardship of our public funds. We have a duty to protect the best interests of the UK taxpayer.
We have consistently said that the IMF’s job is to support individual countries with solvency crises and not to solve a structural problem caused by eurozone countries unable to agree the necessary steps to support and maintain their own monetary union. The IMF does have a role around the world and should have the necessary resources, but there should be no IMF funding to plug the gap in the eurozone’s bail-out fund and to do the job that the ECB should be doing. The only way to ensure market confidence in the eurozone is for the ECB, alongside that permanent bail-out fund, to be given the political support that it needs to act as lender of last resort when liquidity problems arise. That is the logic of monetary union that the 17 eurozone countries are signed up to.
I want to hear the Minister’s answers, so I will curtail my remarks. It is vital for the Government to wake up and realise the role that a growth strategy must play in Europe and in the UK. Without that, there could be serious ramifications for the UK and our economy. If the Government fail to act as an honest broker, stepping up to show the leadership that many hon. Members have urged in today’s debate and so that the ECB becomes lender of last resort and that the EFSF has enough weight to become an effective firewall, the eurozone crisis may well deepen further. The Chancellor continuing to talk about Britain as a safe haven betrays a relaxed complacency in the Treasury that is not warranted. Such an approach is misinformed, neglectful and very dangerous in the situation that we face.
European Budgets 2014 to 2020
Chris Leslie Excerpts(13 years ago)
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Chris Leslie (Nottingham East) (Lab/Co-op)
The Minister started the debate by referring to today’s news about the eurozone crisis. Despite the failures of all leaders at the G20 summit, including the Prime Minister, and the continued failure of the eurozone to put flesh on the bones with regard to the dimensions of the European financial stability facility and the role of the European Central Bank, we hope that some leadership will eventually emerge across the European stage to get to grips with the problem. I am sure that the Minister will want to take back the message from both sides of the House that far sturdier action is needed on these issues.
It is important that the House recognise the difference between the issues we would like to discuss today and the specific issue addressed by the motion. The Minister referred to the Council of Ministers’ proposal in the summer for a real-terms freeze in the EU’s annual budget for 2012—in other words, a cash rise of over 2%—yet the European Parliament voted on 26 October to back a package even higher than the Commission’s proposal for a 4.9% increase. Labour Members of the European Parliament voted against the package, which would have amounted to an increase of more than 5%. We were prepared to support only a real-terms freeze in the budget.
I am told that there will now be a 21-day negotiation period among the three EU institutions. If the 2012 budget is not passed by December, it will be worked out on a monthly basis, based on 2011 levels. We believe that the proposal to increase the budget by more than 5% will strike most people as unjustified and wrong-headed. The last time we saw the Government negotiate an annual budget, the Prime Minister started by promising a freeze but ended up claiming that an increase was a victory. This time he needs to do better and must not support another inflation-busting rise in the EU budget.
Chris Leslie
I will come to that in a moment.
If that means the Government need to stand firm for the full 21-day negotiating period, so be it. The UK should not allow the 2012 budget to rise beyond a real-terms freeze.
With regard to the snappily titled “Multiannual Financial Framework 2014-2020”, we rarely have an opportunity to debate a subject while the Chancellor is talking about it at an ECOFIN meeting, so this is a useful sign that Parliament is in tune with the issues of the day. Defining the main budget priorities over the seven-year period is a process that began in 1986 but was changed in the Lisbon treaty so that there was greater involvement for the European Parliament. It is important to explore the detail, but in our view the notion that there should be any significant overall increase in expenditure is perverse, given the strictures being placed on mainstream public investment projects at home. The Government must ensure that they deliver on their rhetoric in the motion and secure a much better deal than the one currently on the table.
