Financial Services (Banking Reform) Bill
Greg Clark Excerpts(11 years, 4 months ago)
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John Thurso
Yes, something like that.
I am very tempted by new clauses 8 and 10, which were tabled by the Opposition. I will not vote against them, but I will not vote for them at this stage. There is an immense amount in them, but I will wait to hear what the Minister says. There is also a great deal of debate to come in the other place. I do not want to say that I am against the new clauses, but I am not sure that the wording is exactly what I would like to have seen. I ask for the forgiveness of the hon. Member for Nottingham East (Chris Leslie) on that.
On new clause 10, there was a lot of debate in the commission about the good bank/bad bank split. We ended up with a central point that we all agreed to, but a number of us wanted to go more in one direction. However, whether a good bank/bad bank split is a good idea is a completely different issue from what should be done afterwards. If one takes the view that a good bank/bad bank split is not needed, one can still consider all the points that have been put forward, including the many things the hon. Member for Brighton, Pavilion (Caroline Lucas) said could be done to enhance regional banking and credit unions. All those things are equally possible whether or not one decides that the bad bank is necessary.
To my mind the good bank/bad bank argument is separate to what one does with a bank going forward. I happen to be somebody who believes that a good bank/bad bank split is right for the simple reason that if we take the flakier assets out of the bank and put them in a run-off bank, therefore liberating the capital being used in the balance sheet to support it, capital is then available in the good bank to be lent to SMEs and individuals. It is a simple mechanism for getting more capital flowing through, but I would make the point that it is not inextricably linked.
Following on from the slightly more partisan comments from the right hon. Member for Wolverhampton South East, one thing that comes out of this process, and which I have observed right the way through it, is that United Kingdom Financial Investments Ltd has not been the most successful of bodies. We have seen that there are politics in such situations, and that trying to put a mechanism in between muddies the water. That is one of the reasons why the commission’s report made its suggestions on UKFI.
Finally, the commission very much supports new clause 8. As I said in my intervention, I do not think this matter needs legislation. What I would be looking for from the Minister is a commitment that does not require me to look carefully between the lines, but is, in fact, a further commitment.
Greg Clark
This has been an interesting debate so far, and it will be a tall order to live up to the great expectations of my hon. Friends the Members for South Northamptonshire (Andrea Leadsom) and for Caithness, Sutherland and Easter Ross (John Thurso).
This set of new clauses has the common denominator of measures that can improve competition in banking. The parliamentary commission has made it clear that competition can, and should, bring about higher standards in the banking sector. It concluded that
“effective market discipline, geared to the needs of consumers, can be a better mechanism for improving standards and preventing consumer detriment than regulation, which risks ever more detailed product prescription.”
The Government completely agree. The British banking industry, at least at the retail level, was too concentrated before the crisis. The forced mergers of the crisis have exacerbated a bad situation. It is imperative that the regulators do not regard themselves simply as regulating incumbents, but act to promote new entry into the industry.
The commission welcomed the prudential reforms contained in the then Financial Services Authority’s barriers to entry review and commented that
“the concerns of challenger banks in this area appear to have largely been addressed”.
We accept the need to go further. Accordingly, we will be adopting the commission’s recommendation that the Prudential Regulation Authority should be given a secondary competition objective, and we will table amendments to the Bill to that effect in the autumn.
Greg Clark
I am grateful for my hon. Friend’s contribution.
Government amendment 5 delivers on a commitment made in Committee to accept one of the commission’s earlier conclusions that when considering an exemption from ring-fencing the Government must have regard to any adverse effect ring-fencing provisions might have on competition in the market. The amendment ensures that ring-fencing should not be a barrier to greater competition in the market. To reassure the hon. Member for Nottingham East (Chris Leslie), it does require them to override any questions on whether the continuity objective should be breached. It is there to enable them to bear that in mind, not least for the reasons that we discussed—that competition can have systemic benefits that address some of the regulator’s objectives.
Another recommendation of the commission that we accept is the suggestion that there should be a rigorous study conducted on the benefits to consumers, and competition, of account portability. The House will know that from September the seven-day switching service operated by banks covering 99% of personal current accounts in the UK will come into operation. I do not whether hon. Members have noticed, but there is an excellent exhibition to promote the new changes to the service from September in the Upper Waiting Hall next to the Committee Corridor. It should make it easier, quicker and more secure to change bank account, helping competition, but, as my hon. Friends the Members for South Northamptonshire, for Wyre Forest (Mark Garnier) and for Caithness, Sutherland and Easter Ross said, that might not go far enough. In particular, I congratulate my hon. Friend the Member for South Northamptonshire on the consistent and forensic campaign she has waged on this issue through the Treasury Select Committee and beyond. We will therefore ask the new payments systems regulator to conduct a comprehensive review of account portability, including a cost-benefit analysis, as an immediate priority.
Mr Love
Given that the new payments regulator will take some time to set up, I hope that the Minister will keep a watching brief on seven-day portability, because there is still some controversy over the proportion of fees for the receiving bank as opposed to the bank losing the customer. This was brought to the commission’s attention; we commented on it, and I hope that he will keep it under review.
Greg Clark
I certainly will keep a close eye on that, as too, I am absolutely certain, will my hon. Friend the Member for South Northamptonshire. The arrangement is that the fees should be shared between the bank of departure and the bank of arrival, which I dare say reflects the different costs. However, we need to keep an eye on its effect on competition.
In response to the parliamentary commission’s report, the Office of Fair Trading has announced that it will bring forward its investigation into small and medium-sized enterprise banking as part of an ongoing programme of work to investigate concerns about competition in banking. The hon. Member for Nottingham East rightly wants this to go further. The OFT is engaged in a programme of work looking at all sections of the banking sector. As I think Members know, it has recently completed an investigation into the personal current account market, and on that narrow point has argued that there should not be an immediate referral pending some of the changes taking place or in the pipeline.
We have asked that that work considers the impact on the new challenger banks created by the divestments from Lloyds and RBS. The hon. Gentleman asked where they stand. My understanding is that in both cases the parent banks are looking to move forward with initial public offerings of the challenger banks and that they intend them to form part of the competitive environment. The OFT aims to conclude its programme of work next year. It will then decide whether a market referral to the Competition Commission is needed. I can tell my hon. Friend the Member for Caithness, Sutherland and Easter Ross that such a referral would not require legislation; the OFT could make one under its existing powers.
Given that commitment, which is more or less of the same time frame as that envisaged in new clause 8, and given the significant measures being implemented to enhance competition, I hope that hon. Members will agree that the new clause, which calls for such a referral in 2014, following Royal Assent, should not be adopted. It is important that the OFT completes its review in 2014, so that it can build up a file of evidence to be submitted to the Competition Commission. That would be consistent with what both the independent commission and the parliamentary commission called for: that the OFT be in a position to make a referral in 2015. The OFT’s work is absolutely in line with that.
Greg Clark
That is happening. The review that the OFT is carrying out is comprehensive—it will keep us informed in that process—and is about building up the evidence to make that judgment in accordance with exactly the time frame that my hon. Friend has set out.
New clause 15, standing in the name of the hon. Member for Brighton, Pavilion (Caroline Lucas), would require the Government to consult formally on the creation of a network of regional banks. I strongly agree that a revival of regional banking in this country is a very good thing. Yesterday in the Chamber my hon. Friend the Member for Hexham (Guy Opperman) reported on a meeting that he organised in Gateshead. I am pleased to tell the hon. Lady that a senior director of the Sparkassen, Dr Thomas Keidel, was at that meeting. He very much commended the Sparkassen model in Germany as something that could be emulated in this country. In fact, when one of the delegates objected that it was very much part of the German system and culture, which might be difficult to transplant to this country, Dr Keidel immediately pointed out that the German system was explicitly modelled on the UK system before it was abandoned in this country. I am therefore optimistic that what is proposed should be possible.
