Draft Financial Services and Markets act 2000 (Ring-fenced Bodies, core activities, excluded activities and prohibitions) (Amendment) Order 2016

George Kerevan Excerpts

Monday 24th October 2016 General Committees

[George Kerevan (East Lothian) (SNP)]

It is a great pleasure to serve under your chairmanship, Sir Roger. I shall not detain the Committee terribly long, or challenge the order, but I do wish to place on the record some concerns I have, which I hope will be taken away by the Minister and, in due course, noted by the regulatory authorities.

We do not yet have the ring fence. In fact, it will take a whole six years from the initial legislation in 2013 to the ring fence coming into operation in 2019, which is rather a long time, and we will not know whether it is working until some considerable time after that. It is a major experiment, given that we are trying to solve a problem that occurred way back in 2007-08.

My concern, which is shared by a number of colleagues on the Treasury Committee—that is why I feel emboldened to raise it today—is that the length of time it is taking to get the ring fence in place is leading to a bit of regulatory arbitrage on the part of the banks. I understand that—I am not being particularly censorious—but the banks are clearly trying to ensure that the details of the ring fence are placed best for their business, to give them the widest flexibility in business. I understand that, but six years is rather a long time for them to nibble away at the principle of the original legislation.

Two issues in the proposals give me a bit of concern. Let us just remind ourselves that the ring fence is meant to stop the retail side of banks dealing in investments in a way that leads to institutional exposure that it ultimately falls back on the taxpayer to cover. The proposal to loosen the regulation on banks acting as trustees and investing on behalf of clients’ trusts seems, at first, to be innocuous. The draft notes from the Treasury mentioned widows and orphans, and it sounded very much like old-fashioned banking, but anyone who knows anything about contemporary retail banking knows that retail banks are keen to expand their activities on behalf of high-net-worth clients all over Europe.

The changes in the order in fact open the door to retail banks investing heavily, in a very expanded way, on behalf of private clients, here and across the EU and the European economic area. That might be a sensible reform, but it is a door that could be opened ever wider by commercial banks, particularly when we have a runaway boom. Will the Treasury look at that carefully? If all that is intended is to ensure normal investment activity on behalf of small trusts and private clients—the average widow—then fine. But if it is going to allow more than that, the Treasury needs to look at these rules in greater detail.

The other issue of modest concern is allowing the retail side of the ring fence to invest directly in special vehicles for infrastructure investment. The order specifically states that that covers infrastructure investment across the whole European economic area, not just the UK. The draft rules specify the specific areas covered by investment infrastructure and clearly rule out investment in commercial property. That is a very good thing because, looking back to the run-up to 2007, commercial banks on the retail side got themselves into serious trouble—particularly Halifax and the Royal Bank of Scotland—by investing in a proprietary way in commercial property. That seems to be ruled out and I just want the Minister to reassure me of that.

The other areas where retail banks could find themselves being exposed to institutional risk by investing directly in infrastructure include housing and energy, which I presume would include something such as Hinkley Point. Large amounts of money could be involved, and although in principle that is not something one would be opposed to, in periods when the market runs away with itself it opens up the prospect of banks taking undue risk.

I will finish on this point. We have slightly opened the door to retail banks engaging in investment in their own name and therefore exposing themselves to institutional risk in a way that was not there before the rules came up for amendment. I want to be sure that the Treasury has looked at that and will keep a watching brief on it, because a potential danger lurks there.

Draft Bankruptcy (Scotland) Act 2016 (Consequential Provisions and Modifications) Order 2016

George Kerevan Excerpts

Tuesday 18th October 2016 General Committees

[George Kerevan (East Lothian) (SNP)]

In my long perusal of the primary legislation, I notice that there was a debate in the Scottish Parliament on the move from the 1985 Act to the 2016 Act in which “forthwith” was changed to “without delay”, so I suggest that we proceed without delay.

Savings (Government Contributions) Bill

George Kerevan Excerpts

2nd reading: House of Commons & Money resolution: House of Commons & Programme motion: House of Commons & Ways and Means resolution: House of Commons
Monday 17th October 2016 Commons Chamber

[Robert Jenrick (Newark) (Con)]

It is a pleasure to speak briefly on Second Reading and to support two schemes that are an excellent part of what should be a wider strategy to tackle a fundamental and chronic lack of saving in all age groups and all income levels in our country. I want to say a few words about the schemes themselves and then about the scale of the problem and what more the Government might like to do in the years to come to address a chronic issue that should trouble us all, particularly the Treasury.

The problem is greater than many of us like to imagine; the state of saving in this country is worse than we like to kid ourselves. I remember going to visit my grandparents when I was a child and seeing on their mantelpiece a jam jar in which they used to put sixpences to save up for things such as a holiday to Blackpool and for rainy days, should things have got worse. Back then, I think they were the only people on their street who did that and who could afford the coach to Blackpool once a year. I think that my grandmother would put half a crown in a box just below the sofa, to save up for something or other every year, such as a new chair or stool for the house.

That seems like another country and another age—something that could never happen nowadays, when we are all so much richer and have so much greater access to spending. Of course, the statistics—we have heard some of them already—show that that is not the case at all.

Those experiences come from a time before the rise of hire purchase, credit cards, overdrafts and mortgages, all of which, although they have brought with them problems and difficulties that we have to cope with, have created a safety net of sorts against the real fragility that previous generations used to feel, going back as long as anyone can remember. The historian in me thinks of medieval, Georgian and Victorian times, when people used to feel that they were living fragile lives because they could fall from what were then called respectable lives into abject poverty purely as a result of ill fate, including illness, losing a job and having an unscrupulous landlord.

We like to think that those things could not happen today, but, of course, they can, and the statistics that we have heard from both Front Benchers show that very clearly. A quarter of households have less than £1,100 in their total financial assets, and debts of more than £3,500. One in 10 of us has available savings—rainy day money in the jam jar on the mantelpiece—of less than £100. That means less than £100 if someone happens to lose their job, if their company goes bust or if they were in the private rented sector and had an unscrupulous landlord. That should make us all very worried indeed.

Even beyond the poorest in society—those who should be very concerned about short-term saving—there is a crisis in long-term saving, and it looks more and more like an impending disaster for the country. We are all—rich and poor, young and old alike—simply not saving anything like enough.

The latest Deloitte survey shows that, by 2050, the retirement savings gap—the difference between what people will save and what they need to save, if they want to have a reasonable standard of life in retirement—will be £350 billion, which is an increase of £32 billion from five years ago, despite the many measures introduced by the previous Administration and the coalition. On average, each of us has to put away an extra £10,000 every year to avoid what we could think of as a miserable old age. Even people on middle and higher earnings—including all of us in this Chamber—would probably struggle to do that, if we want to pay our mortgages, bring up our children and enjoy a reasonable standard of living in the interim years.

One reason for that, among others, is that we are living much longer. Not only will future Governments struggle to maintain current levels of state pension payment, but we are spending longer in retirement and the cost of retirement income has risen. The latest BlackRock survey calculated that for a 70-year-old male to buy £1 of retirement income via an annuity would have cost £6 in 1970, but today it would cost £12. The cost of retiring is rising dramatically. We all know this, but it is worth underlining that we need a fundamental change in our cultural attitudes towards money and saving.

[George Kerevan (East Lothian) (SNP)]

Many of us in the Scottish National party would agree with everything that the hon. Gentleman has said so far. However, the argument against the lifetime ISA is that far from encouraging extra saving, it diverts existing savings from pensions into housing and stokes up the housing market. It does not actually resolve the problem that he has described so eloquently.

[Robert Jenrick]

I am interested in the point that the hon. Gentleman makes, and I will say more about the lifetime ISA in a moment. The point of it is that many of us in our 20s and 30s—I am just about in that category—are more preoccupied with getting on the housing ladder than we are with looking out for our retirement, and that is a major worry for the Government and for future Governments. The lifetime ISA is flexible, however, because it enables people to spend money in the early years to try to get on the housing ladder, and later to convert the product into something else with a view to retirement. The hon. Gentleman raises a major problem, and we need to look at many solutions; this, I am afraid, is only one.

There needs to be a fundamental change in all our attitudes. We should not purely seek instant gratification; we, as individuals, and the Government must promote ways in which to defer gratification through saving, in contrast to our present, quite corrosive, consumer attitude.

I warmly welcome the lifetime ISA. It is an extremely popular product and there has been a lot of interest in it. I do not represent a particularly wealthy constituency— the average wage is just below the national average—but many of my constituents have said to me that they would like to take up the lifetime ISA. Clearly, offering a 25% top-up as well as the usual tax advantages of an ISA gives us all a strong incentive to save. ISAs are popular, as we know from the millions of people who have taken them up over the years. Contrary to some of the comments that we have heard today and comments in the press, ISAs are simple. We all understand them, and they are part of our saving culture.

I welcomed the news in April that the limit would be raised on the standard ISA from £15,000 to £20,000 a year. That might sound like a great deal of money to many people, but as the problem of insufficient saving affects all income levels, it is an important measure. This is an exciting development for those of us—particularly the younger generation—who will not benefit from generous final salary pension schemes. Although the scheme is not intended to take over from pensions, it creates more flexibility in the sector. Under the previous Chancellor, we saw that across a whole range of issues to do with pensions, flexibility is key.

The lifetime ISA will help younger people to save for a deposit, which is, as we all know, the primary preoccupation of every young person with more than a basic level of income. If this vehicle allows us to help any of them to get on to the housing ladder and then to convert to a product that will help them to save for the rest of their working lives, it will be very useful.

Help to Save explicitly does the same job for those on very low incomes. I appreciate that there are many people, including many in my own constituency, for whom saving seems like another country; it is extremely difficult for them to do. But the alternative is to do nothing and to accept that we live in a country where people cannot save in that jam jar, and where the Government cannot create mechanisms to incentivise them to do so and top up what they have saved. The 50% contribution rate is clearly a great incentive, which we should all appreciate and welcome.

Rather as the IFS has said, it would be helpful for the Government to do more work on understanding which groups are the most critical in terms of saving, and to develop more products that specifically target the core group that we are most worried about—the people who have only £100 or £1000 in the bank as a rainy day fund. That is a very worrying state of affairs.

