Banking

David Gauke Excerpts

Wednesday 15th January 2014 Commons Chamber

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

This has been a thoughtful and interesting debate. I particularly thank my hon. Friends the Members for West Worcestershire (Harriett Baldwin), for Bournemouth East (Mr Ellwood), for Northampton South (Mr Binley), for Redcar (Ian Swales), for Spelthorne (Kwasi Kwarteng) and for Hexham (Guy Opperman), all of whom made excellent and intelligent speeches. I am not sure that I would use quite the same words to describe the speech made by the shadow Chief Secretary, the hon. Member for Nottingham East (Chris Leslie), but I hope that he will not take that personally. I have a lot of sympathy for him—after all, he spent a number of years making speeches in debates like this one, saying that we were going too far, too fast, and that a plan B was needed. We do not hear quite so much about that now.

We have heard a fair amount about the cost of living in recent months, but Labour party spin doctors have been briefing the press that they are about to bring that campaign to an end, so where does Labour go now? How does it fill the vacuum that exists where an economic policy should be? The answer is, “With a bit of banker-bashing.” I could say, “Same old Labour”, but in reality the rhetoric that we have heard today and during the current Parliament is not consistent with what the last Labour Government did.

When it comes to dealing with the risks and excesses of our financial system, Labour is in no position to criticise us. It is extraordinary that the people who crashed the car now wish to give us a lecture on road safety. They left us with a regulatory system that had failed catastrophically—a system that had failed to identify risks, or, when they were identified, failed to do anything about them—and, when the crisis came, it was not clear who was in charge. But who was the special adviser in the Treasury who was running the show when the tripartite regime was established? The shadow Chancellor. And who was the City Minister in the run-up to the crisis? Again, the shadow Chancellor.

It was this Government who produced the Financial Services (Banking Reform) Act 2013 and implemented the Vickers report, and this Government who established the Financial Policy Committee, involving the Bank of England once again and providing clear lines of responsibility. It is this Government who have ensured that we ring-fence deposits, separating them from volatile investment banking, and it is this Government who have introduced a bail-in power that protects taxpayers, to ensure that shareholders and creditors, not taxpayers, are first in line to pay for a bank failure. It was the last Government who presided over a system whereby individual bankers could not be held properly to account. Under our laws—laws passed by this Government—reckless management of a bank could result in seven years in prison. Under the last Government, it could result in a knighthood.

[Bill Esterson]

Don’t worry, I’m not after a knighthood. The Minister’s party colleague, the hon. Member for Northampton South (Mr Binley), made it clear that the funding for lending scheme has failed and that lending to small businesses has fallen. The Minister’s comments have been notable in their failure to mention what he is going to do about funding for small businesses. Will he tell us now?

[Mr Gauke]

Gross lending is up, but one thing that will not help small businesses is if our interest rates rise prematurely because we do not have credibility. We have given this country economic credibility and that has helped to keep interest rates lower for longer.

Our system ensures rigorous scrutiny before someone can have a serious position in a bank. Labour’s system could allow someone like Paul Flowers to become chairman of a bank. While fines went back into the banking system in the past, now they go to support military charities and others.

[Mr Binley]

May I make the point that I did argue that business lending from the funding for lending scheme was very low indeed, and that is why Mark Carney took the action he did and why I want to see the Government make more sense of lending to small businesses, because that is where growth and well-being are going to come from?

[Mr Gauke]

I agree with that, and we are focusing the funding for lending scheme on exactly that purpose.

[Mr MacNeil]

Will the Minister give way?

[Mr Gauke]

No, I shall make some progress.

We did not hear anything about the bankers’ bonus tax from Labour today—at least we do not see much about it in its motion—although it is customary on these occasions for Labour to identify yet another spending programme to be funded by it. [Interruption.] I wonder whether there was no mention of it today because the Opposition are embarrassed by previous occasions when they have claimed that more would be paid—[Interruption.]

[Madam Deputy Speaker (Mrs Eleanor Laing)]

Order. This has been a quiet and dignified debate. Members who were not present during it have now come into the Chamber. I ask them to have the courtesy to listen to the Minister.

[Mr Gauke]

Thank you, Madam Deputy Speaker. I do not know whether the Opposition are embarrassed by previous occasions when they claimed more would be paid from a bankers’ bonus tax than was actually paid in bankers’ bonuses. Perhaps they have noticed that if they cap bonuses they will get less tax from them. They may want to revise their numbers on that.

It has to be pointed out that it has been estimated that City bonuses in 2012-13 were more than 85% lower than at their peak in 2007-08. I know there is genuine concern about bank bonuses encouraging short-term high-risk behaviour, but it is not just the amount that matters; it is also the structure of the bonuses. There is a difference between cash bonuses and bonuses paid in shares with the opportunity for clawback if there is bad behaviour or a need to rebuild regulatory capital. Under the PRA remuneration code, large parts of bonuses must be deferred and paid in shares, aligning the interests of the employee with the long-term interests of the bank. The implication of many of today’s comments is that there is a concern about total remuneration, yet the motion and everything we have heard from the Labour Front Bench is about only one part of remuneration: bonuses. The reality is that the European directive and the policy pursued by Labour will drive up salaries. It is not clear why the Opposition are interested in only one aspect of remuneration, and we have certainly not had an explanation of that. It is also worth pointing out that the Governor of the Bank of England was critical of a cap in his evidence to the Treasury Committee this afternoon.

I am pleased that Labour appears to support the virtues of competition, but that was not its record in government. There were 10 banks in 1997, but that figure reduced over the following 13 years. The Cruickshank report, produced in 2000, was supposed to encourage more competition, but it was blocked by the Treasury and nothing was done. Our record has involved a much greater focus on competition, and it is a primary objective of the Financial Conduct Authority and a secondary objective of the Prudential Regulation Authority. We have a payment systems regulator, which makes things easier for small businesses, and we have changed the application process to make it much more proportionate for new businesses. Furthermore, the regulators indicate that 22 new banks are interested in acquiring authorisation in the UK.

On empowering consumers, our new switching policy saw a 54% increase in switching in December, compared with the year before. We have heard Labour’s proposals for a quota system. We do not have the details, of course, but simply reducing the number of branches of one bank will not create huge new levels of competition. There are concerns about branches being lost under Labour’s proposals. Most significantly of all, the Governor of the Bank of England told the Treasury Select Committee this afternoon that that would not help with competition. One other person has been critical of that policy in the past. In April 2011, the shadow Chancellor said that

“there is no need to break up institutions”.

The last Labour Government’s record on the banking sector was lamentable. Their regulatory system failed, and their attempts to ensure that individuals were held to account also failed. They tried to ensure that bonuses did not create perverse incentives, but that failed. They tried to encourage more competition; that failed. They tried to protect taxpayers’ money, but that failed too. Their record is one of failure, and until they acknowledge that, there is no reason why the British people should take anything they say on this matter seriously again.

Question put.