There was certainly great enthusiasm on Tyneside—indeed, momentum was being established—for launching a regional bank for the north-east. The hon. Lady might also be aware that the Cambridge and Counties bank—a joint venture between Cambridge county council and Trinity Hall, the Cambridge college—is already active and is providing lending to local small and medium-sized enterprises. The steps that the Prudential Regulation Authority has taken to license new entrants—
Mr Love
I apologise to the right hon. Gentleman for jumping in rather late, but before he leaves the issue of regional banks I want to mention one of the most promising areas, which is community development institutions. They are working at the regional and local level; however, their sources of funding could be enhanced immeasurably if community interest tax relief was set at a proper rate. I recognise that the Treasury has carried out a consultation. I am not asking the Minister to respond now, but perhaps he will at some stage inform Members of where the Treasury has got with that consultation and whether it will review the incidence of community interest tax relief.
Greg Clark
I do not know whether the hon. Gentleman will be reassured or alarmed to learn that I had not left the subject of regional banking just yet. Indeed, I want to come to the precise subject he has just raised.
The Prudential Regulation Authority’s changed procedures were referred to—by, I think, my hon. Friend the Member for Wyre Forest. It is now possible to license new entrants, who could require up to 80% less capital up front than previously. That means that the time is now ripe for new banks in the regions to be established. The hon. Member for Brighton, Pavilion, in her new clause 15, and the hon. Member for Edmonton (Mr Love) refer to CDFIs—community development finance institutions. Some £60 million of wholesale funding for CDFIs is available through the regional growth fund. Tax relief up to 25% is already available on investments made by individuals and companies into CDFIs. Of course I will talk to my hon. Friend the Exchequer Secretary and carry forward the hon. Gentleman’s representation for further changes, but a significant set of advantages is available. Similarly, the more flexible rules for credit unions that have been introduced and the £38 million of funding for this movement have also created greater opportunities.
Caroline Lucas
Does the Minister accept that constraints on the amounts that larger credit unions—such as the East Sussex Credit Union, which I know well—are allowed to accept in deposits or are allowed to lend are stopping them fulfilling their potential? Will he look at that again?
Greg Clark
I am happy to take that forward. The hon. Lady will be aware that we have liberalised the rules for credit unions, but if problems are being caused, not least in East Sussex, I would be happy if she dropped me a line or came to see me.
We have great enthusiasm for the proposals that the hon. Lady makes, but what is required is not a study, but action. I make this commitment to her, and to any hon. Member who is interested in helping to establish a new regional bank in their area, that I will help them to do so. I hope that they will allow me to do that.
New clause 10 would require the Government to lay a report before Parliament before selling any banking assets. All hon. Members are aware of what the Chancellor said in his Mansion House speech about the next steps for Lloyds and RBS. For Lloyds, the Government are actively considering the options for how its shareholding can be returned to the private sector. Value for money for the taxpayer will be the overriding consideration, and there is no pre-determined time scale. Indeed, the disposal process may involve multiple stages over time, rather than a single moment.
For RBS, share sales are some way off. In line with the recommendation of the Parliamentary Commission on Banking Standards, the Chancellor has announced a review, to conclude in the autumn, into whether a bad bank should be set up for risky assets from RBS. Following the criteria suggested in the commission’s report, the review will assess whether creating a bad bank would accelerate the path back to private ownership, deliver benefits for the wider economy and be in the interest of taxpayers.
As I have mentioned, the OFT is looking specifically at the impact that new challenger banks created by the Lloyds and RBS divestments will have on competition in small business banking. UK Financial Investments has a remit to provide value for money in executing its requirement to devise the means of selling the Government’s shareholdings in the banks, and, in doing so, to pay due regard to maintaining financial stability and to act in a way that promotes competition. In doing so, UKFI and the Treasury must follow the value-for-money principles set out in the Green Book, and they will be accountable, through the Accounting Officer, to the National Audit Office and the Public Accounts Committee, as well as to the House and the Treasury Select Committee.
Chris Leslie
The Minister is talking about the edifice of propriety, in relation to UKFI and so forth, but it is as plain as day that the Chancellor made the decision that he did not want that particular chief executive of RBS, so out went Stephen Hester. Will the Minister at least put on record what the plan is for settling the future leadership of RBS? When will the new chief executive be appointed?
Greg Clark
The hon. Gentleman knows full well that that is a matter for the board of RBS, not for the Government.
Returning to new clause 10, it is not clear that a new mandatory reporting requirement would add anything to the arrangements that are already in place. In the previous regulatory regime, promoting competition did not play a prominent enough role in ensuring that the banking industry operated in the interests of consumers. The strengthening of the role of competition through the reforms in the Bill will go a long way towards correcting that. The further recommendations of the PCBS underline the role of competition more prominently still, and I thank the commission for its contribution in that regard.
I should also mention new clause 1, which introduces a new schedule of amendments to correct a series of minor and technical points in connection with the Financial Services Act 2012. I was asked some questions about this earlier. It refers to the complaints scheme covering the Financial Conduct Authority, the Prudential Regulation Authority and the Bank of England. The scope of the complaints scheme in relation to the PRA and the FCA was widened to cover all their functions under any legislation, and the current scope includes functions such as those relating to the Data Protection Act and the Freedom of Information Act, which already have their own complaints mechanisms. The new clause will correct that.
I hope that the House will accept that the Parliamentary Commission on Banking Standards and the Government are as one in their intention of promoting competition. We totally agree that placing a high value on competition in pursuing all our objectives for the banking sector in order to make it more competitive, more responsive to the needs of consumers and more resilient is very much in the interests of the country.
Chris Leslie
We have had a long, well-informed debate, and I pay tribute to Members on both sides of the House, particularly the members of the Parliamentary Commission on Banking Standards, for their contributions. I am disappointed, however, that the Government are still saying simply that they will think about these things and look into them. The Bill will leave this House in the same thin state in which it arrived. In protecting taxpayers’ best interests, it should not be viewed as asking for the moon on a stick to request a proper report and an options appraisal of what to do with state-owned assets. It is very important that, at the very least, we have a thorough appraisal.
Greg Clark
I beg to move, That the Bill be now read the Third time.
It is good to start the debate with good news. When one is considering a Bill, one is cut off from the outside world, so that is good to hear.
I said on Second Reading that this is a historic Bill that resets the banking system in this country, so that it can once again enjoy the reputation that it had, and its worldwide renown, not just for technical excellence but for high standards of confidence, built on probity.
The Bill is historic in another important respect. It reflects the extensive deliberations and contributions of not one but two bodies of eminent experts: the Independent Commission on Banking, chaired by Sir John Vickers, and the Parliamentary Commission on Banking Standards, chaired by my hon. Friend the Member for Chichester (Mr Tyrie). Both undertook extensive work, and I am grateful to their members, and to the staff who supported them in their work.
Sir John Vickers’s commission was established immediately after the general election, in June 2010. It took extensive evidence before publishing an issues paper in September 2010; an interim report, on which it consulted in April 2011; and a final report in September 2011. The Government gave, and consulted on, an initial response in December 2011, before issuing a White Paper for consultation in June 2012. In the light of that consultation, a draft Bill was published last October, and the Parliamentary Commission was asked to give it pre-legislative scrutiny, which it did, and it concluded its report on 21 December last year.