There are two crucial areas on which the Government need to focus: the Commission’s proposal for new revenue powers and the UK rebate. With regard to the Commission’s proposals to change what it calls its “own resources” method of calculating the income it received from each member state, it is suggesting two new direct revenue streams. The first is a top-slice process for domestic VAT revenues, which I would like to ask the Minister about specifically. I am very sceptical about the proposal and would be grateful if he addressed it when summing up, because I do not think he touched on it adequately in his opening comments. Will he tell the House what proportion of our domestic VAT would be diverted to EU institutions if the change was proceeded with? The Commission seemed to suggest that it is a replacement for the VAT element of the funding formula used to calculate contributions from each member state, but how would the existing arrangements and the new arrangements compare?
With regard to the Commission’s proposal for a new EU financial transaction tax, can we at least be clear that it twists the notion of a Robin Hood tax so wide of the mark that it is barely recognisable from the global FTT, which has received so much support from charities, campaigners and leading economists worldwide? Revenues from any FTT must surely be destined for jobs, growth and carbon reduction at home and in the developing world. Pouring those revenues into the EU budget or EU bail-out funds instead would be the wrong thing to do and totally contrary to the spirit of a genuine Robin Hood tax. Instead, the starting point ought to be the proposal that Labour put forward at the 2009 G20 summit, which is that all countries should agree to work together to establish a tax, set at a fraction of 1%, that could be levied on financial transactions, millions of which happen in the City everyday. We want to see a financial transaction tax—but one that is implemented with the widest possible international agreement.
Mr MacShane
In 1995 I moved an amendment to the Finance Bill proposing exactly what my hon. Friend suggests, but an hon. Friend who later became the Chancellor of the Exchequer and is now my right hon. Friend the Member for Edinburgh South West (Mr Darling) wrote through it with red ink, “No new taxes”, so the idea died the death some 15 years ago. I agree with my hon. Friend the Member for Nottingham East (Chris Leslie), but let us not make the best the enemy of the good. If we get this thing going, we are getting something going that will help people. Waiting for everybody in the world to sign up to it will involve a very long wait.
Chris Leslie
I understand my right hon. Friend’s frustrations, but I really do not think that the proposal on the table from the Commission would achieve the outcomes that he or I seek. We have to make concerted efforts to broker a deal where any FTT applies in any of the world’s big financial centres, all of which by the way have much to gain from a new and reliable revenue stream that supports jobs, growth and the developing world.
The Commission’s proposal falls short, especially because of its intended destination for the revenue, but I think that the difference my right hon. Friend seeks is this: we felt that there was a real window of opportunity to steer the agenda on a financial transaction tax and to persuade other countries that it was something seriously worth considering, but our Chancellor is out there at the ECOFIN meeting today, resisting under all circumstances. Indeed, he wrote a private letter to bankers the other day in which he indicated that he was not in favour of it at all—even though that contradicts some of his statements in this place. He is wrong to block wider discussion among the G20 and beyond.
The BBC’s Nick Robinson reported this lunchtime that our Chancellor asked what was the point in even having a conversation about the financial transaction tax and, apparently, whether it was
“the best way to spend our time”.
It is important that we address those issues, because the Government’s weak and defeatist attitude is an abdication of leadership and a total abandonment of the gains made for the cause at the G20 meeting in 2009. It is time that Britain stepped up to the plate and showed the leadership needed to broker a better deal by being open to the idea that it is possible to win the argument for a different approach. That is why we call on the Government to engage internationally—beyond the EU proposals alone.
The second major proposal in this multi-annual financial framework is for the Commission to change the correction mechanisms for countries that are the most significant net contributors to the EU. In other words, it proposes to end the UK’s permanent rebate. The rebate returns about two thirds of the difference between the UK’s contribution to the EU and the money we receive back. Let us be absolutely clear: the Commission’s proposals are totally unacceptable. Of all the 27 countries, only Germany is a higher net contributor to the EU budget than the UK, and we have the lowest per capita receipts from it. The common agricultural policy is a far bigger distortion of the EU budget than any correction mechanism such as the UK rebate.
This is a key test for the Prime Minister. He needs to put up a strong defence of our rebate if the language that he uses here in the House is to be matched by his deeds in those negotiations.
