Capital Markets Union: A Welcome Start (EUC Report)

Earl of Courtown Excerpts

Thursday 4th February 2016 Lords Chamber

[The Earl of Courtown (Con)]

My Lords, I thank all those who have contributed to the debate, particularly the erstwhile chairman of the committee, the noble Lord, Lord Harrison. I am grateful for the report that he and his committee members and secretariat have produced.

The noble Lord, Lord Davies of Oldham, requested me to answer the questions posed in the numerous speeches in the debate. I shall make every effort to do so in my speech, but if perchance I cannot give the full detail, I will write to noble Lords.

The noble Baroness, Lady Falkner, and the noble Lord, Lord Dykes, and other noble Lords talked about the timeliness of the debate, and I am sure the business managers who scheduled it will have taken note of the noble Baroness’s comments.

As has been outlined in the debate, on 20 March last year this House published its report entitled Capital Markets Union: A Welcome Start. It was based on the European Commission’s Green Paper Building A Capital Markets Union, which was published in February 2015. Since those documents were published, the capital markets union project has seen significant developments.

At the end of September last year, the European Commission published its action plan for a capital markets union, based on its review of the many consultation responses to its Green Paper. I am pleased to note that the reforms proposed in the action plan are strongly aligned with the recommendations of the committee report from March. The list includes measures that the noble Lord, Lord Harrison, highlighted in his speech, such as reforms to modernise prospectuses and to revive securitisation in the EU, and other actions covered in the committee’s report, such as improvements to credit information on SMEs.

More broadly, the committee report called for a pragmatic approach to reforms across the CMU that would benefit all 28 member states—an approach which I believe has been reflected in the Commission’s action plan. My noble friend Lord Hill has made it clear that creating CMU will be a step-by-step consultative process, and that decisions on the design of reforms will be evidence based and subject to rigorous economic impact analysis.

I shall use my time today to set out briefly the Government’s views on the action plan, highlight the action the Government have been taking and respond to some of the issues that have been raised in the debate today. The CMU action plan has the full support of the Government: we think it represents the sort of work the European Commission should be undertaking.

Building on the substantial financial reforms following the financial crisis, the Commission has shifted its focus to strengthening Europe’s economic recovery by generating jobs and growth in the European Union—an agenda I am sure we all support. As part of this, it has identified further integrating and deepening Europe’s capital markets as a key priority. Developing Europe’s capital markets will help bring greater balance, improve the range of options for firms seeking finance, and enhance risk diversification by ensuring that market-based finance is strengthened as a complement to bank finance.

The CMU action plan sets out the initiatives the Commission will pursue. My noble friend Lord Hill has succinctly described the project’s aim as linking savings more efficiently with growth. Importantly, the Commission is not just tackling a problem, as the United Kingdom Government have been advocating for some time, but is doing so in a way firmly rooted in the better regulation agenda that the Prime Minister and others have been calling for.

Delivery of CMU forms part of the Government’s agenda for a more competitive European Union. If we are to make Europe more competitive, we need to create a true single market in capital, by breaking down the barriers that stop flows between member states and prevent businesses accessing the finance they need to grow and succeed.

As noble Lords will have seen, the action plan is thematic, identifying six key areas for reform. These include: financing for innovation, start-ups and non-listed companies; making it easier for firms to access and use public markets; measures on long-term infrastructure and sustainable investment; fostering retail and institutional investment; leveraging bank capacity; and facilitating cross-border investing.

As the noble Lord, Lord Harrison, noted in his speech, the Commission has made swift progress on a set of priority measures. These include proposals and live negotiations on securitisation, and the rules around prospectuses. Consultations have also been launched on venture capital rules, and a call for evidence on the cumulative impact of current EU financial services legislation. The Government support these priorities, and have been actively engaging in negotiations and responding to consultations.

The action plan features a range of reforms that will help SMEs, particularly high-growth innovative businesses, get access to the finance that they need. CMU will help by giving them access to more investors across the single market—by pooling investment resources, by helping venture capitalists and angel investors, and by making it easier to list on public markets.

From a UK perspective, it is not just our smaller firms that will benefit. Breaking down barriers across the single market will help British firms diversify their investments at lower cost, and offer our competitive products to savers across the single market. The Government have been heavily engaged in the CMU work to date, and will continue to strive to influence these reforms as they develop.