Following Second Reading, the Committee scrutinised the Bill for more than 40 hours. The process has been characterised by an unusually determined effort to build consensus. Having considered all the options, the Vickers commission made a compelling case for a ring fence separating the riskier investment banking side of banks from personal and business lending. Ring-fencing, an ICB argument, will better insulate retail banks against global shocks and make banks easier to resolve in a crisis. It will thus create a more stable banking system, protecting the economy and the taxpayer against future crisis.
The parliamentary commission, in its first report, recommended some changes to the Bill, which we have been able to make, such as emphasising the importance of competition, as we have just debated, in applying the ring-fencing rules. The commission noted that in putting the so-called Haldane principles on the face of the Bill, the Government went further than its own recommendations. The parliamentary commission, in its December report, also called for the power to be available to force the separation of a ring-fenced bank into its component parts if that bank attempted to game the system or to undermine the ring fence. The so-called electrification of the ring fence is designed to ensure that it is respected in practice.
We debated yesterday the Government’s amendment to implement this power. There was some discussion about whether the power to require separation was too cumbersome to be used effectively in practice. As I said yesterday, there is no difference between the Government’s intentions and those of the parliamentary commission. We agree with the specific reserve power and it has to be usable. We included a time limit by which full separation had to be executed. The PCBS did not specify this, but my hon. Friend the Member for Chichester said that it should be informed by the regulator. That seems right to me and I have no difficulty in expecting to be able to arrive at a formulation that meets all the Chairman’s objectives during the further scrutiny of the Bill in this place.
Mr Tyrie
I am very reassured by what I have heard from the Minister. It seems from what he said that it remains the Government’s firm intention to implement the spirit and the letter of electrification for individual banks. It also gives me some reassurance that the commitments that appear to have been made in the paper published yesterday on the recommendations in the fifth report will also be implemented. Can the Minister give some indication when he will produce amendments, so that we have enough time to think about them before they are examined in another place and so that their lordships also have enough time to consider them carefully?
Greg Clark
I am grateful to my hon. Friend for his remarks. He is right that we are of one mind on the need to implement faithfully the commitments that we have given. The amendments need to be drafted in a way that is legally watertight, which takes some time. They will be prepared during the summer—the summer holiday will be out of bounds for the officials on the Bill team, sad to say—and they will be introduced in the autumn in the House of Lords.
As well as pre-legislative scrutiny of the Bill, the parliamentary commission’s final report made a series of recommendations concerning standards and culture in banking. As I indicated on Second Reading, in Committee and yesterday, the Government will make use of the Bill and the amendments to give expression to many of the recommendations that require legislation. I gave a commitment to work with the usual channels to ensure that this House has ample opportunity to debate the amendments when they come back for further scrutiny by this House.
Greg Clark
My hon. Friend is nothing if not tenacious as well as ingenious, and his hearing is acute. He will have heard me say that I will work with the usual channels, so the time for consideration will depend on the outcome of those discussions.
The implementation of the commission’s recommendations on culture and standards represents the third pillar of the reforms being made to the banking system. The first pillar was the institutional changes brought about by the Financial Services Act 2012, which received Royal Assent last December. That Act scrapped the failed tripartite system of regulation which, in the words of the parliamentary commission,
“created a largely illusory impression of regulatory control”.
In its place, that Act restored the Bank of England to its rightful place by ensuring, through the Financial Policy Committee and the Prudential Regulation Authority, the stability of the financial system. It established new forward-looking, rather than box-ticking, conduct regulation in the Financial Conduct Authority.
The second pillar of reform is embodied in the ring-fencing provisions advanced by Sir John Vickers and his committee, which are the main focus of the Bill under consideration. The reforms by the Parliamentary Commission on Banking Standards that deal with culture and standards represent the third pillar, and will play a major part in the passage of the Bill.
Having thanked members and staff of the Independent Commission on Banking and the Parliamentary Commission on Banking Standards for their hard work and the exacting standards they set for themselves, I extend my thanks to all those who have participated in the drafting and scrutiny of the Bill so far. First, I thank my Parliamentary Private Secretary, my hon. Friend the Member for Warrington South (David Mowat). Not only has he been assiduous in his more mundane duties of passing notes to and fro, but he has been an invaluable source of wise advice, drawing on a successful career in business. I discovered that he has an ability to see quickly through complexity and get to the heart of the matter—something much needed in matters of financial regulation.
I thank my officials for their efforts and the long hours spent drafting the Bill and Government amendments, as well as briefings for the many clauses we have debated. I hope that the seriousness of this legislation will assuage the loss of weekends and evenings spent with their nearest and dearest, although I hope they were at least able to see Andy Murray play—and indeed win—on Sunday, notwithstanding the timetabling of Report and Third Reading.
I thank those in my private office for their patience and cheerfulness in marshalling the many demands on their skills and expertise, and I am grateful to members of the Bill Committee, and its Chair and Clerks, for the hours we spent in each other’s company during spring. At one point I worked out that I had spent more time that month with the hon. Member for Nottingham East (Chris Leslie) than with my wife, although I hope he will agree that it was not an altogether unpleasant experience.
We had a lively and unusual Bill Committee in which my hon. Friend the Member for Amber Valley (Nigel Mills) went further than the electrification proposed by the Parliamentary Commission on Banking Standards, and demanded the “electrocution” of miscreant bankers. My hon. Friend the Member for North East Somerset (Jacob Rees-Mogg), whom I am delighted to see in his place, was revealed to have a secret life on Twitter, which I hope continues to flourish. I was also able to concede an historic Opposition amendment, given the charming entreaties from the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), even if it was only a single word. All that was done under the beady eye of the Treasury Whip, my hon. Friend the Member for Chelsea and Fulham (Greg Hands), who kept us rigorously to time—indeed, I think we finished a day earlier than was allowed for in the programme motion. Given that the Bill will return and we will have much to discuss, it is not so much goodbye to the Bill on Third Reading as au revoir—or, as I am sure my hon. Friend the Member for North East Somerset would put it, “Hasta la vista, baby.”
Ours is not the only country in which trust in banking collapsed during the financial crisis, but the fact that scandals and bail-outs happened elsewhere is of no comfort. In a world where trust is in retreat, this country must be a beacon of confidence, security and stability, but that will not happen unless we insist on higher standards than apply elsewhere. The overwhelming and urgent imperative is to rebuild that trust. The reforms enacted so far take us a long way, and further than our competitors. The Bill will take us further forward and make the reform necessary to restore the reputation—and with it the prosperity—of banking in the United Kingdom. I commend the Bill to the House.
Mr McFadden
This is an unusual Bill, in that at the same time that it has sought to implement a reform recommended by the Vickers commission two years ago, it has run in parallel with the Parliamentary Commission on Banking Standards, which periodically has produced reports and asked the Government to use the Bill to implement their findings.
I place on record my thanks to colleagues who served on the commission and all its staff. It was an intense effort and I do not think we could have produced our reports without the able efforts of the many staff who worked for us, led by Colin Lee, who is a great servant of this House.
I want to draw the Minister’s attention back to yesterday’s official response from the Government to the commission’s report of a few weeks ago. We read in yesterday’s newspapers that the Government were going to accept the vast bulk of the recommendations and the Minister opened the debate by saying something very similar. However, I have looked through the Government document in detail and wonder whether the Minister could confirm that the position is not that simple.
Paragraphs 2.32 and 2.33 reject part of our recommendations on pay. Paragraph 4.5 makes no commitment to legislation on access to basic bank accounts. Paragraph 3.24 passes to the regulator only consideration of the changes that we recommended on the corporate governance responsibilities of executives and bank chairmen. Paragraphs 3.34 and 3.35 in effect reject our recommendation for gender reports on operations on the trading floor. Paragraph 5.11 rejects our recommendation to consider splitting RBS into regional banks as part of the Government’s study on RBS. Paragraph 5.28 rejects our recommendations on the governance of the Bank of England. Paragraph 5.31 rejects our recommendations on the chairmanship of the Prudential Regulation Authority.