Chris Leslie
Everybody will be watching closely, including the right hon. Gentleman, to whom I am happy to give way.
Mr Redwood
What promises did the previous Prime Minister but one receive when he gave away a chunk of our rebate? I thought we were promised a reduction in agricultural spending, which would be very welcome.
Chris Leslie
I was not a Member at the time to which the right hon. Gentleman refers, but it is true that there have been changes to the UK rebate, although not to the majority of it. My understanding is that, in terms of money returned, the total amount of rebate has actually gone up, with €5.8 billion in the previous MFF round compared with €2.8 billion before, so the rebate is still a very significant gain for the UK.
There were changes to the common agricultural policy, although—I accept—not as many as people would have liked, but until we have further proposals from the Commission on reforming the common agricultural policy I am certainly not going to get into the business of urging the Minister to change the UK rebate. It is very important that the Government put up a defence of the current position and, indeed, try harder to engage with further proposals on the CAP. That is by far the bigger distortion. We need to pursue a stronger reform agenda and to have a CAP reform that is fairer to small farmers but does not lavish as much on wealthier players in the wealthiest countries. We need to tackle that anomaly as it is an outdated relic.
I am grateful to Business for New Europe’s pamphlet entitled “Rethinking the EU Budget,” which suggests some very important changes to EU competitiveness deficiencies, such as boosting research and development. It is also important that the Minister address the deficiencies in the structural funds. Few of those are helping to boost growth, when they ought to be getting investment moving into the economy. Above all, the MFF ought to contain far greater emphasis on a strategy for jobs and growth, where we know the Government have a blind spot.
The Commission and the European Parliament also need reminding that, without growth, we cannot solve the debt crisis, the banking crisis or the jobs crisis. Energy infrastructure projects, high-speed broadband and transport link improvements could all be brought forward within the MFF envelope and prioritised to boost employment and economic activity. [Interruption.] The Minister shouts from a sedentary position that that involves more spending, but we are talking about within the limitations of the budget. We do not wish to see the increases proposed by the Commission. The Minister should be out there arguing for a proper strategy for growth, and his failure to do so betrays Ministers’ and the Treasury’s blind spot on these issues.
The motion before us tonight talks tough on some of these issues and we will not oppose it, but it is important that this time Ministers do not flunk the tests when they get into the negotiations.
Stephen Williams (Bristol West) (LD)
I am glad to have the opportunity to speak, especially after that generous build-up. We are having a curious discussion. We have had many European Union discussions in the past few months, and I cannot recall my hon. Friend the Financial Secretary being received with such warm accolade on every occasion as he has been on this one. I am sure that must have cheered him. We saw the curious alliance of Conservative Eurosceptics and Labour Eurosceptics when there was discussion of the possible demise of the eurozone. However, on this issue we might actually have tri-party agreement. May I assure my hon. Friend the Member for Wellingborough (Mr Bone), even though I am a Europhile within the Liberal Democrats—that phrase must make him shudder—that my party has usually been at the forefront of calling for reform from within the European Union? We do that because we want the European Union to work. We want it to be a success and we are certainly not blind to its shortcomings.
Chris Leslie
Will the hon. Gentleman therefore confirm that Fiona Hall, the leader of the UK Lib Dems in the European Parliament, posted an article on 15 July that said:
“It’s time to consign the UK rebate to history, along with the rest of Thatcherism”?
Stephen Williams
That is not a position of this coalition Government at Westminster. As a good democrat, the hon. Gentleman will recognise that decisions that we make in local councils or in the European Parliament, where people have their own electoral mandates, do not bind parliamentarians in this House. That is the way in which our democracy works and we take a different stance on the matter here.
The European Commission has asked for a 5% budget increase, from €966 billion to just over €1 trillion, for the second half of this decade. Most of our constituents would find it extraordinary that a request is being made for the EU budget to wax while people in every member state are having to endure the waning of their budgets. It was right that last December five large net contributors to the EU budget—the UK, Germany, France, the Netherlands and Finland—called for a freeze in the EU budget for the second half of this decade. I would like the Minister to tell us whether the Government are seeking a cash freeze or a real-terms freeze.