What else should I raise? One area we should look at is savings interest tax. I am in favour of simple and bold tax reforms that will not complicate the already far too complicated tax code even further, but send everyone in society the extremely clear message that the Government believe we need to save more and will back that up with action. I would strongly welcome a further move to take more people out of paying savings interest tax. The announcement in April, creating a £1,000 threshold for those on the basic rate and a £500 threshold for higher rate taxpayers—was excellent, and we should look at more changes, not least because current levels of interest rates are so pitifully low that the Government are receiving very little, and rapidly declining, tax revenues from savings income. In 2013-14, the income to the Treasury was £2.8 billion, but it is estimated to be £1.1 billion this year and to continue to decline further. Those are obviously large sums, but what would create a greater incentive and give a stronger signal than to say that we will no longer charge tax on savings interest?

My last point is simply to reiterate the one made in debates in recent weeks, which is that interest rates are too low in this country. That has had a very corrosive impact on pensioners and anyone trying to save in this country, on the gap between the rich and the poor, and on the wider economy. I, like many others, was delighted to hear the Prime Minister imply in her speech in Birmingham that she would like to take action on this matter.

Quantitative Easing

George Kerevan Excerpts

Thursday 15th September 2016 Commons Chamber

[George Kerevan (East Lothian) (SNP)]

We are a small but enthusiastic band this afternoon, but it strikes me that there is something serious here. For the last eight years, the entire western world has been undertaking the most extraordinary monetary experiment in 100 years. If it goes wrong, as pointed out by the hon. Member for Wycombe (Mr Baker), the consequences will be devastating for the world economy. We may find that all we did in 2008 was delay the explosion of the world’s economy. It is that serious. I hope that the Bank of England and the regulatory authorities are watching via the camera lenses around the Chamber. This debate should not be seen as an attack on the Bank of England, however. There was an emergency in 2008 and the Federal Reserve and the Bank of England stepped in, and quantitative easing was an interesting device—an emergency brake on the banking crisis. As hon. Members have said, eight years on we should be looking at what else needs to be done.

To use a homely analogy that I hope the technical experts in the Chamber will not blanch at, in 2008 there was a fire in the financial system and we used a high-pressure hose called quantitative easing. Once the fire dampens down, if we keep on using the hose and hose everything in case the fire comes back up, we destroy everything in the house. If we look at the unintended consequences of QE, it is contributing to global deflation. There is inflation in parts, bubbling up through the system, but we have had deflation, which attacks the incentive to invest. We are destroying the propensity to save by bringing interest rates down to near zero. We are destroying bank profits. Has anyone looked at bank share prices over the past couple of years? We saved the banks in 2008 only to destroy their business model through the unintended consequences of QE. Who is going to do something about that?

If we do not do something about it, we will be into another banking crisis of a different kind. In the last two rounds of QE, in the EU and Japan, over the past 12 months, we have started a process of competitive devaluations. We are back to the 1930s; everyone’s response is, “Let’s devalue the currency. That will help our exports.” Once everyone does it, we are in the 1930s situation of beggar-my-neighbour, which inevitably leads to all sorts of political tensions. The Chinese Government are at the moment saying that they are not devaluing, but they are privately devaluing, as we can see if we look at what is happening in the international markets. Exchange rate competition is a dangerous, toxic thing, and it is a direct flow from what QE is now being used for.

As the hon. Member for Wycombe pointed out, the whole process has grossly distorted asset prices, so that when we unwind, it will be a case of, “Who knows what we have been investing in, and whether it has been the right thing or the wrong thing?” There has been discussion about house prices, but it is clear that a series of industrial investments and other kinds of investment could be seen to be the wrong ones once prices rebalance, which of course is making people nervous.

It is rare for me to do this, but I will disagree gently with the hon. Member for Bishop Auckland (Helen Goodman), because I do not think it is a question of using QE for something else in a better way. If we look at the Bank of England’s recent announcement of the £10 billion it is trying to put into company paper, we see that it has chosen 300 companies’ bonds in which it is considering investing this money over the next 18 months. What bonds was it choosing? The Bank of England said it was those of companies that had made

“a material contribution to the UK economy”.

Let me read out the names of some of the companies whose corporate paper the Bank of England is planning to put that £10 billion into. They include: Apple; AT&T; McDonald’s; Pepsi—not Coke, but Pepsi; Proctor & Gamble; UPS; Verizon; and Walmart. We are funding Wall Street. What about the EU? We are supposed to be pulling out of the EU, with Brexit. The Bank’s list includes BMW, Daimler, Deutsche Bahn, Deutsche Telekom, E.ON and Siemens. There are also some fabulous entrants: Moët Hennessy is on the Governor’s list, so the champagne is all right. Even EDF—

[Helen Goodman]

I agree with the hon. Gentleman that the Bank’s definition of “material contribution to the British economy” is inadequate. Like him, I do not think it is very helpful to be investing in fizzy drinks, but we do need to acknowledge that Siemens has a fantastic development in east Yorkshire and that that is good; that is a proper contribution. I do not think he is really arguing against me—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Come on, sit down.

[George Kerevan]

I take the hon. Lady’s point, but underlining what I am saying is the fact that only six British manufacturing export companies are on the list of those 300 bonds that the Bank of England thinks are quality enough to invest in. The whole thing that undermines the trajectory of QE is that it is concentrated on saving a banking system at the expense of our manufacturing system.

What do we do next? We have not said enough about that. We should consider shifting the Bank of England’s targets. The inflation target is the wrong one, and we have spent years ignoring it in any case, which means the Bank has no intellectual anchor, and that raises dangers in respect of the accountability of the Bank of England. We should be looking at nominal GDP targeting, in which case the Bank or the monetary authorities would have to be looking at automatic fiscal buffers, whether we are in a recession or in boom. That brings us back to the whole question of how we rehabilitate the fiscal intervention. At some stage, we are going to have to unwind QE. We have to do that in a controlled fashion, so one thing the Bank should be looking at in any evaluation is what timetable we use. If we have a timetable for the unwinding, that will help the markets to adjust in a better fashion. There is a danger, which we might find when we start to unwind, that the natural rate of interest has fallen so low that monetary policy has been undermined in a historic or generational sense, which again means we have to look seriously at how we combine fiscal policy with monetary policy. It would be unwise to unwind QE in the UK alone. What we should consider is a concerted international approach, which must involve some of the surplus countries such as Germany using their trade surpluses in a controlled fashion to boost consumption.

In the autumn statement, it is incumbent on the Government not to leave all the heavy lifting to the Bank of England. It is time that the Government made an intervention in a strong fiscal policy to allow the transition from QE.

Finance Bill

George Kerevan Excerpts

Monday 5th September 2016 Commons Chamber

[Kirsty Blackman]

We are under a Westminster Government; we do not have full control of our own economy. That is a damning indictment of the way that the Westminster Government are running the economy of Scotland. It is incredibly important that we get independence and that we are therefore able to make decisions, particularly in the oil and gas industry, where the Government have not moved quickly enough or been flexible enough in the changes they have made. It is important that we make the decisions and grow our economy, because the Westminster Government are failing to do so.

On the future for energy and for the North sea, Statoil produced a report entitled “Energy Perspectives”. It is important to consider the future for the North sea and the UK continental shelf in that context. Statoil predicts that up to 2040, total primary energy demand will grow between 5% and 35%. That is a wide range because a number of different scenarios have been analysed. In all scenarios there is an increase in total energy demand. Statoil predicts that energy demand in 2040 will be between 78 million barrels a day and 116 million barrels a day. We currently use over 90 million barrels a day. It is important to note that as we think about the move towards renewables and different forms of energy generation, but by 2040, even if we have a huge number of renewables, we will still see a massive demand for oil and gas across the world. Oil and gas will still need to be produced in order to support the economies of the world. It is vital that we ensure that the UK continues to be involved in that and to benefit financially from it.

[George Kerevan (East Lothian) (SNP)]

On that point, is my hon. Friend aware that more than half of the oil supply and support companies in the UK are located in England, and that the amendment affects all oil companies across the UK, not just in Scotland?

[Kirsty Blackman]

I appreciate that point. I was not aware of the numbers. However, from talking to colleagues across the House who have been very supportive of companies and industries in their constituencies, it is clear that the number of companies is substantial. We are discussing UK spend and, whether we like it or not, we are part of the UK, and the tax changes will help all the companies in the oil and gas industry throughout the UK, whether they are in Aberdeen, Wales or the south of England.

The Oil and Gas Authority has been very good at talking positively about UK supply chain spend, which is one of the most vital aspects. Although I have talked about energy demand and oil and gas demand out to 2040, we will see, at some point, a reduction in the amount of oil and gas being produced by the UK. It is key to note that we are world leaders in terms of our oil and gas expertise. We are very good at what we do, and we are respected across the world. In sub-sea technology, for example, we are 20 years ahead of America. America has not done very much when it comes to Gulf of Mexico extraction. We will be there teaching the Americans how to use sub-sea technology and exporting that technology to them. Even when the oil and gas in the UK eventually run out, we will see that our expertise is able to be exported. It is really important that the Government act now to ensure that we keep that expertise base and do not lose it in the current downturn.

--- Later in debate ---

[The Financial Secretary to the Treasury (Jane Ellison)]

I will start by responding to the Opposition’s amendments and new clauses, before I turn briefly to those tabled by the Government.

Amendment 162 would require the Government to remove clause 45 from the Bill. That would stop the cut in corporation tax going ahead, because the clause will cut the rate of corporation tax to 17% with effect from 1 April 2020. Lower corporation tax rates enable businesses to increase investment. We cannot agree with the hon. Member for Salford and Eccles (Rebecca Long Bailey), who speaks for the Opposition on this matter. Lower rates enable businesses to take on new staff, increase wages or reduce prices. That is borne out by receipts data. The House may be interested to know that onshore corporation tax receipts have risen by more than 20% since 2010, despite the lowering of corporation tax rates. The Treasury and HMRC have modelled the economic impact of the corporation tax cuts delivered since 2010 and those announced at Budget 2016. The modelling suggests that the cuts could increase long-run GDP by more than 1%, or almost £24 billion in today’s prices.

The hon. Lady asked whether business investment has grown. It has increased by 30% since 2010. She mentioned foreign direct investment. In fact, only last week, the Department for International Trade reported a record number of inward investment projects in 2015-16, with over 80,000 new jobs created by more than 2,000 FDI projects. Again, we cannot agree with her criticism.

[George Kerevan]

The Minister mentions that the Treasury has modelled the impact of tax cuts. Is this the same Treasury model that predicted the collapse of the UK economy in the hours after Brexit?