As my hon. Friend the Member for Nottingham East (Chris Leslie) said, the Government have also rejected recommendations on leveraging and ring-fencing, in particular ring-fencing in respect of the sector as a whole. When it comes to the implementation of recommendations, the chairman of the parliamentary commission yesterday described the attempt to ring-fence one particular group as “virtually useless”.
I stress to the Minister that it is not accurate to say that the Government have accepted the vast majority of the parliamentary commission’s recommendations. The document that was published yesterday is full of excuses and sleights of hand that pass on to the regulator for consideration firm recommendations that we made. I stress to those in another place, who may have a greater opportunity to amend the Bill, that they should read the document that was published yesterday with a careful eye to see what has been accepted and what has not.
Greg Clark
The right hon. Gentleman is not giving the response a fair reading. First, not all of the recommendations were addressed to the Government. Some of them were addressed to the regulators. Secondly, some of the recommendations that were made to the Government have been taken forward through actions that can be taken by the regulators. When colleagues look at the response, they will see that it is a broad endorsement of what was an excellent report.
Mr McFadden
Perhaps the Minister and I have different interpretations of the word “broad”. He may be able to persuade the hon. Member for Chichester (Mr Tyrie), on the basis of some warm words, that these are great concessions, but I remain to be convinced.
The Government have a great deal more to do to convince Parliament—this House and the other House—that they endorse the vast majority of the recommendations. The more one reads the report that was published yesterday, the less one comes to that conclusion. I hope that those who are in a position to amend the Bill in future take heed of that and press with greater determination than Members of this House the amendments that would fully and faithfully implement the recommendations of the Parliamentary Commission on Banking Standards.
Financial Services (Banking Reform) Bill
Greg Clark Excerpts(11 years, 4 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Greg Clark)
I beg to move amendment 1, in page 1, line 20, after ‘body’ insert ‘or of a member of a ring-fenced body’s group’.
Mr Speaker
With this it will be convenient to discuss the following:
Government amendments 2 to 4.
Amendment 17, in clause 4, page 9, leave out lines 8 to 21 and insert—
‘Reviews
142J Reviews of ring-fencing
‘(1) The Treasury must make arrangements for the carrying out of reviews of the effects of the operation of the provision made by or under this Part in relation to ring-fenced bodies, including ring-fencing rules made by the PRA and the FCA. Such arrangements shall be set out in a statutory instrument subject to approval by resolution of both Houses of Parliament.
(2) The first review must be completed before the end of the period of two years beginning with the date on which section 4 of the Financial Services (Banking Reform) Act 2013, so far as it inserts this section, comes into force.
(3) Subsequent reviews must be completed before the end of the period of two years beginning with the date on which the previous review was completed.
(4) Not less than nine months, nor more than 12 months, before the date on which a review is due to be completed, the PRA and the FCA must publish a joint assessment of the impact of the operation of their ring-fence rules.
(5) For the purposes of this section a review is completed when the report of it is published.
142JA Persons by whom reviews are to be conducted
‘(1) The Treasury shall appoint not fewer than five persons to conduct a review of whom one is to chair it.
(2) A person may not be appointed to chair a review unless the chairman of the Treasury Committee of the House of Commons has notified the Treasury that, in the chairman’s opinion, the person is likely to act independently of the Treasury, the PRA and the FCA in carrying out the review.
(3) The persons appointed to conduct a review must include at least one person with substantial experience in central banking or financial regulation at a senior level.
(4) The reference in subsection (2) to the Treasury Committee of the House of Commons—
(a) if the name of that Committee is changed, is to be treated as a reference to that Committee by its new name, and
(b) if the functions of that Committee (or substantially corresponding functions) become functions of a different Committee of the House of Commons, is to be treated as a reference to the Committee by which the functions are exercisable;
and any question arising under paragraph (a) or (b) is to be determined by the Speaker of the House of Commons.
142JB Reports of review
‘(1) The persons appointed to conduct a review must give the Treasury a report of the review.
(2) The report must include an assessment of the extent to which the provision made by or under this Part in relation to ring-fenced bodies, including ring-fencing rules made by the PRA and by the FCA, are facilitating the advancement by the PRA of the objective in section 2B(3)(c) and by the FCA of the continuity objective.
(3) If the report is made before section 4 of the Financial Services (Banking Reform) Act 2013, so far as it inserts section 142JD, has come into force it must also include a recommendation as to whether or not section 4 of that Act should be brought into force to that extent.
(4) The report must include—
(a) recommendations to the Treasury as to the provision that should be included in orders and regulations under this Part, and
(b) recommendations to the PRA and the FCA about the provision that should be included in ring-fencing rules.
(5) The Treasury must lay a copy of the report before Parliament and publish it in such manner as it thinks fit.’.
Government amendment 6, page 9, line 21, at end insert—
‘Group restructuring powers
142JA Cases in which group restructuring powers become exercisable
(1) The appropriate regulator may exercise the group restructuring powers only if it is satisfied that one or more of Conditions A to D is met in relation to a ring-fenced body that is a member of a group.
(2) Condition A is that the carrying on of core activities by the ring-fenced body is being adversely affected by the acts or omissions of other members of its group.
(3) Condition B is that in carrying on its business the ring-fenced body—
(a) is unable to take decisions independently of other members of its group, or
(b) depends on resources which are provided by a member of its group and which would cease to be available in the event of the insolvency of the other member.
(4) Condition C is that in the event of the insolvency of one or more other members of its group the ring-fenced body would be unable to continue to carry on the core activities carried on by it.
(5) Condition D is that the ring-fenced body or another member of its group has engaged, or is engaged, in conduct which is having, or would apart fro m this section be likely to have, an adverse effect on the advancement by the appropriate regulator—
(a) in the case of the PRA, of the objective in section 2B(3)(c), or
(b) in the case of the FCA, of the continuity objective.
(6) The appropriate regulator may not exercise the group restructuring powers in relation to any person if—
(a) either regulator has previously exercised the group restructuring powers in relation to that person, and
(b) the decision notice in relation to the current exercise is given before the second anniversary of the day on which the decision notice in relation to the previous exercise was given.
(7) In this section and sections 142JB to 142JG “the appropriate regulator” means—
(a) where the ring-fenced body is a PRA-authorised person, the PRA;
(b) where it is not, the FCA.
142JB Group restructuring powers
(1) In this Part “the group restructuring powers” means one or more of the powers conferred by this section.
(2) Where the appropriate regulator is the PRA, the powers conferred by this secti on are as follows—
(a) in relation to the ring-fenced body, power to impose a requirement on the ring-fenced body requiring it to take any of the steps mentioned in subsection (5),
(b) in relation to any member of the ring-fenced body’s group which isa PRA-authorised person, power to impose a requirement on the PRA-authorised person requiring it to take any of the steps mentioned in subsection (6),
(c) in relation to any member of the ring-fenced body’s group which is an authorised person but not a PRA-authorised person, power todirect the FCA to impose a requirement on the authorised person requiring it to take any of the steps mentioned in subsection (6), and
(d) in relation to a qualifying parent undertaking, power to give a direction under this paragraph to the parent undertaking requiring it to take any of the steps mentioned in subsection (6).
