Financial Services Bill

George Mudie Excerpts

Monday 10th December 2012 Commons Chamber

[Chris Leslie]

Indeed, and I am grateful to my hon. Friend for taking the time to participate in this debate. A string of amendments that we will discuss later cover consumer credit and the interests of consumers, and we will talk about ease of access to financial services when we consider them. He is right, as the Bank of England is a key player in this regard.

That point neatly takes me on to our amendment (a) to Lords amendment 16. It tries to ensure that under the new arrangements the Bank of England—in particular, the new powerful committee that is being established, called the Financial Policy Committee—will, when it explains the decisions it is taking, also have to include an assessment of the impact of its decisions on economic growth. I know that the whole question of jobs and growth is somewhat of a blind spot for Treasury Ministers, but notwithstanding their rather peculiar inability to see the importance of these issues, we feel that it is important to put that requirement in the Bill.

We are delighted and overjoyed that the Government finally relented and granted a concession in the other place, after months of labour in Committee in this place, by agreeing to Lords amendment 10. It was a major victory for the Opposition when the Government were forced to change the Bill to ensure that the FPC would not only contribute to the financial stability objective but, subject to that, support the economic policies of Her Majesty’s Government, including their objectives for growth and employment. That concession was made because of the amendments we tabled and the evidence heard in Committee from a wide number of organisations, including the British Bankers Association, the CBI, the London stock exchange and others. They all said in submissions to Parliament that the new regulators should have regard to growth, so we are glad that the FPC has that general backstop requirement on its shoulders. However, we do not think it goes far enough.

As I said earlier, the powers the Bank of England will take—that rather opaquely described set of macro-prudential tools—will be very wide ranging. Each time it pulls one of those levers, each time it makes a particular decision, it should explain the impact of that change. The Bank of England will be able to affect a number of key areas. Perhaps the Minister will tell us when the draft order at the back of the Treasury’s consultation document is likely to find its way on to the Floor of the House for debate, because I know that a number of hon. Members will be interested in that.

The Bank will have powers called counter-cyclical capital buffers. I know that the Treasury Bench has a difficulty with the concept of counter-cyclicality, but it essentially means that banks will be required to build up capital when times are rather exuberant and things are going well in the economy, but to unwind those capital buffers in a downturn. The Bank will say that there should be sectoral capital requirements. In other words, the FPC can make the residential mortgage sector have a certain amount of capital or structure its business in a particular way. The commercial property sector will have to do the same. This is a Bank of England decision, not the result of parliamentary or legislative changes. Consumer credit decisions will be made. If my hon. Friends have constituents who pay off their credit card, perhaps currently a 2% or 5% minimum repayment on a monthly basis, at the flick of a switch the Bank of England will be able to say, “No, you have to pay off 10% each month,” or perhaps even more. That is the sort of power that the Bank of England will have.

[Mr George Mudie (Leeds East) (Lab)]

The situation with mortgages will be similar. I am certain that the FSA’s and the Bank’s insistence on a higher deposit will harm the construction industry. The average price of a two or three-bedroom house is £160,000, and 10% of that is £16,000 and 20% £32,000. We are getting more and more tales of young couples who simply cannot get on to the housing ladder because they are paying excessive rents and cannot save that deposit.

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[Greg Clark]

This has been a short but interesting debate, and I am grateful to the hon. Member for Nottingham East (Chris Leslie) and to my hon. Friend the Member for Chichester (Mr Tyrie) for contributing to it. I think that my hon. Friend does himself a disservice. If anyone can follow, and indeed have imprinted in his mind, every clause of FSMA, and be able to relate it to any future amendment, I know that he is capable of it. Let me first respond to some of the points made in the debate, including his.

The Bank of England is obviously at the heart of the financial system, and the changes are among the important reforms of its powers in history, alongside nationalisation in 1946 and independence in matters of monetary policy in 1998. Notwithstanding the few remaining issues of debate, I think that the whole House would agree that the changes made in the Lords represent a significant improvement in this part of the Bill. The amendments will strengthen the governance and accountability of the Bank. They will give the Financial Policy Committee a more positive and proactive mandate around economic growth and shift its membership to reduce the influence of the Bank’s executives. In addition, there are clarifications to simplify the drafting and terminology, if perhaps not going as far as my hon. Friend would wish to go. The name “court” is retained, despite his preferences.

On the Opposition amendments, I do not think that there is, in practice, a huge degree of difference between us. As the hon. Member for Nottingham East said, amendment (a) to Lords amendment 1 would add the word “overseeing” to subsection (2) of new section 3A of the Bank of England Act 1998. That was well debated in the House of Lords, as he will know. Some clarity was achieved there, in that the kind of oversight in which the oversight committee is expected to engage is common to non-executive directors elsewhere. Baroness Noakes made particular reference to that. The opportunity to review decisions and to consider how they are made is well understood in the context of the term “oversight”. The hon. Gentleman is proposing something that goes beyond that: that oversight should contain a more real-time role as well as a backwards-looking role. That could involve second-guessing the Bank’s policy decisions while they are being taken, which would not be appropriate. Indeed, it would go against the recommendations of the Treasury Committee, which said in its report that it agreed with the Governor that the Bank’s governing body should place more emphasis on oversight and ex-post scrutiny that would not authorise it to become involved in second-guessing immediate policy decisions. That is the advice that we have taken.