[Jane Ellison]

Given the SNP’s track record on predicting the oil price, the hon. Gentleman should think carefully before digging—

Surplus Target and Corporation Tax

George Kerevan Excerpts

Monday 4th July 2016 Commons Chamber

[Mr Osborne]

My hon. Friend is right to say that, while taxes on business profits are important, capital taxes are also vital to stimulating investment. That is why in the Budget we reduced capital gains tax—and, with hindsight, that is an even more sensible move than I thought it was at the time. I am always ready to consider further investment allowances, and we have very successful allowances such as the enterprise investment scheme. Of course, the balance has always got to be between simplification and simplicity of the tax system and new allowances, and sometimes people call on me in the same breath to do both things—not my hon. Friend, because he is very clear in his thinking. We have got those allowances, but reducing headline rates is generally the better approach.

[George Kerevan (East Lothian) (SNP)]

With the benefit of hindsight, does the Chancellor accept that his original threat to introduce a deflationary Budget in the event of a Brexit vote was both bogus and counterproductive?

[Mr Osborne]

What I was setting out with Alistair Darling, my immediate predecessor, was the realism that will be required when we understand that the economy, impacted by the vote, will have an impact on the public finances, and then it will be up to the House of Commons to decide how we proceed. It was important that that information was in the public domain before people voted.

Bank Branch Closures

George Kerevan Excerpts

Thursday 30th June 2016 Commons Chamber

[George Kerevan (East Lothian) (SNP)]

I thank the hon. Member for City of Chester (Christian Matheson) for securing the debate. I believe there is evidence of banking in Chester as far back as 355 BC, when I assume the service was better than it is now.

There is the how of bank branch closures and then there is the why; let me, very briefly, say something about the how. As every Member has pointed out—I can attest to this in my own constituency—there is a gross lack of proper consultation, to the point of arrogance on the part of the banks. My own example from East Lothian is the town of Prestonpans. My population base in East Lothian is expanding, and Prestonpans is a growing town that will soon contain 10,000 people. However, RBS is about to close the last branch of the last bank in the town. RBS has form. In 2010, it promised that if a branch was the last bank in town, it would not close that branch. In the past two years, 165 “last in town” branches run by RBS in Scotland and the north of England have closed, so that promise has gone by the board.

The lack of consultation is terrible. I found out about the Prestonpans closure by reading about it in the newspaper. Under the bank protocol, all stakeholders are supposed to be approached, but they are not. That contrasts dramatically with the example of Openreach. Yesterday a number of Members, some of whom are in the Chamber today, had a meeting with its chief executive, Clive Selley. We can make numerous complaints about Openreach and access to broadband, but at least the chief executive of Openreach will sit down with MPs and talk about the situation in individual villages containing only 50 people. Is it possible to get the chief executives of banks to talk to us directly? No, and that is particularly true of RBS. I commend the campaign to reverse the position that has been conducted by the whole community of Prestonpans, by me, by the local Member of the Scottish Parliament and by local councillors. We are still waiting to have a discussion with Mr Ross McEwan. We are not going to give up until he sits down and talks to us.

There is a solution, which I commend to the Minister. The Financial Conduct Authority has a responsibility because it oversees bank conduct on behalf of the consumer. The banks are reassessing the BBA protocol on bank closure, which has been discussed several times in Members’ contributions. The protocol is as weak as dishwater, but even that is not being adhered to. It is time for the FCA to step in and hold discussions with the BBA in the course of a re-evaluation of the protocol, and whatever comes out of that, the authority should be prepared to step in and enforce the protocol, rather than having it as something that is simply non-statutory and ignored by the banks.

Why the closures? Of course technology and market demands are changing, but we must not let the banks off over this. We have the most centralised, monopolised retail banking system in the western world. It has made a fortune over the past 20 or 30 years. That banking system grew by mergers, and as the banks grew and merged, they did not modernise and integrate their IT services, which is why every major bank has a whole legacy of computing systems that are all incompatible and falling apart, meaning that their cost base is huge. What are they doing about it? They are closing branches, firing staff and squeezing customer services in order to get the money to resolve something they should have invested in over the past 20 or 30 years. Do not tell me that this is a wonderful move by the banks and that they are closing branches because we are all moving to use the internet. This is the banks trying to find money to address a problem they should have dealt with earlier.

I will give one specific example involving RBS. It has been told to sell off 300 branches of Williams & Glyn, but it has suddenly discovered that the Williams & Glyn computer system is so dreadful that it will not be able to make the sale. RBS has now spent at least £1.2 billion—I suspect the true figure is about £1.5 billion and rising—to put a new IT system into Williams & Glyn so that it can be sold. As RBS is so strapped for cash, it has to make new savings this year of £800 million to help to fund the new IT system for Williams & Glyn. The bank in Prestonpans and all the other RBS branches that are affected are being closed not because of the wonderful new nirvana of us all moving to internet banking, but because, yet again, bad management has led to a need to squeeze costs to deal with a problem that should have been solved before. We should not let the bank off the hook.

We need some solutions. Why not have a universal banking obligation? After all, the Government have agreed to a universal broadband obligation, which helps rural areas in particular—such places are also where the bank branches are closing—so why not have a universal banking obligation? It could be linked to particular licences for the big retail banks, particularly for more complex products. It could also be linked to particular rural areas. We need a degree of regulation because otherwise the banks will just laugh at us.

We need to expand the market for local banking services, especially for SMEs. The new bank capital regulations mean that banks have to keep quality assets that they can realise if they ever have to resolve a liquidity problem, but the Bank of England and the Prudential Regulation Authority have rather left it up to the big banks to model their own capital asset requirements and the quality of their assets. The big banks do that by deeming small business loans as some of their most risky assets. Therefore, they have to lay aside a lot of capital if they want to expand SME loans, but they do not want to do that, so SME loans are not expanding.

The Bank of England and the PRA should step in because all the evidence shows that small business loans are, in the main, very safe. At the tail end, there is perhaps a high risk, but most of those loans are secure. The banks are again using their interpretation of regulations to undermine what we all want, which is more lending to SMEs. If the Bank of England and the PRA intervene and force the big banks to change their assessment of their risk-weighted assets, we would get more SME lending. We would also get smaller challenger banks coming into the market and setting up in our smaller towns precisely to get that SME business. We should not let the banks get away with the notion that this is all inevitable.

Finally, I want to give this message to Mr Ross McEwan: myself and the people of Prestonpans are ready to meet you at any time.

UK Economy

George Kerevan Excerpts

Wednesday 29th June 2016 Commons Chamber

[John McDonnell]

I remember the Chancellor promising that the deficit would have been eradicated last year. Although we welcome the jobs that the hon. Gentleman mentions, many of them are, unfortunately, insecure and poorly paid. However, we welcomed and supported the capital requirements relating to banks. I hope that the Conservatives can accept that balanced assessment.

At the centre of the OBR’s pessimistic assessment was the stagnation of UK productivity. According to the latest available data, between 2007 and 2014—Members on both sides of the House have raised this point—productivity did not grow. That is the worst performance by any G7 economy, and it means that today, on average, every hour worked in the UK is a third less productive than in the United States, Germany or France. This productivity stagnation has happened on the present Chancellor’s watch. It is clear that his long-term economic strategy has failed, as he has not secured the basis for long-term growth. Can we at least agree that from now on that we need a comprehensive strategy to deal with the productivity crisis?

Over the past few years, growth has relied too much on two things. First, although the economy has produced a large number of jobs, they have been poorly paid and insecure. Secondly, growth is unfortunately becoming more and more dependent on a return to household borrowing. We have not yet hit the level of 2008, but the OBR forecasts an unprecedented five years of continual household deficits.

Alongside our deficit with the rest of the world, our current account deficit has widened to its highest level since the 18th century. At 7% of gross domestic product, it is the largest current account deficit in any major developed economy. To finance the gap, borrowing from the rest of the world and the sale of UK assets have reached record levels, alongside assets sales to the rest of the world involving a range of facilities, to some of which there have been significant objections in the House. Relative to GDP, the UK now has a larger overseas debt than any other major developed country. We have been able to finance the current account deficit, despite weak productivity growth, because of what Mark Carney described, in a recent lecture, as “the kindness of strangers”.

[George Kerevan (East Lothian) (SNP)]

Does the shadow Chancellor agree that the current account deficit is essentially being funded by foreign direct investment, which includes the purchase of assets in this country by Chinese organisations? How does that relate to Britain taking back control?

[John McDonnell]

Labour has consistently presented arguments in the House about the asset sales that have taken place. In the past, they have been described as selling the family silver, but in recent years we have been selling the floorboards and the fabric of the building itself.

Investors in the rest of the world have been willing to overlook some of the fundamentals of our economy in the belief that the country is politically stable, and has secure banks and a booming property market. Overseas investors have been willing to buy assets and lend money on a grand scale as a result. Owing to the leave vote, however, that “kindness of strangers” is now in short supply. Given the uncertainty over the UK’s relationship with the rest of the world, the confidence of international investors in its position has been undermined.

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[Mr Osborne]

My right hon. Friend is right to point to the fall in UK gilt yields, but there has been something of a flight to safety. In the last six years, we have made UK Government debt a safe haven in stormy waters, and on this side collectively we can take enormous pride in the fact that we have done that. It is very different of course from the situation six years ago when yields were increasing in the face of economic difficulties, whereas here they have come in.

In terms of the financing of the debt, I have already on a number of occasions over the last six years changed the skew of the Debt Management Office’s debt plan and made sure we have more longer-dated debt than we would otherwise have had. One of the reasons why international investors and others have confidence in the UK gilt market is that we do not chop and change all the time every week, so while my right hon. Friend makes a very good point, I do not think we should immediately respond to the events of the last week by changing our financing remit. Indeed, the message we need to be sending very clearly is one of stability and reassurance. That brings me to the plan I believe we should now follow.