(3) Where the appropriate regulator is the FCA, the powers conferred by this section are as follows—
(a) in relation to the ring-fenced body, power to impose a requirement on the ring-fenced body requiring it to take any of thesteps mentioned in subsection (5),
(b) in relation to any member of the ring-fenced body’s group which is an authorised person but not a PRA-authorised person, power to impose a requirement on the authorised person requiring it to take any of the steps mentioned in subsection (6),
(c) in relation to any member of the ring-fenced body’s group which is a PRA-authorised person, power to direct the PRA to impose a requirement on the authorised person requiring it to take any of the steps mentioned in subsection (6), and
(d) in relation to a qualifying parent undertaking, power to give a direction under this paragraph to the parent undertaking requiring it to take any of the steps mentioned in subsection (6).
(4) A parent undertaking of a ring-fenced body by reference to which the group restructuring powers are exercisable is for the purposes of this Part a “qualifying parent undertaking” if —
(a) it is a body corporate which is incorporated in the United Kingdom and has a place of business in the United Kingdom, and
(b) it is not itself an authorised person.
(5) The steps that the ring-fenced body may be required to take are—
(a) to dispose of specified property or rights to an outside person;
(b) to apply to the court under Part 7 for an order sanctioning a ring-fencing transfer scheme relating to the transfer of the whole or part of the business of the ring-fenced body to an outside person;
(c) otherwise to make arrangements discharging the ring-fenced body from specified liabilities.
(6) The steps that another authorised person or a qualifying parent undertaking may be required to take are—
(a) to dispose of any shares in, or securities of, the ring-fenced body to an outside person;
(b) to dispose of any interest in any other body corporate that is a member of the ring-fenced body’s group to an outside person;
(c) to dispose of other specified property or rights to an outside person;
(d) to apply to the court under Part 7 for an order sanctioning a ring-fencing transfer scheme relating to the transfer of the whole or part of the business of the authorised person or qualifying parent undertaking to an outside person.
(7) In subsections (5) and (6) “outside person” means a person who, after the implementation of the disposal or scheme in question, will not be a member of the group of the ring-fenced body by reference to which the powers are exercised (whether or not that body is to remain a ring-fenced body after the implementation of the disposal or scheme in question).
(8) It is immaterial whether a requirement to be imposed on an authorised person by the appropriate regulator, or by the other regulator at the direction of the appropriate regulator, is one that the regulator imposing it could impose under section 55L or 55M.
142JC Procedure: preliminary notices
(1) If the appropriate regulator proposes to exercise the group restructuring powers in relation to any authorised person or qualifying parent undertaking (“the person concerned”), the regulator must give each of the relevant persons a first preliminary notice stating—
(a) that the regulator is of the opinion that the group ring-fencing powers have become exercisable in relation to the person concerned, and
(b) its reasons for being satisfied as to the matters mentioned in section 142JA(1).
(2) Before giving a first preliminary notice, the regulator must—
(a) give the Treasury a draft of the notice,
(b) provide the Treasury with any information that the Treasury may require in order to decide whether to give their consent, and
(c) obtain the consent of the Treasury.
(3) The first preliminary notice must specify a reasonable period (which may not be less than 14 days) within which any of the relevant persons may make representations to the regulator.
(4) The relevant persons are—
(a) the person concerned,
(b) the ring-fenced body, if not the person concerned, and
(c) any other authorised person who will, in the opinion of the appropriate regulator, be significantly affected by the exercise of the group restructuring powers.
(5) After considering any representations made by any of the relevant persons, the regulator must either—
(a) with the consent of the Treasury, give each of the persons a second preliminary notice, or
(b) give each of them a notice stating that it has decided not to exercise its group restructuring powers.
(6) A second preliminary notice is a notice stating—
(a) that the regulator proposes to exercise the group restructuring powers, and
(b) the manner in which it proposes to do so.
(7) The second preliminary notice must specify a reasonable period (which may not be less than 14 days) within which any of the relevant persons may make representations to the regulator about the proposals.
(8) The regulator must after considering any representations made in response to the second preliminary notice give each of the relevant person s a third preliminary notice stating—
(a) whether it has made any revisions to the proposals, and
(b) if so, what the revisions are.
142JD Procedure: warning notice and decision notice
(1) If the appropriate regulator has given a third preliminary notice, it must either—
(a) if it still proposes to exercise the group restructuring powers, give each of the relevant persons a warning notice during the warning notice period, or
(b) before the end of the warning notice period, give each of them a notice stating that it has decided not to exercise the powers.
(2) The “warning notice period” is the period of 6 months beginning with the first anniversary of the day on which the third preliminary notice was given.
(3) Before giving a warning notice under subsection (1)(a), the appropriate regulator must —
(a) give the Treasury a draft of the notice,
(b) provide the Treasury with any information that the Treasury may require in order to decide whether to give their consent, and
(c) obtain the consent of the Treasury.
(4) The action specified in the warning notice may be different from that specified in the third preliminary notice if—
(a) the appropriate regulator considers that different action is appropriate as a result of any change in circumstances since the third preliminary notice was given, or
(b) the person concerned consents to the change.
(5) The regulator must, in particular, have regard to anything that—
(a) has been done by the person concerned since the giving of the third preliminary notice, and
(b) represents action that would have been required in pursuance of the proposals in that notice.
(6) If the regulator decides to exercise the group restructuring powers it must give each of the relevant persons a decision notice.
(7) The decision notice must allow at least 5 years from the date of the decision notice for the completion of—
(a) any disposal of shares, securities or other property that is required by the notice, or
(b) any transfer of liabilities for which the notice requires arrangements to be made.
(8) The giving of consent for the purpose of subsection (4)(b) does not affect any right to refer to the Tribunal the matter to which any decision notice resulting from the warning notice relates.
(9) “The relevant persons” has the same meaning as in section 142JC.
142JE References to Tribunal
(1) A notified person who is aggrieved by—
(a) the imposition by either regulator of a requirement as a result of section 142JB(2)(a) or (b) or (3)(a) or (b),
(b) a requirement to be imposed as a result of the giving by one regulator to the other of a direction under section 142JB(2)(c) or (3)(c), or
(c) the giving by either regulator of a direction under section 142JB(2)(d) or (3)(d),
may refer the matter to the Tribunal.
(2) “Notified person” means a person to whom a decision notice under section 142JD(6) was given or ought to have been given.
142JF Subsequent variation of requirement or direction
(1) A regulator may at any time with the consent of the person concerned vary—
(a) a requirement imposed by it as a result of section 142JB(2)(a) or (b) or (3)(a) or (b), or
(b) a direction given by it as a result of section 142JB(2)(c) or (d) or (3)(c) or (d).
(2) The person concerned may at any time apply to the appropriate regulator for the variation of—
(a) a requirement imposed by it as a result of section 142JB(2)(a) or (b)or (3)(a) or (b), or
(b) a direction given by it as a result of section 142JB(2)(c) or (d) or (3)(c) or (d).
(3) Sections 55U, 55V, 55X and 55Z3 apply to an application under subsection (2) as they apply to an application for the variation of a requirement imposed by the appropriate regulator under section 55L or 55M.
142JG Consultation etc. between regulators
(1) Where a notice under section 142JC or a warning notice or decision notice under section 142JD relates to a requirement to be imposed in pursuance of a direction to be given as a result of section 142JB(2)(c) or (3)(c), the appropriate regulator must—
(a) consult the other regulator before giving the notice, and
(b) give a copy of the notice to the other regulator.
(2) The appropriate regulator must consult the other regulator before varying under section 142JF a direction given as a result of section 142JB(2)(c) or (3)(c).
(3) Directions given by the FCA as a result of section 142JB(3)(c) are subject to any directions given to the FCA under section 3I.