[Mr Mudie]

That should be qualified by the fact that the current Governor of the Bank of England does not want to be second-guessed by anyone. In fact, he would suggest that the best decision-making process is himself sitting in a room taking the decisions, questioned by no one.

[Greg Clark]

The hon. Gentleman has more experience of questioning the Governor than I have. The Joint Committee on the draft Financial Services Bill, of which he was a member, volunteered to agree with the Governor on that assessment, at least. We followed the Committee’s advice on that, as was recognised in the other place.

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[Greg Clark]

I am grateful for the hon. Gentleman’s clarification. We should bear it in mind that the Bill requires the Treasury to lay the MOU before Parliament and to publish it. It will be subject to full transparency. For example, I would be very surprised if my hon. Friend the Member for Chichester did not call the Chancellor or the Governor to explain it. The oversight committee will be responsible for overseeing the Bank’s performance and, clearly, the MOU is a key part of its work in bringing to bear the Bank’s financial stability work. The committee will, therefore, consider from time to time whether it is working well and Parliament will itself have every opportunity to address the issue.

Amendment (a) to Lords amendment 16 would require the Financial Policy Committee to produce explanations of its decisions to exercise its recommendation and direction powers. Proposed new section 9QA(1) of the Bank of England Act makes it clear that the FPC’s explanations must set out how its decisions are compatible with its objectives, including the new objective to support the Government’s objectives for growth. It is clear that it has an explicit responsibility to do that. The FPC’s explanations will have to set out publicly how it has considered the impact on economic growth when deciding to take action and its reasons for believing that the action is compatible with its obligations in relation to economic growth.

Lords amendment 16—specifically subsection (3) of proposed new section 9QA of the 1998 Act—already requires the FPC to produce estimates of the costs and benefits of the decisions, including those areas to which the hon. Member for Leeds East (Mr Mudie) has referred. This will cover the impact on financial stability, both directly and indirectly, and the impact, both positive and negative, on economic growth.

I reassure the House that the FPC is giving considerable care and thought to the impact of these tools. The Bill requires the committee to produce and maintain policy statements for its direction tools. The statements will discuss the likely impact on both financial stability and economic growth. The Bank is preparing a draft of the statements, to be published early next year, so that they can be considered alongside the secondary legislation that will set out the FPC’s direction powers. We do not, therefore, think that amendment (a) to Lords amendment 16 is necessary.

[Mr Mudie]

Both the Treasury Committee and the Joint Committee on the draft Financial Services Bill were concerned about the important parts of the Bill that will be delivered through statutory instruments. That means a discussion in Committee for an hour and a half, with no provision for amendment. We would either have to accept the whole instrument or vote against it, and we would not have a majority on such a Committee. We pressed the Chancellor for a different, more flexible structure of decision making on secondary legislation so that the House or the Treasury Committee could debate it with the prospect of convincing the Chancellor, at some stage, to amend his direction of travel.

[Greg Clark]

I am grateful for the hon. Gentleman’s point. I am not able to produce a novel parliamentary procedure, but I can certainly tell him and the Chairman of the Treasury Committee that when the time comes to publish the statutory instruments, if they or their Committee would like to consider and advise on the discharge of the commitments, I would be happy to engage with them in good faith and take on board any suggestions.

[Greg Clark]

I give the hon. Gentleman an inch and he takes a mile. I will not commit to a different procedure but, as I have said, I will certainly commit, in good faith, to considering personally any points that are made. [Interruption.]

[Mr Mudie]

Has the Minister just been handed fresh instructions?

[Greg Clark]

They may be fresh instructions, but I have decided not to read them. I may be countermanded, but I will not retract my statement.

I will conclude by addressing what the Chairman of the Treasury Committee has said. I am reliably informed by my predecessors that this Bill, though complex and voluminous, has been well considered in numerous Committee sittings in this House, and I think that most people will conclude that their lordships have done a good job in their scrutiny. The Bill is important and it is right that it has been scrutinised to the extent that I think it now commands the broad support of the House, as evidenced by the relatively few amendments that have been tabled to their lordships’ amendments.

As I said in response to an earlier intervention, opportunities will be presented to the House in the years ahead—new Bills are already gathering speed on the runway—to accommodate further changes, should they be necessary. If so, I am sure we will have further conversations about them.

My hon. Friend the Member for Chichester issued me a challenge to rewrite the Financial Services and Markets Act 2000 and anticipated that I would be besieged by objections from officials and others.