First, it involves ensuring financial stability, and that is precisely what we have been doing in the past few days. In the run-up to the referendum, the Treasury worked closely with the Bank of England and the Financial Conduct Authority to put in place robust contingency plans for the immediate impact of a leave vote. I met the Governor of the Bank of England to discuss it on a number of occasions, and the Financial Policy Committee and the Monetary Policy Committee both had special meetings to discuss those contingency plans. The Prudential Regulation Authority—essentially, our bank regulator—worked systematically with each major financial institution to make sure they were financially sound and prepared for whatever the outcome of the referendum was going to be. The Bank of England pre-announced additional liquidity auctions to support the banking sector. People will have seen this week from the result of those auctions that that liquidity has been provided. Over the last few days, we have been working closely alongside Finance Ministers and central bank governors across the G7 nations and the nations of the European Union to make sure that we are monitoring developments closely and are ready to respond. The president of the European Central Bank updated the European Council yesterday—the Prime Minister reported on that to the House earlier—but it has to be said that the update was not particularly rosy. Let us be clear: these contingency plans were designed to prevent disorder in markets; they were not designed to stop markets adjusting to the new economic reality.

I can reassure the House today that our major banks are resilient. Capital and liquidity remain strong, and this morning we have seen greater stability in the major banks’ share prices, and the currency markets are continuing to function effectively. But there have been significant adjustments, and we have to be realistic about the impact of the referendum on the financial markets.

[George Kerevan]

The resilience and stability of our banks is to be welcomed, but it is clearly at the price of pumping so much central bank money into the system that bank share prices are falling, and the future commercial prospects for our banking system have been undermined. The system is not as stable as the Chancellor is telling us.

[Mr Osborne]

The stability of our financial institutions is there for people to see. It has been assured by our regulators. If the hon. Gentleman is saying that the market is making new assessments about the future earnings of banks, yes, that is so, and it is quite striking that it is banks that face the UK economy that have seen the sharp falls in their share prices, not banks that face the European and international economy. We have to be realistic: markets—free markets—are going to make those kinds of adjustments. We have seen those—the shadow Chancellor noted them—but it is striking that there has been the largest one-day fall against the dollar on record for our pound sterling. Equity markets, particularly the FTSE 250—which largely comprises companies that, again, face the UK domestic market—fell by 14%, and they are now 9% below their level. The particular sectors that have been affected are British retail banking, house building and short-haul airlines, some of which have seen their share price fall by more than 40%.

--- Later in debate ---

[James Cartlidge (South Suffolk) (Con)]

It is a great privilege to speak in this debate, which I very much welcome, because it is what we should be doing. There is a lot of excitement out in the rest of the estate at the moment, but following this enormous decision, with all its consequences, we should be sitting here as a packed Parliament discussing the huge impact. I very much welcome the shadow Chancellor’s point about the need for a cross-party approach, because this is potentially bigger than any party or any leader, no matter how charismatic or experienced they may be.

[George Kerevan]

Perhaps the hon. Gentleman could explain why this is an Opposition day debate and the Government did not call a debate on the economy after Brexit.

[James Cartlidge]

I am not an expert on “Erskine May”, but I understand that this slot was allocated for an Opposition day debate—[Interruption]—and there was a statement on the European summit.

I campaigned passionately for a remain vote, and I argued positively. I always set out what I thought was the positive case, but I have to say that in my view the negative case was made too often. We created a “cry wolf” situation: if we warn about some things too often, people eventually ignore us even when we are right. We must be honest and say that some of those predictions are coming true.

I believe that the country can come through this, come together and be stronger eventually, but if we are to do so, we initially have to recognise what we have lost and the strength that we have given up. The best way to look at this is to think of a very good Gwyneth Paltrow film—I do not know whether you have seen it, Madam Deputy Speaker—called “Sliding Doors”. We know what has happened: we have had the resignation of a great one nation Conservative Prime Minister; we once again, having reopened Pandora’s box, have the issue of Scotland; we undoubtedly, whatever the indices are showing, have turbulence in the financial markets; and we have profound uncertainty. The very best we can say is that we have a crisis of uncertainty. We hope that that will not be manifested as real pain in the economy, but it is quite obvious that there is a genuine risk of that and we must deal with it. As I said when I intervened on the shadow Chancellor, Fitch has issued a very serious warning of a 5% reduction in investment this year. The biggest threat is what might happen to inward investment. We must remember the current account deficit issue and the fact that the country is completely dependent on inward investment. If the big foreign firms look at this country less positively, we will pay a high price.

I mention “Sliding Doors” because if we had boarded the other tube train going to “Remainia” in the referendum —oh, how I wish that had been the case—

--- Later in debate ---

[Greg Hands]

This may come as news to the hon. Gentleman—he was not here in the previous Parliament, although some of his SNP colleagues were—but we had a very extensive set of debates, including a number of votes, on the future of the House of Lords. I do not think that, at this time of great interest in the nation’s constitutional affairs, another debate about the future of the House of Lords would be sensible.

We heard some very good speeches, including from my hon. Friend the Member for South Suffolk (James Cartlidge). I agree with him that it is no use going back to what might have happened. We need to move forward in reasserting our strengths as a nation and as an economy. I could not agree with him more that we need to continue with a fiscally prudent regime and build a surplus before the end of this Parliament.

[George Kerevan]

Is the Minister therefore saying that the Treasury is still committed to running a budget surplus in 2019, come what may?

[Greg Hands]

The fiscal rules provide for action in the event of particular eventualities. I do not see a need to revise the rules at the moment. We move forward from here. The most important thing is for all of us to unite in moving forward and to make the best possible case for our renegotiation in the European Union.

We heard from the right hon. Member for Birmingham, Hodge Hill (Liam Byrne), who is a predecessor of mine in this role. I totally agree with him about being loud and clear on the rights of existing EU nationals in this country. I can tell him that my own wife, Frau Hands, would very much agree with him as well.

The Economy and Work

George Kerevan Excerpts

Thursday 26th May 2016 Commons Chamber

[Mr Osborne]

We have put more money into social care, and we have allowed the precept to be applied by councils, many of which have taken up that option. As a result, more money will go into social care in the coming years. That is what we have done, but we could not do any of those things such as support social care or universities without a sound economic policy. I listened in complete incredulity to yet another speech from yet another shadow Chancellor promising yet more billions of pounds of spending, borrowing, and extra taxes. It is as if the scorching experience of the financial crash eight years ago, and the crippling deficit with which Labour saddled this country, never happened.

When the hon. Member for Hayes and Harlington (John McDonnell) mentioned the record of the Labour Government he kept saying, “Up until 2008”, as if he had forgotten that the biggest crash in modern history was while the Labour party was in office. It is a bit like saying to Mrs Lincoln, “Apart from the assassination, did you enjoy the play?”

[George Kerevan (East Lothian) (SNP)]

Will the Chancellor remind the House of whether he met his deficit target for 2015?

[Mr Osborne]

The deficit has come down by another £16 billion. When I first stood at the Dispatch Box as Chancellor of the Exchequer we had a budget deficit of close to 11% of our national income, and £1 in every £4 that we spent on everything from hospitals to schools and police had to be borrowed. This year that figure is projected to be below 3%, and we are projected to have a surplus by the end of this Parliament.

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[Stewart Hosie]

We are using every single power available to us, and we will use all our powers over taxation when they come. How we choose to do that will be a matter for the Scottish Government. What I suspect we will not do is to impose a 5% increase on the poorest workers in Scotland, which was a plan posited by others and led them to come third in the election.

This Queen’s Speech could have been used for the delivery of vital and urgent aid to support trade and exports, and for measures to stimulate investment and growth to turn round what is now recognised in the real world as this Chancellor’s failed stewardship of the economy, which has seen the trade deficit widen to its worst level since the crisis in 2008 and will see the Treasury miss by £300 billion its own target of doubling exports to £1 trillion by the end of this decade.

We could and should have had a fair tax Bill, simplifying the UK tax system and delivering greater tax transparency; and, vitally, measures such as a moratorium on this Government’s programme of HMRC office closures. We should have had the establishment of an independent commission to simplify the tax code and strengthen tax transparency by guaranteeing that beneficial ownership of businesses and trusts—here, in the Crown dependencies and in the overseas territories—would be made fully public.

We should have had an energy security and investment Bill, facilitating an export-led sustainable energy sector. As my hon. Friend the Member for Aberdeen South (Callum McCaig) said, we should have had a comprehensive strategic review of tax rates and investment allowances in the North sea. In addition, we should have had a review of securing the future energy supply of the UK and an ending of the UK Government’s commitment to the failing Hinkley C nuclear project. We should have been directing investment instead into renewable energy and into carbon, capture and storage. Those, among other initiatives, would have formed the basis of solid economic proposals to grow the economy. What we ended up with in economic terms was a digital economy Bill, a criminal finances Bill and a better markets Bill. I shall deal briefly with those Bills.

We understand the benefit of digital connectivity and welcome the roll-out of superfast broadband, which has the potential to boost productivity. According to a Deloitte report commissioned by the Scottish Futures Trust last year, increased digitisation could boost the Scottish economy alone by around £13 billion. Increased digitisation and reach across Scotland would also have a direct impact on improving productivity, business creation, jobs, earnings, exports and tax revenues—and many more positive outcomes for public provision. The report suggested that if Scotland were to become a world leader, we could see a significant increase in GDP, something in the order of 6,000 extra small and home-based enterprises and potentially an extra 175,000 jobs by the end of the decade.

We therefore welcome moves by the UK Government to provide digital infrastructure, but we are unconvinced that this digital economy Bill will turn round the UK’s persistently poor productivity levels in the way that it might have done. We are particularly unconvinced about whether the implementation of this digital plan, particularly the broadband roll-out, will deliver—not least because we have evidence that the UK Government have failed in this regard before.

As long ago as July 2013 the National Audit Office reported on the Government’s then broadband programme, saying that broadband roll-out was 22 months late. The Environment, Food and Rural Affairs Committee reported last year that the UK’s target dates for broadband had been changed many times, raising concerns that the target for delivering superfast broadband to even 95% of the UK was in jeopardy—in other words, not very good with targets at all. We nevertheless welcome the UK Government’s commitment to introducing a universal service obligation, not least because it was in the SNP manifesto and we believe that if it can be fulfilled, it would bring particular benefits to rural communities.

We welcome, too, Government moves to tackle corruption, money laundering and tax evasion, but the criminal finances Bill does not go far enough to combat this systemic problem. Following the release of the Panama papers, my right hon. Friend the Member for Moray (Angus Robertson) called on the Prime Minister to go further with measures to crack down on tax evasion and aggressive tax avoidance, pointing out that illicit cross-border transfer financial flows are estimated at around £1 trillion a year, which is 10 times more than global foreign aid budgets combined. We believe that the Prime Minister and the Government should prioritise bilateral tax treaties, not least with places such as Panama and other tax havens, as part of the global efforts to co-ordinate better against tax avoidance.