Whatever the level of the budget, it certainly is a budget in drastic need of reform. The common agricultural policy still accounts for more than 45% of the European Union’s spending, whereas research and development accounts for only 6.7%. The Commission is actually proposing a switch between those budgets, but that switch is made possible only by the Commission’s call for a larger budget. It is simply ludicrous for the European Union to continue to have agriculture as its largest area of expenditure, rather than the industries of the future—industries where the UK is well placed. We are currently the largest recipient of EU funds for research and development, and that is the budget that should be expanded. The priority for the United Kingdom coalition Government should be to negotiate a major shift within the EU budget and certainly within the existing level of resources. To clarify the issue for the hon. Member for Nottingham East (Chris Leslie), I say that our budget rebate should remain while the EU budget remains in its current unreformed and out-of-date state.
On sources of revenue for the European Union, I share the sentiments expressed by the Opposition Front-Bench team that it would not be right for the EU to take on the personality of a federal state and have taxes paid directly to it, whether that be VAT or the proposed financial transactions tax. There is a very good case for a financial transactions tax being levied once we can have international agreement among the global financial centres, many of which lie outside the European Union, but there is no case at all for the European Union itself to pinch that money, which the people who have campaigned for the Robin Hood tax have earmarked for other purposes. May I reassure my colleagues that the Government are right to call for a freeze in existing EU budgets? However, they should also vigorously press the case for reform.
Credit Institutions and Investment Firms
Chris Leslie Excerpts(13 years ago)
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Chris Leslie (Nottingham East) (Lab/Co-op)
The capital requirements directives have sought to translate the proposals of the Basel Committee on Banking Supervision and apply them across the EU. Today’s proposal, CRD IV—another acronym that is familiar to many of our constituents—attempts to update those arrangements so that they fit the circumstances of today’s banking system and learn the lessons of the global financial crisis. As the Minister said, no one disagrees that the quality and quantity of capital that banks hold in order to absorb losses should be increased, and there is broad consensus on that.
CRD IV will make four changes. It will, first, introduce sanctions to ensure that all EU banks comply; secondly, prevent over-reliance on credit rating agencies, which should not substitute for proper internal due diligence; thirdly, improve corporate governance in the banking sector; and fourthly, address the pro-cyclicality of lending, which can accelerate the expansionary tendencies of an economic cycle. The difficulty comes when the Commission proposes “maximum harmonisation” in order to achieve a single EU rule book for banking, preventing member states from setting higher standards beyond the levels proposed in the directive.
I am aware that many City institutions also favour a harmonised international approach to regulation, but such an approach could render many of the recommendations of the Vickers commission, for example, redundant as we would simply be unable to introduce tougher standards here in the UK. The EU says that the directive is to prevent a race to the top, but we need to ensure that our financial services industry—by far the largest and most systemically important of any EU country—has a regulatory system that can protect UK taxpayers and UK consumers. After all, when domestic banks fail, domestic taxpayers have to come to the rescue, so we need domestic regulation that has the room and flexibility to go beyond any internationally agreed minimum standards.
Mr Cash
The hon. Gentleman acknowledges, I am sure, that the real reason why we are in the situation we are in—I shall make a short statement about it later on behalf of the European Scrutiny Committee—is that we have transferred such jurisdiction to the European Union. As I said in a letter to the Financial Times the other day, we are fighting back against the background not only of the City having moved against the proposals, but of our having opened the sluice gates and allowed it to happen.
Chris Leslie
The hon. Gentleman’s work on the European Scrutiny Committee has been useful in respect of the proposals before us, and it would have been helpful if the Minister had clarified where we stand in terms of qualified majority voting versus any veto options that we might have. I would be grateful if the Minister could set them out.
Chris Leslie
Which proves the point that we need to ensure that we negotiate firmly.