142JH Relationship with regulators’ powers under Parts 4A and 12A
(1) Subsection (2) applies in relation to—
(a) a ring-fenced body which is a member of a mixed group, and
(b) a parent undertaking of such a ring-fenced body.
(2) A regulator may not exercise its general powers in relation to the ring-fenced body or parent undertaking so as to achieve either of the results in subsection (3).
(3) Those results are—
(a) that no existing group member is a parent undertaking of the ring-fenced body;
(b) that the ring-fenced body is not a member of a mixed group.
(4) In subsection (3)(a) “existing group member” means a person who is a member of the ring-fenced body’s group at the time when the requirement is imposed or the direction given.
(5) Except as provided by subsections (1) to (4), the provisions of sections 142JA to 142JG do not limit the general powers of either regulator.
(6) For the purposes of this section, a regulator’s “general powers” are its powers under the following provisions—
(a) section 55L or 55M (imposition of requirements in connection with Part 4A permission);
(b) section 192C (power to direct qualifying parent undertaking).
(7) For the purposes of this section, a ring-fenced body is a member of a mixed group if a member of the ring-fenced body’s group carries on an excluded activity.
Failure of parent undertaking to comply with direction
142JI Power to impose penalty or issue censure
(1) This section applies if a regulator is satisfied that a person who is or has been a qualifying parent undertaking as defined in section 142JB(4) (“P”) has contravened a requirement of a direction given to P by that regulator as a result of section 142JB(2)(d) or (3)(d).
(2) The regulator may impose a penalty of such amount as it considers appropriate on—
(a) P, or
(b) any person who was knowingly concerned in the contravention.
(3) The regulator may, instead of imposing a penalty on a person, publish a statement censuring the person.
(4) The regulator may not take action against a person under this section after the end of the limitation period unless, before the end of that period, it has given a warning notice to the person under section 142JJ.
(5) “The limitation period” means the period of 3 years beginning with the first day on which the regulator knew of the contravention.
(6) For this purpose a regulator is to be treated as knowing of a contravention if it has information from which the contravention can reasonably be inferred.
(7) The requirements that a regulator may be required to impose as a result of a direction under section 142JB(2)(c) or (3)(c) include requirements that t he regulator would not but for the direction have power to impose.
142JJ Procedure and right to refer to Tribunal
(1) If a regulator proposes to take action against a person under section 142JI, it must give the person a warning notice.
(2) A warning notice about a proposal to impose a penalty must state the amo unt of the penalty.
(3) A warning notice about a proposal to publish a statement must set out the terms of the statement.
(4) If the regulator decides to take action against a person under section 142JI, it must give the person a decision notice.
(5) A decision notice about the imposition of a penalty must state the amount of the penalty.
(6) A decision notice about the publication of a statement must set out the terms of the statement.
(7) If the regulator decides to take action against a person under section 142JI, the person may refer the matter to the Tribunal.
142JK Duty on publication of statement
After a statement under section 142JI(3) is published, the regulator must send a copy of the statement to—
(a) the person in respect of whom it is made, and
(b) any person to whom a copy of the decision notice was given under section 393(4).
142JL Imposition of penalties under section 142JI: statement of policy
(1) Each regulator must prepare and issue a statement of policy with respect to—
(a) the imposition of penalties under section 142JI, and
(b) the amount of penalties under that section.
(2) A regulator’s policy in determining what the amount of a penalty should be must include having regard to—
(a) the seriousness of the contravention,
(b) the extent to which the contravention was deliberate or reckless, and
(c) whether the person on whom the penalty is to be imposed is an individual.
(3) A regulator may at any time alter or replace a statement issued under this section.
(4) If a statement issued under this section is altered or replaced, the regulator must issue the altered or replacement statement.
(5) In exercising, or deciding whether to exercise, a power under section 142JI(2) in the case of any particular contravention, a regulator must have regard to any statement of policy published under this section and in force at a time when the contravention occurred.
(6) A statement under this section must be published by the regulator concerned in the way appearing to the regulator to be best calculated to bring it to the attention of the public.
(7) A regulator may charge a reasonable fee for providing a person with a copy of the statement published under this section.
(8) A regulator must, without delay, give the Treasury a copy of any statement which it publishes under this section.
(9) Section 192I applies in relation to a statement under this section as it appl ies in relation to a statement under section 192H.’
Amendment (a) to Government amendment 6, at the end of subsection (5) to new section 142JA, insert—
‘(5A) Condition E is that the appropriate regulator judges that there are serious failures in the culture and standards of the ring-fenced body or another member of its group.
(6) When judging whether there are serious failures in the culture and standards of the ring-fenced body or another member of its group, the appropriate regulator must take account of the recommendations in the five reports of the Parliamentary Commission on Banking Standards.’.
Amendment (b), in the title of new section 142JC, leave out ‘notices’ and insert ‘notice’.
Amendment (c) to Government amendment 6, in subsection (1) of new section 142JC, leave out ‘first’.
Amendment (d), in subsection (2) of new section 142JC, leave out ‘first’.
Amendment (e), in subsection (2)(b) of new section 142JC, leave out from ‘require’ to end.
Amendment (f), in subsection (3) of new section 142JC, leave out ‘first’.
Amendment (g), in subsection (3) of new section 142JC, leave out ‘14 days’ and insert ‘6 weeks’.
Amendment (h), leave out from subsection (5) to end of new section 142JC.
Amendment (i), in subsection (1) of new section 142JD, leave out from ‘must’ and insert
‘At the end of the period for making representations required under section 142JC(3), the regulator’.
Amendment (j), at end of subsection (1), insert—
‘(1A) If, following representations, the regulator makes revisions to the proposals, it must inform the relevant persons of those revisions.’.
Amendment (k), in subsection (2) of new section 142JD, leave out from ‘beginning’ to end of subsection and insert
‘at the end of the period for making representations required under section 142JC(3).’.
Amendment (l), in subsection (3) of new section 142JD, leave out from ‘require’ to end of subsection.
Amendment (m), in subsection (4) of new section 142JD, leave out ‘third’.
Amendment (n), in subsection (4)(a) of new section 142JD, leave out ‘third’.
Amendment (o), in subsection (5)(a) of new section 142JD, leave out ‘third’.
Amendment (p), in subsection (7), leave out from ‘must’ to end of subsection and insert
‘specify the period for completion of the actions required by the notice.’.
Amendment 18, page 9, line 21, at end insert—
‘Full separation
142JD General requirement of separation
‘(1) Where the members of any group include one or more ring-fenced bodies and one or more other bodies, the members of the group must, before the end of the period of five years beginning with the relevant commencement date, take steps to secure that there are no members of the group that are ring-fenced bodies.
(2) If in the case of any group steps to secure that there are no members of the group that are ring-fenced bodies are not taken within the period specified in subsection (1)—
(a) at the end of that period the Part 4A permission of each member of the group that is a ring-fenced body shall be treated as having been cancelled to the extent that it relates to a core activity, and
(b) after the end of that period the appropriate regulator must refuse to give any member of the group a Part 4A permission to carry on a core activity.
(3) At the end of the period specified in subsection (1)—
(a) section 142H(1)(b) and (4) to (7), and
(b) section 142JC,
cease to have effect.
(4) In subsection (1) “the relevant commencement date” means the day appointed for the coming into force of section 4 of the Financial Services (Banking Reform) Act 2013 so far as it inserts this section.’.