Furthermore, we call on the UK Government to embolden compliance by guaranteeing that the beneficial ownership of companies and trusts is made fully public. It is also the case, as I alluded to earlier, that the UK has one of the most complicated tax codes in the world. That leads to a loss of tax yield and perpetuates opportunities to exploit loopholes. We have called on the Government to bring about a just tax system, which will assist in ensuring that all taxpayers are given a fair deal.

In our alternative Queen’s Speech, we call for the Treasury to convene a commission and report back within two years, following a comprehensive consultation on the simplification of the tax code. With a simplified—not a flat tax code—tax system, the Government could boost yield, encourage compliance, and avoid exploitative loopholes such as the Mayfair loophole. While we welcome the long-overdue measures by the UK Government to tackle corruption, money laundering and tax evasion, we wait with interest to see the detail of these measures.

Whatever good may come of this, however, the counterproductive decision to close 137 HMRC offices will strip local businesses and individuals throughout the United Kingdom of the support that they need to ensure that they comply with the law. If they are to tackle tax avoidance at all levels and continue to provide local support when it is needed, the UK Government must place a moratorium on HMRC office closures. We take the view that, by and large, individuals and business want to contribute to society by paying tax, and that a high proportion of the SME tax gap—caused not by fraud, but by genuine error and miscommunication—could be dealt with by removing the threat to local offices. It is extraordinary that, although tax compliance is now at the heart of much of our economic debate as it has not been for decades, the HMRC workforce have been cut by 20% since 2010.

The final Bill that comes under the broad heading of “the economy” is the better markets Bill, whose main purported benefits are to give consumers more power and choice through faster switching and more protection when things go wrong. That is welcome. The Bill would simplify the way in which economic regulators operate to make life more straightforward for business and cut red tape, and would also speed up the decisions of the Competition and Markets Authority for the benefit of businesses and consumers alike. That too is welcome.

The intention is to deliver a manifesto commitment to increase competition and consumer choice, particularly in the energy market. However, while we welcome Government moves to challenge rising energy prices by encouraging market choice, the Bill does not go far enough to combat the problem of fuel poverty at a structural level. According to the UK means of calculating fuel poverty, in 2014 some 2.5 million households were in fuel poverty. According to the methods used in Scotland, Wales and Northern Ireland, over the last three or four years the figures have sat between 30% and 40%. The structural issue here is not a shortage of gas or electricity, it is not necessarily a shortage of competition, and it is not necessarily the ability to change suppliers quickly; it is a shortage of money to pay for the gas and electricity coming into the house.

I am sure that there are good intentions behind many of the economic measures in the Gracious Speech, but they are simply too little, too late.

[George Kerevan (East Lothian) (SNP)]

My hon. Friend has referred to fuel poverty. The Chancellor mentioned Martin Lewis. Is my hon. Friend aware that I was at a conference with Martin Lewis this week, at which he denounced universal credit as particularly hurting the poor and their ability to save and to pay for energy? The very person whom the Chancellor mentioned is the person who is actually—[Interruption.]

[Madam Deputy Speaker (Natascha Engel)]

Order. That was a very long intervention. I have already said that there is a very limited time for a very large number of Members to speak.

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[George Kerevan (East Lothian) (SNP)]

rose—

[Hon. Members]

Hooray!

[George Kerevan]

Wait for it. This afternoon, the Chancellor promised us a better markets Bill to improve competition. We on the SNP Benches are in favour of that and will give it what help we can, depending on what is in the Bill. It is a matter of record that, in the UK, we have the most monopolised banking system in the western world. Four big banks dominate, with 80% of the market share. If we want genuine competition and better markets in finance, we need to have six, eight or 10 banks of a similar size. Until we have that, there will be no better markets or better competition.

Here is a tale: the two main regulatory bodies set up by this Government and this Chancellor to ensure more competition and better markets in finance—the Competition and Markets Authority and the Financial Conduct Authority—have failed to deliver. Why is that? There is a suspicion among SNP Members, and I suspect among Government Members, that those regulators are perhaps looking over their shoulder at the Chancellor and asking themselves, “Does the Chancellor really want us to close down, intervene in or break up those banks? Maybe we are being told to say one thing and to do another.” That is why, when we look at the small print of the Bill, we will want to see whether this is just shadow boxing and a subterfuge that allows the Chancellor to get up and say, “I’m in favour of competition, but actually—shush, shush—don’t do anything about it”, or whether it will really have teeth to take on the big banks.

I want very quickly to look at some of the things that are going on. The FCA has brokered a deal with the big banks on arbitration for small businesses who have suffered mis-selling and been bankrupted. Unfortunately, the FCA has turned a blind eye to the fact that the big banks are now signing up solicitors across the UK, including in Scotland, so that those solicitors, who are on the banks’ books and waiting for work, will not take up the cases of small businesses who feel that the arbitration process has gone against them and want to take the banks to court.

[Roger Mullin]

Corrupt.

[George Kerevan]

I hear from a sedentary position the word “corrupt”. I will not use that word, but I will certainly be looking to the Chancellor and this Government to make sure, through this Bill, that such practices by the big banks are done away with.

Finally, in my constituency of East Lothian, RBS has just announced the closure of its only branch in the town of Prestonpans. That is a surprise because the population of East Lothian is growing, and we are about to have 10,000 more houses in the general area of Prestonpans. Banks do that kind of thing: they do not care about their customers. This Bill has to reverse that, and that is the test we will apply to it.

Bank of England and Financial Services Bill [Lords]

George Kerevan Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Tuesday 19th April 2016 Commons Chamber

[Harriett Baldwin]

I will make sure that that person makes him or herself known to the hon. Gentleman with the greatest of speed. It is important to point out that the agents do not engage with us as politicians. The agent for the west midlands and Worcestershire is very engaged with my local businesses, but I as a politician have never had a meeting with them. That is how it should work.

[George Kerevan (East Lothian) (SNP)]

I realise that the Economic Secretary is trying to be helpful, but does she not recognise that there is a strategic difference between the process of information-gathering through the agents and that of policy-making through the bodies of the Bank itself? That is where we are asking for representation.

[Harriett Baldwin]

I will get to that point later in my remarks. As always, I seek to be helpful to the hon. Gentleman, so I hope that he will enjoy those remarks when I get to them.

We believe that it is unnecessary to impose the requirement in new clause 2 to have regard to regional representation on the court, which is effectively the board of directors of the Bank of England, because of the comprehensive framework for regional information gathering that already exists. In addition, if we found a candidate with the perfect profile to serve on the court, but we insisted on downgrading them because they lived in an over-represented part of the country, that would not be the best way to produce an effective court.

I have been clear that in setting both monetary and financial stability policy, the Bank must take into account economic conditions in, and the impact of policy decisions on, every part of the UK. Monetary and financial stability policy must be set on a UK-wide basis. None of the 65 million people whom this House represents would be well served if, for example, different capital requirements applied to banks in different parts of the UK. Of course, monetary policy must be consistent. It is completely impossible to set different interest rates in different regions, so monetary and financial stability are, rightly, reserved policy areas.

The men and women who make up the Bank’s policy committees must have their decisions scrutinised, but since policy must be set UK-wide, this Parliament must hold them to account. This Parliament holds power over reserved matters, which these issues rightly are, and the Members of this Parliament represent people from every part of the country on an equal basis. Likewise, Ministers, who are accountable to the House and who hold their positions with the support of a majority of the House of Commons, must be responsible for making the external appointments to the Monetary Policy Committee, each member of which is responsible for considering the impact of their policy decisions on all 65 million people in the UK.

We also return to the question of the Bank’s 300-year-old name. It is important to recognise the reputation associated with a name built up over such a long period. During that time, the Bank has come to be globally renowned as a strong, independent central bank. We should not underestimate the importance of that. International confidence in the Bank of England helps to support international confidence in our economy and currency.

I turn to the monetary framework. The Government amendment in this group is modest. The Bill reduces the minimum frequency of Monetary Policy Committee meetings from monthly to at least eight times in every calendar year, and our amendment adjusts the reporting requirements of the Monetary Policy Committee to match.

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[Harriett Baldwin]

The hon. Gentleman tries to tempt me down the path of comparisons with sports teams, but I decline to be tempted. The Government amendment is modest: the Bill reduces the frequency of MPC meetings from monthly to at least eight times in every calendar year, and the amendment will simply adjust the reporting requirements of the MPC to match.

New clause 6, tabled by the hon. Member for Carmarthen East and Dinefwr, suggests that we give the MPC a second primary objective of maximising employment. We conducted a comprehensive review of the monetary policy framework in 2013 and concluded that a flexible inflation targeting framework offered the best approach. Employment is already explicitly part of the MPC’s objectives. Its secondary objective is

“to support the economic policy of Her Majesty’s Government, including its objectives for growth and employment.”

The most recent MPC remit letter summarised the Government’s economic policy as being

“to achieve strong, sustainable and balanced growth that is more evenly shared across the country and between industries”.

[George Kerevan]

I thank the Minister for her forbearance in giving way again. She is taking refuge in the Bank of England’s existing mandate, a mandate that all Members, on both sides of the House, know has long since become redundant. The inflation target has been dead in the water for years and years, because inflation is nowhere near 2% and is not likely to be for a long time. Implicit in the new clause is the fact that we are questing about for other policy measures to replace the 2% inflation target. Will the Minister address the question of what future targets the Bank of England should have to address the needs of a deflationary era, rather than the inflationary era of the last 20 years?

[Harriett Baldwin]

The hon. Gentleman asks an important question. There are many opportunities in Parliament, in the scrutiny of the Bank of England by the Committee of which he is a member, to ask those important questions. The Government choose to use the mechanism of the letter process and the remit. The hon. Gentleman and I are both old enough to know how inflation has changed over the years—[Hon. Members: “Surely not!”] I know; surely we are not. We should all welcome the significant lowering of inflation expectations, and we should all remember how important it is that we continue to ask the Bank of England to keep inflation under control, so that we never return to the kinds of impoverishing inflationary policies that so harmed people—particularly the poorest and oldest in society—during the 1970s.