The motion before us is worded correctly. It focuses very much on subsidiarity, and on article 443 and the proposals that would give the Commission the right to vary national regulations, even though it would prevent member states from changing their own rules beyond the maximum harmonisation arrangements—a step, I believe, too far. I agree with the draft reasoned opinion and, therefore, with the motion that the Clerk of the House forward this view to the presidents of the European institutions.
Article 443 does indeed go too far, and it would not be appropriate. Paragraph 18 of the European Scrutiny Committee’s report sums that up well, stating there is no evidence to prove that
“the Commission is better placed than the competent authorities of Member States to address national prudential concerns. Indeed, there is a strong argument to say that national authorities are not only better placed, but can react more quickly than the Commission can by means of delegated legislation, thereby enhancing financial stability.”
Graham Stringer (Blackley and Broughton) (Lab)
Does my hon. Friend agree that the Commission almost certainly knows that it would not be better at that than the regulatory authorities, and that what is behind this regulation is an attack on the City in order to up the game of Frankfurt and Paris? It must be resisted at all costs. It is much more malevolent than just a bureaucratic mistake.
Chris Leslie
It is difficult to ascribe motives to the Commission in all circumstances. My hon. Friend may well be right, but then again I have also talked to some of the City’s large banking institutions, which have in some ways argued in favour of harmonisation, so it is a mixed picture. I agree with the Government on the point before us, however, and it is important that we stand firm and retain the flexibility of higher standards if we possibly can.
Kelvin Hopkins (Luton North) (Lab)
Is it possible that those banks that seem to favour harmonisation think that they might have an easier time under Europe-wide regulations than under more stringent regulations from the British Government?
Chris Leslie
My hon. Friend may well be correct. “Who knows?” is the ultimate question, but his cynicism has been proved right in the past and may well be right today.
The motion is a sensible assessment, and asking the Clerk to send a reasoned opinion to the presidents of the European institutions is absolutely right, but what happens next? Will the Minister set out in a little more detail the consequences of today’s motion, and whether we would have any prospect of shaping our own financial regulatory agenda if, indeed, many of the changes in the directive went through regardless of the opinion that we sent? The mismatch between the Commission’s view and the UK’s position is only the tip of the iceberg or, to use a better metaphor, only the beginning of the story.
I am afraid to say that the Government’s proposals for financial regulation have not been properly thought through and clash so much with European regulatory arrangements that they just will not be able to stand up adequately to their strength and power. Ministers knew very well that the EU supervisory institutions would be split across thematic groups around banking, pensions and insurance, and markets. Yet according to the Minister’s legislation, we are choosing to split our arrangements between prudential and conduct regulation.
I agree completely that we need a greater focus on prudential regulation, but there is a growing risk and increasing evidence that our UK institutions may leave us in a tangled mess unable to engage effectively with those very powerful EU structures. That concern is shared not only by Opposition Members, but across the City and other financial service sectors. If our voice is not adequately heard, we may be unable to be represented properly in the right meetings at the right time.
It is not just the Opposition who are saying that. Last year, the Financial Services Consumer Panel said that
“the current European structure under the ESMA would be a poor fit with the proposed new UK arrangements and that this could potentially weaken the UK’s voice in the European Union.”
In September, the British Bankers Association said that
“little has been related on how the regulators will go about ensuring…that UK representation around the European table is second to none. There has not, for example, been acceptance of the suggestion made by the industry that consideration be given to maintaining a single international secretariat across the relevant authorities as a common shared service and the establishment of cross-authority teams to ensure that UK representatives at the three European Supervisory Authorities and other European and international committees are in a position to draw upon all relevant expertise and knowledge.”
The Association of Independent Financial Advisers—incidentally, I am attending its annual dinner this evening—said in September:
“The AIFA is concerned that the twin peak approach to UK regulation is not consistent with the developing European sectoral approach. We must ensure that the UK system is able to efficiently interact with the European system and does not lead to significant confusion for regulated firms and cost inefficiencies, or damage the competitiveness of the UK.”