Amendment 19, page 9, line 21, at end insert—
‘Power to order full separation
142JC Power to order separation in case of particular groups
‘(1) Where—
(a) the members of a group include one or more ring-fenced bodies and one or more other bodies, and
(b) it appears to the appropriate regulator that the conduct of any one or more of the members of the group is such that there is a significant risk that the appropriate regulator will not be able to advance the objective in section 2B(3)(c) (in the case of the PRA) or the continuity objective (in the case of the FCA) otherwise than by acting under this section,
the appropriate regulator may give a notice to each of the members of the group.
(2) The notice must state that the appropriate regulator proposes to require the taking of relevant steps in relation to the group before the date specified in the notice.
(3) In this section “relevant steps” means steps to secure one of the following results—
(a) that there is no member of the group with a Part 4A permission to carry on a regulated activity of a description specified in the notice;
(b) that no member of the group is a ring-fenced body;
(c) that there is no member of the group with a Part 4A permission to carry on a regulated activity which is not a ring-fenced body.
(4) The notice must—
(a) specify a period, of not less than 3 months, during which any member of the group may make representations to the appropriate regulator in relation to its proposal, and
(b) name an independent reviewer who is to report on the conduct of the members of the group and the appropriateness of the proposal made by the appropriate regulator.
(5) A person may not be named as the independent reviewer without the consent of the chairman of the Treasury Committee of the House of Commons; and the reference in this subsection to the Treasury Committee of the House of Commons—
(a) if the name of that Committee is changed, is to be treated as a reference to that Committee by its new name, and
(b) if the functions of that Committee (or substantially corresponding functions) become functions of a different Committee of the House of Commons, is to be treated as a reference to the Committee by which the functions are exercisable;
and any question arising under this paragraph (a) or (b) is to be determined by the Speaker of the House of Commons.
(6) After receiving any representations made in relation to the proposal by members of the group and the report of the independent reviewer, the appropriate regulator must decide whether it intends to implement the proposal.
(7) If the appropriate regulator decides that it does intend to implement the proposal, it must publish notice of the proposal, and of its decision to implement it, at least 60 days before it is implemented.
(8) A person who is aggrieved by the decision of the appropriate regulator that it intends to implement the proposal may refer the matter to the Tribunal.
(9) The proposal may not be implemented without the consent of the Treasury; and the Treasury must publish their decision on any application made by the appropriate regulator for consent, together with their reasons for the decision, at least 60 days before it is implemented.
(10) Once the Treasury has consented to the implementation of the proposal and either—
(a) any reference to the Tribunal under subsection (8) has been dismissed, or
(b) the period for making such a reference to the Tribunal has expired without a reference having been made,
the appropriate regulator may implement the proposal by giving notice to the members of the group requiring the taking of the relevant steps specified in the proposal before the date so specified.
(11) If the relevant steps have not been taken by the specified date, the appropriate regulator may—
(a) in a case where the relevant steps are aimed at securing the result in paragraph (a) of subsection (3), take the action specified in subsection (12),
(b) in a case where the relevant steps are aimed at securing the result in paragraph (b) of subsection (3), take the action specified in subsection (13), or
(c) in a case where the relevant steps are aimed at securing the result in paragraph (c) of subsection (3), take the action specified in subsection (14).
(12) The action referred to in paragraph (a) of subsection (11) is—
(a) to cancel the Part 4A permission of any member of the group to carry on the regulated activity specified in the notice, and
(b) to refuse to give a Part 4A permission to any member of the group to carry on that activity.
(13) The action referred to in paragraph (b) of subsection (11) is—
(a) to cancel the Part 4A permission of any member of the group that is a ring-fenced body to the extent that it relates to a core activity, and
(b) to refuse to give any member of the group a Part 4A permission to carry on a core activity.
(14) The action referred to in paragraph (c) of subsection (11) is—
(a) to cancel the Part 4A permission of any member of the group that is not a ring-fenced body, and
(b) to refuse to give a Part 4A permission to any member of the group that is not a ring-fenced body.’.
Government amendments 7 to 16.
Greg Clark
This group deals with some of the recommendations of the first report of the Parliamentary Commission on Banking Standards, which was published on 21 December last year. The Government agreed to bring forward amendments on Report to implement those recommendations, and those amendments are amendments 1 to 4, 6 to 10 and 11 to 16. I will turn to them in a few moments, but the amendment proposed by my hon. Friend the Member for Chichester (Mr Tyrie) relates to his parliamentary commission’s final report on standards and culture, which was published on 19 June, and it therefore provides a perfect opportunity—as I suspect my hon. Friend intended—to say something about that further report and how the Government intend to implement its recommendations.
The Government warmly endorse the report. It is a landmark piece of work and I commend its unflinching, clear-sighted assessment of the damage done to the reputation of banking in this country and all around the world.
Mr Andrew Love (Edmonton) (Lab/Co-op)
The parliamentary commission requested the Government to consider giving their response—and tabling amendments —well in advance of this Report stage, yet that has been given only this afternoon. Why are we faced with having to absorb this document at very short notice?
Greg Clark
I pay tribute to the hon. Gentleman for the long hours he has devoted to the work of that commission. The Government did indeed make a commitment on Second Reading and before then to make use of the Bill before us to take forward the recommendations of the commission. It was always intended that that should be at the House of Lords stages of the Bill, but I will have more to say about that in a few moments. We will absolutely give the required time to consider those amendments and to make use of a Bill that is before the House, enabling us to respond rather than wait for a further piece of legislation.
The commission’s central judgment is absolutely right:
“High standards in banking should not be a substitute for global success. On the contrary, they can be a stimulus to it.”
When I visited Germany late last year, I picked up a copy of Handelsblatt and was struck by a double-page spread with a picture of the City of London and the headline, in English, “City of shame”. That shows the impact of the events of the financial crisis and subsequently on the reputation of this country’s banking system. Exactly as the commission says, if we are to restore the system’s global success, as we must, it is imperative that we improve its standards.
Therefore, in response to the commission’s report, I can confirm today that the Government will strengthen individual accountability by introducing a tough new regime that is recommended to cover the behaviour of senior bank staff; introducing new rules to promote higher standards for all bank staff; introducing a criminal offence for reckless misconduct by senior bankers—those found guilty could face a jail sentence; working with the regulators to implement the commission’s proposals on pay, specifically to allow bonuses to be deferred for up to 10 years and enable 100% clawback of bonuses where banks receive state aid; and reversing the burden of proof so that senior staff are held accountable for regulatory breaches within their areas of responsibility. We will also ask the regulators to implement the commission’s key recommendations on corporate governance. That will ensure that firms have to have the correct systems in place to identify risks and maintain standards on ethics and culture.
We will support competition in the banking sector by providing the Prudential Regulation Authority with what the commission asked for, which was a secondary competition objective to strengthen its role in ensuring that we have banking markets that benefit from the vigorous competition that delivers good outcomes for consumers. That will be in addition to the Financial Conduct Authority’s existing competition objective. In addition to introducing seven-day account switching later this year, the Government will ask the new payments regulator, once established, urgently to examine account portability and whether the big banks should give up ownership of the payment systems. The Government have also implemented the commission’s recommendation to conduct a review to look into the case for splitting RBS into a good bank and a bad bank containing its risky assets.
When the commission’s final report was published on 19 June, I undertook to provide an accelerated Government response by way of a Command Paper before the summer recess.
Mr Speaker
The Minister may wish to reply, because it is important to be clear about the context in which the observations he is making are made. That is central to this matter, and it is difficult to rule on it unless there is some clarity on the subject. I am grateful to the right hon. Gentleman for his point of order and let us hear what the Minister has to say.
Greg Clark
I thought that I had explained the context at the beginning, which was that the amendment tabled by my hon. Friend the Member for Chichester deals specifically with the recommendations of the final report on the culture. As I said, I suspected that he had tabled the amendment in order to afford us the opportunity to debate these matters. I will move on to deal with the other amendments in the group if the House would prefer it.