The noble Lord, Lord Harrison, in his excellent speech, said how important it was to ensure that the capital markets union delivers for small businesses. Helping small businesses grow and prosper is a key priority for the Government, both as part of the capital markets union and more widely. We want to ensure that growing and innovative companies are key beneficiaries of the CMU.

We call on the Commission to make a number of reforms to help small businesses in particular, and this has been reflected in the Commission’s approach. Examples include improving small businesses’ credit information, supporting crowdfunding and business growth funds, and lowering the cost to small businesses of listing on public markets, as well as reviving securitisation. The Commission has committed to delivering these reforms and we will continue to engage with its work to make sure that capital markets union delivers for small businesses.

The noble Lord, Lord Harrison, also asked what discussions had taken place with the Dutch presidency. As the noble Lord is aware, discussions have taken place with the Dutch presidency, as with all member states and the Commission. Any more information on the actual discussions I will pass on by writing to the noble Lord on those issues.

The noble Lord also talked about the benefits for the United Kingdom of the single market. As my right honourable friend the Prime Minister set out in his Statement to the Commons yesterday, and my noble friend the Lord Privy Seal reaffirmed today, the draft text published by Council President Tusk earlier in the week set out clear mechanisms to deal with the rule-making and bureaucracy of the EU, complete the single market and sign international trade deals.

There is also a stand-alone competitiveness declaration that spells out that more can be done to exploit fully the potential of all strands of the single market. We need to breathe new life into the internal market, and Europe must boost its competitiveness in key areas, such as energy and the digital market.

[Baroness Falkner of Margravine]

I did not want to interrupt the noble Earl’s flow, but I asked a very specific question about concerns that have arisen in the light of the Prime Minister’s Statement. I wonder whether the Minister will give us a reassurance that he will take those concerns back to the Treasury.

[The Earl of Courtown]

My Lords, of course I will. The noble Baroness makes a good point. All concerns of noble Lords who have asked for reassurances, as the noble Lord, Lord Harrison, did, will go back to the department for further thought.

As my right honourable friend the Prime Minister has said, these changes will make sure that Europe works for all the British people who want to work, have security, get on and make the most of their lives.

My noble friend Lord Caithness talked about the financial sector operating in silos. The capital markets union is intended to further integrate capital markets and to strengthen the linkages between the various agents and consumers—the intermediaries and recipients of investments.

My noble friend also talked, as did other noble Lords, including the noble Lord, Lord Davies, and the noble Baroness, Lady Bowles, about the cultural obstacles in the CMU. It is right to identify the cultural obstacles. Evidence shows that 94% of EU citizens have never bought a financial product outside their home member state. Encouragingly, the CMU seeks to tackle these issues. My noble friend Lord Hill has recognised these challenges. Examples of the steps taken include a special working group established to look at specific national barriers of this nature, with plans being drawn for those member states with more experience in tackling these cultural issues to share experience and best practice with others.

The noble Lord, Lord Davies of Stamford, raised the subject of insolvency. The Government welcome the Commission’s proposals around improving the effectiveness of insolvency frameworks, and the intention of promoting business recovery and returning capital to creditors. Reform should be targeted at those member states currently without suitable laws for the rescue of viable businesses in distress. The Commission should also seek to address the underlying gaps in capability and infrastructure in some member states, and any proposals should be evidence based and take into account any regimes that already successfully support business rescue.

[Lord Davies of Stamford]

I am grateful to the Minister for that response to my questions. I was not so much concerned with the important issue he has just mentioned of trying to reduce losses to creditors from insolvency and the cost of the insolvency process, which we all know can be prohibitively high sometimes, including in this country. I was concerned much more with establishing a capital markets union and the importance of insolvency in that context, which I set out in my speech, so I will not repeat it now. Does the Minister have any thoughts on whether that can be advanced further?

[The Earl of Courtown]

I do not have the details in front of me but I will write to the noble Lord on that issue. I hope he will accept that.

I thank my noble friend Lord Flight for raising the issue of the enterprise investment scheme, which I will bring, along with the whole debate, to the attention of my noble friend Lord Hill. That will be a very useful exercise; I know how important he considers the work of the committees of this House. If there is anything more I can add for my noble friend, I will do so.

The CMU is an important part of the Commission’s financial services agenda over the coming years, and if it is successful it will have long-term benefits to businesses and investors here in the United Kingdom and across the European Union. We will of course keep noble Lords updated as appropriate, and I welcome their continued interest in this important issue.