Indeed, two weeks ago, the Chairman of the Treasury Committee, the hon. Member for Chichester (Mr Tyrie), said in a letter to the right hon. Member for Hitchin and Harpenden (Mr Lilley):
“How will the PRA and the FCA co-ordinate their interaction with the new European Supervisory Authorities which do not neatly match the twin-peaks model—particularly where both financial stability and consumer protection outcomes may be considered together at an EU level? With an enormous amount of EU legislation under way, how will the EU regulatory authorities ensure that UK interests are represented with one voice?”
So there has been a barrage of anxiety about the Government’s proposals and how the design of their domestic regulatory arrangements will fit with those European supervisory structures. The Minister has time to think about those matters before introducing the Bill. If we try to persuade EU regulators to comply with our approach to financial regulation retrospectively, it will genuinely be like shutting the stable door after the horse has bolted.
Mr Cash
The shadow Minister is perhaps being rather disingenuous when he says that the Minister may have time to think before the Bill comes through. I am sure the hon. Gentleman understands that, under the arrangements for the European Union, where a qualified majority vote is being applied and the measure becomes part of our law, we implement it under section 2 of the European Communities Act 1972. There is absolutely nothing we can do on the Floor of the House to reverse that unless we apply the provisions of my sovereignty arrangements notwithstanding the 1972 Act. It is about time we started to do so.
Chris Leslie
I am simply highlighting the anxieties felt across the City, the financial service sector and by many hon. Members, who are worried that we are stepping into a new set of financial service regulation structures domestically within the UK that are far away from those bodies we need to be influencing, steering and having our voices heard by. It may well be that we are stepping in the wrong direction. That is the anxiety I am voicing today.
Jacob Rees-Mogg (North East Somerset) (Con)
I am very grateful to the hon. Gentleman for allowing me to interrupt his characteristically thoughtful speech. Given what he is saying, does he think that this would be a very good, if not ideal, area in which to repatriate powers?
Chris Leslie
I do not think it is wrong to try to have some level of co-ordination on financial services regulation across the EU. This is a global industry, and that is broadly sensible. However, we now know very well how those supervisory institutions of the EU are to be structured, and yet we are designing new arrangements for the post-Financial Services Authority world that do not match very suitably with those. There may be different approaches to how we can make the fit more effective and improve Britain’s voice. However, there is genuine concern that even though we knew about these arrangements 18 months ago, the Government have not yet provided the capability to adapt the regulatory reforms to ensure that we do not lose influence—and, in fact, build our influence.
As regards the capital requirements directive, it is clear that for the time being we need to resist the Commission’s challenge to proper subsidiarity and give our reasons for retaining national discretion to have safer and higher standards for financial regulation here in the UK.
We support the motion but hope that Ministers will take the opportunity to think more strategically about how best to address the structural mismatch between their proposed reforms and the European arrangements, because that risks marginalising the UK’s voice time and again.
Mr Hoban
This has been a helpful and thoughtful debate, and it will give the Government immense support in making the arguments over the coming months about the need to get CRD IV right; about recognising that it should be the responsibility of competent authorities in member states to set appropriate levels of bank capital beyond high minimum standards; and about the fact that we need the flexibility to do so in order to protect the stability of our financial system. That recognises the fact that banking structures and systems vary between member states. The complexity of those banking systems manifests itself in the extraordinary length of the document before us. These are complex issues that we need to tackle.
I want to make a point about engagement with Europe, picking up on the comments made by the hon. Member for Nottingham East (Chris Leslie) about trade bodies. The same comments were made to the Treasury Select Committee today. There is nothing new about regulators co-ordinating the views of others when representing the UK on regulatory bodies. At the moment, the Financial Services Authority is our representative on the European Securities and Markets Authority, and in its representative role, the FSA must also reflect the views of other regulatory bodies not represented on ESMA. For example, it must take into account and reflect the views of the Financial Reporting Council and, on takeovers and mergers, the Takeover Panel.