Price stability must have primacy, because we judge that having a single lever aimed primarily at a single objective is the best way to make sure that the inflation target is credible. That, in turn, anchors all-important inflation expectations and helps us to keep inflation under control. Our system has shown that it produces good labour market outcomes. Despite global uncertainty, we have record numbers of people in work, an unemployment rate that is at its lowest in a decade, and a claimant count that has not been lower for more than 40 years. Moreover, targeting low inflation ensures that hard-earned wages are not eroded by inflation.

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[Mr Tyrie]

Of course my hon. Friend the Member for North East Somerset (Mr Rees-Mogg), as a great and learned constitutional expert, will explain this apparent contradiction to the House in, I hope, a lengthy disquisition in a few minutes’ time.

I really am trying to conclude, but I have just one more point. It is essential in a 21st-century democracy that appointees to an increasing number of quango positions—this was the general point I said I would refer to earlier—should be forced to explain their actions before Parliament and also should feel accountable to Parliament. To achieve that, the means of their appointment and their protection from dismissal are relevant, and that is why a change such as this can offer us something.

Over decades, successive Governments have offloaded their responsibilities to quangos, leaving the public with the sense that nobody is ultimately democratically accountable for anything. I believe that accountability for decisions that were formerly taken directly by Ministers, but now sit with unelected appointees in quangos, needs thorough scrutiny and cross-examination, and that is what we have been trying to do in the Treasury Committee over the past few years.

The agreement with the Chancellor is a sizeable step in the right direction. Of course, in an ideal world, I would like access to the statute book to write exactly what, on behalf of the Treasury Committee, I feel should be on it. However, we live in the real world, and I am very happy with this exchange of letters and grateful to Ministers for their agreement. I shall not press new clause 1 to a Division today.

[George Kerevan]

I agree with the right hon. Member for Chichester (Mr Tyrie) that there is a lot to be commended in the Bill, although some of the good things, as with new clause 12, were pushed on the Government. I also think that there are still some negative aspects to the Bill, which brings me to a conclusion—[Interruption.] As usual, it will be quite a long conclusion!

The Bill began as a tidying-up operation, which is why it was launched in the House of Lords. It was seen to be about just tidying up a few things, making a few additions and changes to the Financial Services Act 2012. As the Bill proceeded through its various stages, however, the more it became apparent that it exposed a whole series of issues in the financial regulatory system that were not fit for purpose.

We have convinced ourselves—or at least the Government have convinced themselves—that bar a little tidying up, all has been done to resolve the crisis of 2007, but that is not true. What we discovered time and again as the Bill proceeded were issues with the operation of the Bank of England and issues with the functioning of the regulatory bodies and how fit for purpose they are. Furthermore, new issues have emerged only in the last few weeks regarding tax havens. All those problems have appeared. I do not see this Bill putting the problems away and putting the issues to bed. Rather, we are seeing the start of a whole series of pieces of legislation coming into force until we get it right. Far from it being a tidying-up operation, we have started something new.

I am speaking to new clauses 2 and 3, which stand in my name and those of my SNP colleagues. I believe they get to the nub of the issues we are facing as a result of what has been uncovered. In the last 20 years, and more particularly in the last 10, the Bank of England has acquired an extraordinary range of new powers. I do not mean just forecasting or supervising powers over banks, because fundamental policy levers for running the whole economy have been transferred from this House and the Executive to the Bank of England itself. This began with the transfer of powers over interest rates to the Bank of England in 1997, along with the power to set the exchange rates, which no one seemed to notice at the time. This gave the Bank de facto control over our external sector. More recently, of course, with quantitative easing, the Bank has forced interest rates down to the zero band. If monetary policy cannot be manipulated, what else can be done? Gradually, the Bank has been given powers over large swathes of fiscal policy.

Nowadays, the Bank of England even operates our housing policy, as housing determines the whole direction of economic growth. In recent weeks, the Bank has been deciding between buy for let or buy for homeowners. Micro-decisions have been transferred, and my worry is that we have crossed a line of accountability with respect to the Bank of England. This is not a criticism of individuals working for it or indeed of the Governor of the Bank of England, for whom I have high regard. Gradually, however, we have allowed it to take over from this House far too much of the operational policy that directs the economy.

That is why I am happy to support new clause 12 as a step forward in beginning to redress the balance of accountability. New clause 12 and the Government’s acceptance of the general line of march from the Treasury Select Committee means that we are beginning to move to the point where key members of the regulatory regime can be confirmed in their appointments by this House.

We now have two precedents in that direction, with the Treasury Committee as a servant of the House confirming the appointment of the director of the Office for Budget Responsibility and now the head of the Financial Conduct Authority. That is the line of march, but I want to put on record, however, that SNP Members view this as a down payment. We are moving in a direction where the Governor of the Bank of England and all the key members of the regulatory agencies have to be confirmed by this House. I know that will take a long time and that there is always a struggle—sometimes gentle, sometimes not—between the Executive and the House over who has the real say. What we are seeing is a move towards more democratic accountability being held by the House, which I welcome.

Let me move on briefly to new clause 2, which takes this process a little further. Given the policy direction and powers that now lie with the Bank of England, we have to make sure that its committees and, above all, its ruling court of directors are democratically accountable. That is why we tabled this simple new clause, stating:

“In making nominations to the Court of Directors of the Bank of England, the Chancellor of the Exchequer must have regard to the importance of ensuring a balanced representation from the nations and regions of the United Kingdom.”

That new clause was carefully written. There is no suggestion that the court should be a federal body. Our suggestion is that in the balance of its make-up, there should be representation for the whole nation. Rightly or wrongly—much more rightly than wrongly in my opinion—there is a perception that the City of London and its major banks and financial institutions have historically had too big a sway over the court and the Bank.

[Helen Goodman]

The hon. Gentleman is making a powerful point. Does he agree that it must be significant that the economic performance of the peripheral areas of these nations is also peripheral?

[George Kerevan]

I could not agree more. In fact, if we look at the long history of the regions and nations of the United Kingdom—Scotland, Wales, the north of England and Northern Ireland—we see that they have suffered a deflationary cycle since the second world war, because from 1945 onwards, by and large, interest rates were set to control inflation that was triggered by the City of London and over-lending by the City of London. As a result, the north-south divide became a deflationary line, with the nations of the north, and the regions of the north of England, suffering high interest rates. Although those rates were not germane to their economic problems, for most of the post-war period UK interest rates have, on average, been set at a higher level than those in the rest of Europe, simply in order to control and curb over-lending by the City of London, which has resulted in deflation in the industrial regions.

I consider that that might have been mitigated to some extent if there had been broader representation of the nations and their industries on the leading bodies of the Bank of England, and, although I know that the Executive will challenge my proposal, I think we need to move in that direction. I remind Members that the court of directors is not the institution of the Bank that actually makes monetary or fiscal policy. It has oversight over the whole of the Bank’s operations, in the sense of giving value for money, and, above all, ensuring that there is no group-think between the different committees that make operational policy. I therefore think that, at that level, we need to begin the process. At that level, we need wider representation on the court.

Surprisingly—and I raised this in Committee—such representation already exists to a small degree. Since world war 2, traditionally, there has always been a trade union representative on the court of the Bank of England, and there still is, to this day. Even the Government—indeed, successive Governments—have recognised that there can be wider representation on the court, including wider social representation. However, when I asked Ministers whether, if they were rejecting the notion of a court with a wider representation of the economy and the community, they were going to remove trade union representation, there was a deafening silence, and that is why I am putting the question again today. Those who accept the principle that there should be trade union representation—and there should—ought to widen that principle, and that is what I am asking for now.

We tabled the new clause carefully in order not to suggest that the court should be federal or too detailed, with someone representing this and someone else representing that, but simply to suggest that a balance was needed. As anyone who has sat on the board of a company will know, the first thing that one must do when creating a board is ensure that there is some representation of different skills and different interests, so that the board’s members can act as a collective. My point is that the court, and to some extent, I think, the new policy committees of the Bank of England, do not act as collectives. They are in danger of adopting silo thinking, and, ultimately—because of the power that we have given to the Bank of England—they are also in danger of beginning to act with the kind of hubris that central banks begin to wield when they are given too much power. They begin to think that they know everything when they do not. We need democratic accountability in the Bank of England, and we need it not in the sense in which the Bank understands it, but in the sense in which the nation, and the nations of the UK, understand it. That is why I will press the new clause to a vote later on.

We have made some progress with the Bill. I fear that that progress has consisted mostly of discovering more about what we need to do to improve the regulatory structures of the economy, but at least more is out in the open, and the debate is more open. Where do we go next? Where we go next is towards more accountability. The Bill makes a down payment on that accountability, but it does not finally deliver it. That is where we go next.

[Helen Goodman]

Obviously, in the new landscape of the City, the head of the Financial Conduct Authority holds an extremely important post, and the question of who fills that post is therefore vital. I am extremely pleased about the change that was agreed this afternoon and announced by the Minister at the Dispatch Box. It opens up the process, it gives the Treasury Committee a proper role, and it will, we hope, reinforce the independence of the person concerned.

Another person with considerable independence is, of course, the Comptroller and Auditor General. I am pleased, too, that we have moved away from the idea that the court should decide which part of the Bank’s homework the Comptroller and Auditor General should be allowed to mark. There is clearly a parallel with the CAG’s role in respect of the BBC. On Second Reading, we asked Treasury Ministers to publish the memorandum of understanding. They have now published it, and it is an extremely useful document, which sets out, in advance, an agreed framework for the CAG’s remit. That will prevent ad hockery, and will also prevent both the reality and the possible perception of political interference, or inappropriate avoidance of scrutiny of certain areas of the Bank’s work.

New clause 13, which stands in my name, would make the Bank of England subject to the Freedom of Information Act 2000. It seems to me that, as the Bank is a public authority which is fulfilling public policy purposes, the case for covering it does not really need to be made; it is the case against its being covered that needs to be made. The Minister made some important points about why she was not minded to accept the new clause, and I want to respond to what she said. She singled out three areas in particular: monetary policy, financial operations, and private banking.

I am not entirely sure of all the details of the 2000 Act, but we all know that local authorities are FOI-able. Equally, we all know that when we submit freedom of information requests to local authorities, we are not able to see the personal reports on individual members of staff in those authorities. The Act does not give access to that kind of personal information, and I should have thought that the same approach would exempt the private banking work of the Bank of England.

