Independent Banking Commission Report

Ed Balls Excerpts

Monday 12th September 2011 Commons Chamber

The question of how Britain can be the home of successful, global banks that lend to British families and businesses but do not have to be bailed out by British taxpayers should have been answered a decade ago, but it was not even asked—and that failure means this country is still paying the price for that failure. Billions of pounds have been spent and hundreds of thousands of jobs have been lost as a result. It is this coalition Government who set up the Independent Commission on Banking—not just to ask the questions but to provide the answers. Today represents a decisive moment when we take a step towards a new banking system that works for Britain. I commend this statement to the House.

[Ed Balls (Morley and Outwood) (Lab/Co-op)]

Let me start by expressing our thanks to Sir John Vickers and the Independent Commission on Banking for producing a report which will radically reshape our banking industry and our wider economy and which will echo all around the world. It is now the task of the Government and this Parliament to respond to its recommendations in an equally balanced, radical and timely manner, because taxpayers, customers and businesses want radical action. They were shocked and angered by the irresponsible actions of banks in New York, in London, in Frankfurt and in Amsterdam which caused the global financial crisis. But while they are angry at the banks, they are also angry with the regulators, the central bankers and the Governments who failed to foresee and prevent this irresponsibility.

As I have said before, for the part that I and the last Labour Government played in that global regulatory failure, I am deeply sorry. But let me say to Conservative Members and, in particular, to the Chancellor, who accused me in 2006 of supporting

“burdensome, complex”

regulation which, he said, would make

“cross-border market penetration more difficult”

and

“threatens the global competitiveness of the City of London”,

that perhaps the Chancellor also needs to show a little humility about that global regulatory failure.

In April, I set three tests which I believe the Government must meet in implementing banking reform: to protect taxpayers in the future; to secure international agreement to protect jobs in Britain; and to deliver a wider banking system to support the wider long-term interests of our economy. I will take them in turn. First, to protect taxpayers, we support the commission’s radical reforms on ring-fencing and regulatory standards. Unlike the Chancellor, who revealingly supports them in principle, we agree with the Business Secretary and support them in practice. We agree with the commission, which says that the current weak state of the economy does not weaken but strengthens the case for reform. These are complex reforms, and the cautious timetable that the commission has set is understandable. However, given the unsettling public bickering we have seen within the Cabinet in recent weeks, we strongly agree that the Government must provide clarity about their view of the commission’s recommendations as soon as possible—and move rapidly to put in place the necessary legislation and rules.

So let me ask the Chancellor this: will he agree to publish, by end of this year, alongside his response, a detailed implementation plan for the commission’s recommendations on ring-fencing, including clear milestone dates? Will he agree to legislate as many of these changes as possible in the draft Financial Services Bill? To make sure that there is no foot-dragging—to move beyond principle to practice—will he agree with our proposal to ask the Vickers commission to come back in 12 months’ time and publish an independent report on progress so far?

On the second test of securing international agreement, will the Chancellor ensure that the Vickers report is placed firmly at the centre of the global financial reform agenda? Will he set out a plan and timetable for that international process? In recent months, he has failed to deliver international leadership on the eurozone. If he fails on this agenda, we will see a global race to the bottom, with other financial services centres taking short-term advantage of our tougher approach, which would put thousands of UK jobs at risk.

Thirdly, on competition in the wider economy, the commission is right to highlight the costs to consumers and businesses of excessive concentration in UK banking. Greater competition is not the whole answer to the culture of short-termism that still plagues our capital markets, but we fully support the commission’s recommendations on divestiture, a new challenger bank, easier account switching and a stronger competition duty on the new financial regulator. However, until 2015 is too long to wait to judge whether progress is sufficient or whether we need a referral to the Competition Commission. Delays could leave consumers and small businesses to pick up an unfair share of the multi-billion pound bill for tougher capital standards. Will the Chancellor therefore commit to review progress not in four years, but in two years in 2013—two years earlier than the commission recommends?

Finally, none of these reforms can help the thousands of small businesses that are currently struggling to access the credit they need. As the Bank of England has confirmed, net bank lending to business is not rising, but falling. It is down £4 billion in the most recent figures, despite the Chancellor’s toothless Merlin deal with the banks. Will the Chancellor agree today to ensure that state-owned banks increase their lending in the coming months? Will he act now to have greater transparency on pay and bonuses and repeat the bank bonus tax for a second year? Will he recognise that rising unemployment and a flatlining economy will further depress confidence and small business borrowing until he changes course and adopts a plan B for growth and jobs? Today’s report provides some of the answers to the pressing problems we face; it is time the Chancellor woke up to the rest.