Furthermore, the European Insurance and Occupational Pensions Authority has to represent the views of the Pensions Regulator. If I am right, at one point, the UK’s representative on EIOPA’s predecessor body, the Committee of European Insurance and Occupational Pensions Supervisors, was not the FSA, but the Pensions Regulator itself. There is nothing new, therefore, about one body representing the views of other regulators in the UK on these European bodies, and it would be wrong to suggest that this is something novel or different.
We need to ensure that, under the new regulatory architecture, we are clear about who speaks for the UK on these matters. On the European Banking Authority and EIOPA, the Prudential Regulation Authority speaks for the UK, so it will want to gather the views of the Pensions Regulator and the Financial Conduct Authority on insurance issues, for example. It is clear that the FCA will represent the UK on the board of ESMA, and it will have to gather the views not only of the FRC and the Takeover Panel, as it does now, but of the Bank of England, on clearing houses, and the PRA on prudential issues relating to securities firms.
I do not therefore see this as some great novelty or innovation. It needs to work. However, surely no one in the House is suggesting that UK regulatory bodies should be driven by what is happening in Europe, rather than meeting the needs of businesses and consumers in the UK. I do not think that anyone is seriously suggesting that we have sectoral regulation in the UK, rather than functional regulation. If the Opposition want to go down the former route, let them say so, but we should find a way of ensuring that the current system works.
Chris Leslie
What is the Financial Secretary’s assessment of the British Bankers Association’s suggestion for a properly resourced international secretariat to ensure a better single interface with those European institutions? He might be right that we should not necessarily follow those European arrangements, but surely he accepts that a complex existing arrangement could be made even more complex by the proliferation of financial regulatory bodies that he is proposing.
Mr Hoban
The hon. Gentleman has just recommended such a proliferation of bodies—with this co-ordinating secretariat. The PRA and the FCA are more than capable of talking to each other about these matters. We need to ensure that they gather people’s views and that the interests of the FRC and the Pensions Regulator are reflected. However, I do not consider it to be the huge problem that he is inflating it to be.
It is also the case, of course, that the negotiation of level 1 instruments, such as the directive before us today, is the responsibility not of the PRA, the FCA or the Bank of England, but of Her Majesty’s Government and, in particular, the Treasury. It is very clear where the focus is; we do not seem to have any problem at all in co-ordinating the views of others for that process.
This has been a helpful debate. It will help strengthen the Government’s hand in negotiation with Brussels. It is very clear that it is not just the UK Government who believe that we should have the freedom to go further beyond minimum standards if necessary, and the freedom to set our own macro-prudential strategy. That is the view of the International Monetary Fund, the view of Jean-Claude Trichet and the view of Jacques de Larosière. There is a consensus around this. What is important, I think, is that the Commission listens to that consensus and takes the right action to enable member states to tackle financial stability. I am grateful for the support for this motion and commend it to the House.
Question put and agreed to.
Resolved,
That this House considers that the draft Regulation on prudential requirements for credit institutions and investment firms (European Union Document No. 13284/11 and Addenda 1-4) does not comply with the principle of subsidiarity for the reasons set out in the Annex to Chapter 1 of the Forty-second Report of the European Scrutiny Committee (HC 428-xxxvii); and in accordance with Article 6 of the Protocol on the application of the principles of subsidiarity and proportionality, instructs the Clerk of the House to forward this reasoned opinion to the presidents of the European institutions.
Eurozone Crisis
Chris Leslie Excerpts(13 years ago)
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Mr Hoban
I am grateful to my hon. Friend for his question and his response to my statement. He is absolutely right: it was right for this country to stay out of the euro. That is the settled position of the coalition Government, and it is the right position to adopt. However, that was a decision that the people of this country made. It was not made under duress from other countries; it was a free choice that we made. On that basis, it is better for the Greeks to make their own decisions than for us to offer them advice.
My hon. Friend asked about contingency planning. He would expect every good Government to have plans in place to cover a range of eventualities, and this Government are well prepared for any eventuality.