As for monetary policy and financial operations, I do not believe that my new clause would run into those parts of the Bank’s work, because they would still be protected by section 29(1) of the Act. That section states:

“Information is exempt information if its disclosure under this Act would, or would be likely to, prejudice…the economic interests of the United Kingdom or any part of the United Kingdom, or…the financial interests of any administration in the United Kingdom, as defined”,

blah blah blah. I should have thought that as long as we were not amending section 29, we would be able to protect the areas about which the Minister was particularly concerned.

I was alerted to this matter by a letter from the Governor, which the Minister herself waved at us in the Chamber last June, about the sale of shares in the Royal Bank of Scotland. I am sure that the Minister remembers the occasion well. In his letter, the Governor said that

“it is in the public interest for the government to begin now to return RBS to private ownership”.

Writing that letter was not part of the Governor’s role on monetary policy, financial policy or prudential policy; it was an intervention in Government policy at the Chancellor’s request on the issue of a share sale.

When the Governor appeared before the Treasury Committee, I asked him whether he would share the analysis that underlay the letter that he had written. He refused point blank to do so. I am not going to read out the full exchange that I had with the Governor on that occasion, because I went into the matter in detail on Second Reading and it has now been placed on the record twice. However, I really feel that in refusing to provide that underlying analysis, the Governor is evading public scrutiny of what is a perfectly proper matter for the public to understand.

The Governor also said in his letter that

“a phased return of RBS to private ownership would promote financial stability, a more competitive banking sector, and the interests of the wider economy.”

In fact, none of that is true. It will not promote a more competitive banking sector. We are hoping that the Comptroller and Auditor General will, in his separate audit of the RBS share sale, secure that analysis. However, there should be a more straightforward way of dealing with this. The share sale is a particular issue and the Comptroller and Auditor General always looks into share sales, so we might get at the truth on this one occasion, but I am sure that there will be other similar loopholes.

The topicality of seeing this analysis was further underlined last week by the interview in the Financial Times given by Sir Nicholas Macpherson on the occasion of his retirement from the Treasury, in which he described the sale of more RBS shares as “tricky”. He went on to say that there was a judgment to be made over whether to sell further shares below the 2008 purchase price. These are not straightforward matters; they do not fall within the normal remit of the Bank of England and they are of public policy significance. They are but one example of why it is appropriate for the Bank of England to be subject to the Freedom of Information Act.

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Fiscal responsibility, when combined with a genuine no-detriment fiscal framework, increases the political accountability of the devolved Governments to their respective electorates and, critically, incentivises those Governments to boost economic performance in order to invest in public services. The co-ordination of monetary and fiscal policy is vital in any economic policy. Obviously the central bank is independent, but there is undoubtedly co-ordination with the Treasury, as would be expected. Similar protocols and links need to be developed with the Welsh, Scottish and Northern Irish Exchequers. The national Parliaments should nominate a member to serve on the MPC to ensure that those involved in interest rate setting have an understanding of economic conditions and events in Wales, Scotland and Northern Ireland.

[George Kerevan]

Is the hon. Gentleman aware that in the United States, the central bank is called the Federal Reserve for the very simple reason that it is appointed federally, and the interest rate setting committee is a federal committee? The principle is therefore well established in other jurisdictions.

[Jonathan Edwards]

I fully agree with my hon. Friend on that point. I also agree with the points he made earlier about the north-south divide and the impact that monetary policy has had on that reality. It is no surprise that the UK is the most grotesquely unequal state in the EU in terms of geographical wealth, and one of the main reasons for that is that for far too long monetary policy has been determined in the interests of a very small part of it—namely, the square mile just down the Thames.

All current MPC members are either Bank staff or in one of the four positions nominated by the Treasury. Fittingly, there are four countries in the UK, which makes the MPC ripe for modification to ensure that all nations are represented when it comes to the highly important task of deciding interest rates. I am also interested in the emerging debate on changing the MPC’s remit with regard to setting interest rates. New clause 7 seeks to expand the mandated objectives of the MPC to include maximum employment. It is already specifically charged with keeping to an inflation target of 2%. Other central banks, such as the US Federal Reserve, to which reference was made in my exchange with the hon. Member for East Lothian, have a dual mandate that goes beyond inflation. In 1977, the US Congress amended the Federal Reserve Act 1913 and mandated the Federal Reserve to target long-term moderate interest rates and, critically, maximum employment. I heard with interest the Minister’s point that the Bank does consider the Government’s employment target, but there is a difference between that and a mandate for maximum or full employment.

New clause 8 seeks to improve the Bank’s accountability to Wales and the other devolved Governments. The British state is changing rapidly as powers and responsibility flow from Westminster to the devolved Administrations, although the pace is perhaps not as quick as those like me would want. We are not privy to the meetings between Treasury Ministers and the Governor and his senior team, but we can safely assume that they are frequent. On top of that, the Governor and his team meet the Treasury Committee at least five times a year. As I mentioned a moment ago, fiscal powers already exist in the devolved nations, with more planned, so I hope that the Bank and the Treasury agree that it is in their interests to strengthen relations with the devolved Governments and Parliaments. I am not aware of any formal structures for meetings between the Governor and Ministers of the devolved Governments, or for scrutiny of the Bank by the devolved Parliaments. In the interest of mutual respect, those structures need to be formalised.

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I also hope that funding will be available for the other providers, and that they will not be left in the unsustainable position of having to pick up a large number of people all at once. It might be sustainable to pick up 16,000 people over a few months, but to pick them all up immediately when a company goes bump is really difficult. I have sympathy for the motives behind new clause 10, but I do not feel that it will solve the main problem, which is that many debt solutions providers do not have sufficient funding. The new clause would focus on only one solution and could well skew the market in the wrong way, to the advantage of the providers rather than of the people who need the solution.

[George Kerevan]

I should like to speak to amendments 1 and 2, tabled in my name, and in passing to amendments 8 and 9, tabled by Labour Members. I shall not press amendments 1 and 2 to a vote, but should Labour Members move on amendment 8 and the consequential amendment 9, we will support them.

There is much in the Bill to commend it to us and to the House, and much that will add to the regulatory regime and its performance in the UK. However, the worst part of this legislation—the time bomb ticking away inside it—is the Government’s attempt to shift legislation that they put in place only four years ago on the reverse burden of proof for major financial infractions. That is the nub of the matter. Legislation was introduced four years ago that identified senior managers in major banks and other financial organisations and stated that if a serious infraction of regulations was encountered on their watch, they would automatically be held responsible unless they could prove that they had taken due steps to prevent it from happening.

That legislation had a great deal of support in the House and among the public, because it was the one sure way of ensuring that those at senior level in the financial sector would not continue to do what they had done all through the 2007-08 crisis: blame everyone else and say that it was not their fault. The legislation made senior managers responsible, just as senior managers in other organisations and utilities have become responsible for major crises.

Why would the Government want to change that law before it even came into operation this month? That sends out the wrong signal. When we put legislation in place that has consensus behind it, we should try it and see whether it works. However, the Chancellor, whose constant refrain is that he has a long-term economic plan, has decided to change the legislation before it has even come into operation. That change sends out all the wrong signals. The Minister will probably say that the measure is disproportionate now that the Government have widened the number of people being caught up in the senior management regime to tens of thousands, and that applying the law could become problematic. I know all the explanations, but I put it to her that by reneging on legislation that was put in place with great fanfare four years ago before it is even operational, the Government are simply signalling to the rest of the world that they are loosening the regulatory bonds. They might think that they are not doing that, but they are sending out the wrong signal.

The Government have been sending out another signal as well. For years, the Chancellor and other Treasury Ministers have been telling us that we should pay lower taxes, that taxes are bad, and that we should keep more of our own money. Suddenly, however, when we discover that hundreds of thousands of people are setting up secret offshore bank accounts, the Government get all holy and moral, saying, “We didn’t mean you to do that!” This Government sometimes speak with two voices. Individual Ministers are honest and sincere, but they do not understand that they sometimes speak with one voice on taxes and regulation and then do the opposite. It sends out the wrong signal. The Government cannot go on blaming other people. They are to blame if they change the rule without having put it into force for at least a few years to see whether it works. That is why we must leave the provisions in the Financial Services Act 2012 until it has been proven that they do not work.

[Richard Burgon]

I rise to speak to new clause 14, amendment 8, and amendments 9 and 10, which are consequential on amendment 8, tabled in my name and those of my hon. and right hon. Friends. I will first discuss new clause 14 on combating abusive tax avoidance arrangements and then our amendment on the reverse burden of proof, or the presumption of responsibility, as I choose to call it, for senior managers in the banking sector.

Labour tabled new clause 14 in the wake of Panama papers leak, which the hon. Member for East Lothian (George Kerevan) just mentioned. The new clause sets out that combating abusive tax avoidance should be established as new regulatory principle for the FCA, and requires the FCA to

“undertake, in consultation with the Treasury, an annual review for presentation to the Treasury into abusive tax avoidance”.

The new clause makes it clear that the new principle should involve

“measures to ascertain and record beneficial ownership of trusts using facilities provided by banks with UK holding companies or entities regulated by the Bank of England or the FCA, control of shareholders and ownership of shares, and investment arrangements in an overseas territory outside the UK involving UK financial institutions.”

Members will be aware that Labour published its tax transparency enforcement programme following the Panama papers leak, and the release of the information that thousands of companies listed in the Mossack Fonseca papers have financial services provided by UK banks. Our programme makes it clear that Labour will

“work with banks to provide further information over beneficial ownership for all companies and trusts that they work for.”

The new clause seeks to establish a procedure to enact that.

Last week, the Government announced a deal on the global exchange of beneficial ownership. We of course welcome that as an initial step, but it is insufficient. The measures announced by the EU this week are also welcome, but they do not go nearly far enough, because they require only partial reporting. My hon. Friend the shadow Chancellor said last week:

“The turnover threshold is far too high, and Labour MEPs in Europe will be”

doing the right thing in

“pushing to get that figure reduced much lower to make it more difficult for large corporations to dodge paying their fair share of tax.”—[Official Report, 13 April 2016; Vol. 608, c. 369.]

Banks need to reveal the beneficial ownership of the companies and trusts with which they work. That means establishing a record of ownership of the companies and trusts supported by UK banks, whether or not the owners are resident in the UK. We must ensure that Crown dependencies and overseas territories enforce far stricter minimum standards of transparency for company and trust ownership, but when UK banks are involved, it is right that a record is maintained of the beneficial owners that they advise.