Chris Leslie (Nottingham East) (Lab/Co-op)
The Minister should at least have the grace to admit that the reason we are not in the euro is because of decisions by the Labour Government.
Clearly there are major ramifications from the uncertainty in Greece. With the Greek Treasury due to refinance €8 billion on 19 December, time is of the essence. The Minister has told the House that UK banks have more than £2 billion of direct exposure to Greek sovereign debt, so what assurances did the Prime Minister seek from his Greek counterpart at last week’s summit about the implementation of that deal?
The market pressures on the Italian Government are now considerable. Can the Minister reassure the House that the Treasury is preparing for all eventualities? Will he confirm that UK banks have an estimated €10 billion of exposure to Italian sovereign debt? The Italian Government have been unable to agree a deal on structural reforms ahead of this week’s G20 meeting. While the UK has in the past offered bilateral loan aid to Ireland, clearly we would want to avoid being drawn into more significant loans to larger countries. Will the Minister therefore explain whether, in general, the Treasury will entertain support only via the IMF, or could bilateral loans be on the agenda on a case-by-case basis?
Does the Minister believe that the €1 trillion bail-out fund will be sufficient if other eurozone countries are drawn into the danger zone? Will the Greek referendum delay the establishment of the fund?
On the IMF, the Minister knows that many people are anxious to safeguard the interests of British taxpayers, and it would be wrong for the British people to pay twice over—through temporary, ongoing EU funds and the IMF. Does he therefore agree that the eurozone should not rely principally on IMF money for the bail-out and that there can be no excuses for eurozone countries not putting up their own resources? If we are to see a full and permanent euro bail-out fund, we agree that our role should be through the IMF, but what does the Treasury expect will be the scale and timing of any further increases in IMF funds for the eurozone, however they are described?
Finally, with our own growth so weak and with unemployment rising, the Chancellor must surely be regretting his claim that the UK is a “safe haven”. When will the Government take urgent steps to bolster the strength of our own economy to insulate us properly from this international turbulence? Is it not now abundantly obvious we need an immediate plan to boost jobs and growth here in the UK and across Europe? What will the Prime Minister be proposing to boost growth when he meets his G20 colleagues? The Government continue to play a dangerous ideological game, but it is time that they stepped up to the mark and opted instead for a proper strategy for jobs and growth.
Mr Hoban
Let me first tackle this issue of who kept us out of the euro. The fact that a previous Conservative Government secured an opt-out from the Maastricht treaty meant that we were not going to join the euro. Also, one of the things that we did when we came into office last May was to close down the euro preparations unit in the Treasury. We are taking action on contingency planning for a whole range of outcomes, and that work is under way in the Treasury.
The hon. Gentleman asked whether work would be put on hold on the three legs of the deal that was agreed last week. It is important that the euro area continues to work on those three legs, particularly on the ring fence and on the recapitalisation of the banks. They are important parts of the package, and they are needed to ensure that the eurozone is stabilised. He talked about the various European mechanisms that are in place to support finance. He will remember that the Greek bail-out was originally paid for purely by the eurozone; the UK did not contribute to it and has not contributed to subsequent parts of the bail-out package for Greece. We have negotiated that when a permanent mechanism is put in place to replace the one that the previous Government signed us up to, which we do have to contribute to, that permanent mechanism will not require UK participation. That is an achievement of this Government, getting us out of the mess that the Labour Government put us into in May last year.
The hon. Gentleman referred to the IMF. He will have to remember that it was he who led opposition to increasing our subscription to the IMF—[Interruption.] He says that that was to safeguard Britain’s subscription to the IMF, but it would in fact have marginalised the UK in international debates on tackling the global economic problems that we face today. Labour should think very carefully about its repudiation of the legacy left to it by the previous Prime Minister, who agreed to a trebling of resources for the IMF. We need to take action to stabilise the situation in the eurozone. The uncertainty is casting a chilling effect on the UK economy, and it is important that those issues are tackled as soon as possible.