The tax expert Richard Murphy has written that Jersey, Guernsey and the Cayman Islands are

“cock-a-hoop at having rebuffed calls from David Cameron that they must have readily accessible registers of beneficial ownership even for the use of UK law enforcement agencies”.

The shadow Chancellor said in response to those calls that the

“agreement is a welcome step in the right direction but it fails to do anything to tackle the tax havens based in British Overseas Territories. Failure to take responsibility for these British Dependencies substantially undermines the effectiveness of this agreement.”

Similarly, we are aware that the Financial Conduct Authority wrote to banks urging them to declare their links to Mossack Fonseca by 15 April. The FCA’s call on UK financial institutions to review links with Mossack Fonseca is welcome, but the regulator should recognise the need for complete transparency to retain public confidence.

The FCA should seek full disclosure and act without delay. The slow, drip-drip responses of the Prime Minister’s office in recent weeks have served only to fuel public concern and have been very much a lesson in how to raise suspicion unintentionally. The FCA should publish details of which financial institutions it has written to and why; what information it has asked them to provide; and what action it will take, now that the 15 April deadline has passed. Importantly, it cannot allow banks and their subsidiaries to conduct an open-ended internal investigation, but must establish an early deadline for the disclosure of all information on their relations with Mossack Fonseca, so that the regulator can take all necessary action. Campaigners Global Witness responded by saying:

“These are welcome first steps…but the UK authorities are missing the wider point. Mossack Fonseca is no bad apple; it is just one small part of a much deeper problem.”

That is why it is necessary for us to have a clear direction of travel towards recording beneficial ownership of trust services by UK banks, as we are seeking to do with this new clause.

Given the widespread concerns about tax avoidance, the British public, who bailed out the country’s banking sector, deserve to know the facts about the role of UK banks in this unfolding story. With new clause 14, Labour has made a positive and practical proposal to take steps to increase tax transparency and publicly available information on the beneficial owners of companies and trusts registered in tax havens.

Let me now deal with the remainder of the amendments. Labour’s position was set out clearly on Second Reading and in our amendments in Committee: removing the reverse burden of proof—the presumption of responsibility—is unreasonable, unwise and, I am sorry to say, risky. We continue to support the current legislation, which was agreed by the Chancellor and in both Houses as recently as in consideration on the Financial Services (Banking Reform) Act 2013. That is why we have re-tabled our amendments on keeping the presumption of responsibility. It should not be forgotten that this measure was a key recommendation of the Parliamentary Commission on Banking Standards, which said that it

“would make sure that those who should have prevented serious prudential and conduct failures would no longer be able to walk away simply because of the difficulty of proving individual culpability in the context of complex organisations.”

The presumption of responsibility, as currently set out in legislation, applies to senior managers. It means that to avoid being found guilty of misconduct when there has been a regulatory contravention in an area for which they are responsible, they will have to prove that they took reasonable steps to prevent that contravention. This Bill removes that onus on senior bankers. The onus is entirely reasonable, proportionate and, as bitter experience tells the British people, necessary. Misconduct and misdemeanours in financial services are not merely a tale from history. In 2015, for example, the FCA had to fine firms more than £900 million, and we have also seen the LIBOR scandal, foreign exchange fines and the mis-selling of payment protection insurance to the value of up to £33 billion. The presumption of responsibility is so reasonable and necessary that the policy was introduced with cross-party support; that should not be forgotten.

The 2013 Act applied the presumption of responsibility, through the senior managers and certification regime, to all “authorised persons”. This Bill extends that authorised persons regime to a wider range of businesses but has watered down the presumption of responsibility to a mere “duty of responsibility”. The vast majority of people working in the financial sector were not, and are not, affected by the existing legislation, and would remain unaffected should our amendment pass. That is why the legislation was passed by Government Members in the first place.

In December 2013, speaking of the stricter measures being introduced by the Government, including the reverse burden of proof, the then Economic Secretary to the Treasury, the right hon. Member for Bromsgrove (Sajid Javid), said:

“The introduction of this offence means that…in future those who bring down their bank by making thoroughly unreasonable decisions can be held accountable for their actions…Senior managers could be liable if they take a decision that leads to the failure of the bank…The maximum sentence for the new offence…reflects the seriousness that the Government, and society more broadly, place on ensuring that our financial institutions are managed in a way that does not recklessly endanger the economy or the public purse.”—[Official Report, 11 December 2013; Vol. 572, c. 252.]

On that, at least, I agree with the right hon. Gentleman. It is a shame that there has been a change in position.

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[George Kerevan]

We, too, will oppose the Bill on Third Reading. During Treasury questions today, the Chancellor said—I wrote the phrase down, because I was rather taken with it—that he was quite certain that we now have “better and tougher regulation of the financial system.” That is a good test, and it is a good test for this Bill. Do we have tougher regulation? As the law stands this evening, if a senior named manager in a major financial institution discovers that there has been major corruption, wrongdoing and regulatory failure at their bank on their watch, they are culpable unless they can prove to the FCA that they took reasonable steps to stop that happening. As we speak, they would be responsible, and that has been the case for a month and a half.

If we pass the Bill tonight, the situation will change. That manager will no longer be personally responsible. They will be able to argue, “Actually, I ticked all the boxes, signed all the forms, went to all the group therapy sessions with those on my trading floor and told them all to be good boys and girls, but do you know what? They weren’t, and they hid it from me.” And so we will go through the whole cycle again. The law as it stands, as passed by this Government and this Chancellor, makes each individual senior named manager responsible, like the captain of a ship or ferry; if something goes wrong, they are responsible and they cannot claim otherwise. If we pass the Bill, far from toughening the law, we will weaken it.

The only explanation we have heard from the Government is that it is a bit more complicated now because the Bill widens to tens of thousands the number of people who will be designated as responsible people when it comes to identifying who is in charge when something goes wrong. I understand that, but it is perfectly possible, as we tried in Committee, to ring-fence and say that the very senior people in the major banks—the systemically dangerous banks—should be held personally responsible, unless they can prove that they took proper steps. But no, the Government are using the widening of the designated persons regime to weaken and water down the current legislation. That tells me that they are not really serious about being tougher; they are more concerned with getting by.

There was an interesting debate in Committee about transfer vehicles. Those are a bit technical, but they are to do with how the insurance market reinsures itself to spread risk. There are clauses in the Bill—this is a good thing to put into it—that give the Treasury powers to regulate the use of transfer vehicles in the reinsurance market in a tougher fashion, to use the Chancellor’s key word.

I do not have time to go into detail about what is happening, but insurers can offset some of their risk in the reinsurance market, and they usually do that by selling some of it to specialist wholesale houses, which buy into the risk, but whose capital covers the risk if something goes wrong. Now, the insurance market is instead moving towards reinsuring through specialist vehicles of the kind that got us into trouble in the mortgage market in the lead-up to 2007.

When the issue was discussed in Committee, it was interesting that Ministers argued that we needed to put in place a regulatory framework that made it easier to shift the burden in the reinsurance market away from wholesalers that are capitalised and towards special vehicles using all the financial markets’ tricks of the trade, which led to the disaster in 2007. That said to me that, deep down in the Bill, the Government are up to their old tricks—they want to deregulate and to have less tough regulation, rather than more regulation. On those grounds, the Bill fails the Chancellor’s test, and we should vote against it.

There are good things in the Bill. In particular, we can pride ourselves on the fact that, through the Committee stage and leading up to Report stage today, the Government have been persuaded—I use that word in inverted commas—to take the Treasury Committee’s advice and to set a precedent, in that the FCA’s chief executive will in future be subject, de facto, to having their appointment approved by the Committee and, therefore, by this House rather than the Executive.

That does two things. First, it makes the FCA more accountable, because it is accountable to the House rather than the Executive. Secondly, it protects the FCA from interference by the Executive. That is a good precedent. If it is extended, we will be able to ensure that all the key regulatory bodies and their senior staff are approved by the House and, in particular, that the Governor of the Bank of England is subject to scrutiny and approval by the House, rather than simply appointed by the Executive. That is important because of the large powers that have been transferred to the Bank of England since the crisis of 2007.

However, there are still loose ends, and so I come to the word “better” in the Chancellor’s little homily. Have things got better? They have got a little better, given the ability of the House to protect the FCA and to have a role in appointing its head, and we can take that further into other regulatory bodies. However, there are loose ends at the FCA. Much of the Bill and much of the debate has been about the FCA. In the last instance, the FCA is the consumer’s champion: it regulates how the banks sell. Many of the problems we have had in the last 10 years have been about mis-selling by the banks. Every Member in the House will know we have a number of legacy organisations and legacy campaigns because we have still not put right the mis-selling that has taken place across a range of banks and products since the turn of the millennium.

The FCA is important, and protecting it is important, because, in the last instance, it is the consumer’s champion. A few weeks ago I went to FCA headquarters and had a meeting with Mr John Griffith-Jones, who is the chairman of the FCA. I put it to him, “You are the consumer champion,” but he demurred. He does not feel that the FCA is the consumer champion. He thinks that that would go too far and that it would be partisan and take up the consumer’s choice. At present, the FCA is still too much the creature of the Treasury. If we want a tougher and better regulatory regime, we have to make the FCA truly independent.

The FCA is getting a new chief executive, but I am not going to offer platitudes and pleasantries. When the new chief executive starts, I think that the chairman of the FCA should consider his position, because I think it also needs a new chairman. We are only starting on the road of making sure that our regulatory bodies are fit for purpose; we have not got there yet.

Finally, many people in Wales, Scotland and Northern Ireland are disappointed that the Government stood on ceremony and decided not to widen the remit of the membership of the core bodies of the Bank of England, starting with its court, to allow proper representation of all of the regions and nations, including the north of England. Most people in this country, and certainly those in the Celtic regions, are long of the view that the Bank of England, the banks and the key regulatory authorities are far too focused on the square mile of the City of London and its needs. We will never have a tougher, better regulatory system unless we widen the remit until the whole of the UK—the individual nations and the regions of England—is represented. Until we do that, the Bank of England is still suspect. That has not been delivered, so there is still a suspicion across the UK that the banking regulatory system operates ultimately in the interests of the bankers, rather than the people. Until that changes, we will not have a better or tougher regulatory system; we will simply have the same old regulatory system dressed up under a different name, and the same old banking crisis will be around the corner yet again.

Question put, That the Bill be now read the Third time.