Greg Clark
Of course, and today and tomorrow we will go into some further detail on that point. Let me mention one such finding, however: the Government do not agree with the proposal to abolish UK Financial Investments. I will mention various others later. We brought forward the publication of the response, which, just before the report was published, was intended to take place just before the summer recess, because I thought it was germane to the discussions in the House and I encouraged my officials to work their best to try to make it available for today and tomorrow. It has been sent to Members.
Giving a Government response to an 11-month long, 571-page commission report in just 13 working days is, I think, quite an achievement and I thank my officials for losing a nice weekend watching the tennis to do that. I had hoped that it would help the debate.
Chris Leslie (Nottingham East) (Lab/Co-op)
This is a very interesting situation. The Minister talks about the 13-day deadline and said that we had to get this done. Correct me if I am wrong, Mr Speaker, but I thought that the Government decided when the Report stage of a Bill was to be held, so the deadline was rather self-imposed. Why on earth are we wasting this Commons consideration of the Bill in Committee and on Report when he could not get his act together either to table amendments or to get a response together in time for us to properly use our time on Report?
Greg Clark
The hon. Gentleman is perfectly aware that the standard response time for a Command Paper responding to a report is two calendar months. That would have taken us into the recess, which clearly is not possible, so we would have had to respond after the recess. I think he is being churlish when I have asked my officials to move at great speed to respond in a very short space of time—13 working days—to make the response available. I thought it was better for us to have it for these debates than to have it next week or in September. I am grateful to my officials for their alacrity, even if he is not.
Jacob Rees-Mogg (North East Somerset) (Con)
I join my right hon. Friend in commending his officials for their amazingly speedy response. The only thing I would ask is that we should have plenty of time on Lords amendments. We had an excellent discussion in Committee, but unfortunately it was on a Bill that will be completely different from the one that is ultimately passed. To maintain the supremacy of this House, I feel it is important that we should have a proper discussion of and decision on the amendments that will be made in the other place.
Greg Clark
My hon. Friend, who was a distinguished member of the Public Bill Committee, is absolutely right. I have given assurances to the House before that we will have enough time to consider these very important matters, and we always have done. In Committee, we arranged things in such a way that we were able to consider every line of the Bill and every amendment and new clause with time to spare. When I saw the amendments that had been tabled, I made representations through the usual channels to extend what in the original programme motion had been a one-day Report and Third Reading. I had said that I would reflect on the volume of amendments and was able to secure an extra half day of consideration. I repeat that assurance—when the amendments return from the House of Lords, it is absolutely right that this House should have the chance to consider them all at leisure and thoroughly. My hon. Friend has my assurance on that.
Let me turn to amendments 1, 2 and 3. In Committee, I gave a number of undertakings that I would table amendments on Report. One such commitment related to the effectiveness of the ring fence, which is the common denominator of the amendments in this group. The hon. Member for Nottingham East (Chris Leslie) will immediately spot that amendments 1, 2, 3 and 4 act on a commitment I gave to the Committee that in turn reflected the recommendations of the first report of the PCBS, on which the hon. Member for Edmonton (Mr Love) and my hon. Friend the Member for Chichester served.
For Members who did not have the privilege of being part of our discussions in Committee, let me set the context. The Independent Commission on Banking set three objectives for the ring fence: first, to insulate essential day-to-day banking services against shocks originating elsewhere in the financial system; secondly, to make banks more resolvable; and, thirdly, to curtail the perceived implicit Government guarantees to banks, which follows from the first two. The Bill turns those ring-fencing objectives into law by making them part of the statutory objectives of the regulators—the PRA and the FCA.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
The new structure that the Minister is outlining looks good on paper, but the key to its success is the role of the PRA. How will he stop the problem of the revolving door that arose with the Financial Services Authority afflicting the PRA, because that would completely undermine the ring fence he intends to put in place?
Greg Clark
The hon. Gentleman makes a good point. He will know from our proceedings during the passage of the Financial Services Act 2012 that we needed to reverse the catastrophic decision to take supervision of the banking system away from the Bank of England, which had always exercised that role with authority and commanded respect not only in this country but throughout the world. That Act corrected the situation, and the PRA is part of the Bank of England, as he knows, so we have restored that authority.
Guy Opperman (Hexham) (Con)
Does the Minister agree that higher banking standards and the PRA’s new role were enthusiastically endorsed at the multi-level banking seminar in support of regional banking that we held in Gateshead only last month?
Greg Clark
My hon. Friend’s ingenious intervention allows me to pay tribute to the excellent event he hosted in Gateshead at which there was palpable enthusiasm for challenger banks entering the market, especially ones with a regional focus. He and I share an ambition that the north-east should be the home of such a bank, which would do wonders for the region’s economy, with its strong, vibrant business culture. The area would benefit from the local knowledge of such an institution. The PRA and the FCA were represented at the discussion, and he is right to reflect that everyone who was present on that Friday was enthusiastic about the steps the PRA is taking to make it easier for challenger banks to come forward.
Chris Leslie
If the Government are so enthusiastic about the concept of regional banking, will the Minister explain to the hon. Member for Hexham (Guy Opperman) why their report, which came out at lunchtime, explicitly rules out any review of a structural arrangement involving regional banking for the Royal Bank of Scotland?
Chris Leslie
Perhaps the hon. Gentleman did not hear me first time round. I am tempted to repeat myself, but it is important that he realises that his right hon. Friend the Minister has ruled out such an arrangement for RBS.
Greg Clark
The right way to approach this is to make it possible for regional banks to enter the market across the board, which is precisely what the PRA is doing. It has reduced the demands that entrant banks must satisfy to establish themselves as a business and speeded up the authorisation process, which is all to the good.
Guy Opperman
Does the Minister recall that in April last year, the Labour party, taking its lead from the hon. Member for Nottingham East (Chris Leslie), who is sat in a sedentary, chuntering position on the Opposition Benches, voted against the implementation of the competition regulations that would have made regional banks happen?
Mr Speaker
Order. The notion of somebody sitting not in a sedentary position is a challenging one, but I am grateful to the hon. Gentleman for raising his point while on his feet, rather than from his seat.
Greg Clark
It is certainly true that the hon. Member for Nottingham East is seated, and it is also true that he was chuntering. My hon. Friend the Member for Hexham (Guy Opperman) has done the House a service in reminding it of the voting record of the hon. Member for Nottingham East, seated or otherwise.
The amendments clarify that the PRA must seek to minimise damage to the continuity of core services caused by the failure of a ring-fenced bank or any other member of its corporate group; an investment bank could, for example, suffer losses that threatened the whole group with bankruptcy. Amendment 1 requires the PRA to minimise the harm to the continuous provision of core services caused by the failure of other group members, as well as of the ring-fenced bank itself.
Amendment 2 clarifies that the failure of a group company includes its insolvency. Amendments 3 and 4 reflect those same changes in the remit of the FCA, in the unlikely event that the FCA ever became the prudential regulator of any ring-fenced bank. I hope that the House will welcome those amendments, which the Committee that scrutinised the Bill and the Parliamentary Commission on Banking Standards suggested.
Mr Love
I thank the right hon. Gentleman for being so generous in giving way. I want to take him back to the discussion about regional banking, because one of the parliamentary commission’s recommendations was that the Government should consider measures to break up RBS into regional banking. I seek his reassurance that the Government have not forgotten that recommendation.
Greg Clark
It delights me to hear the hon. Gentleman refer to today’s publication; it confirms what I thought and hoped, which was that the publication would inform the debate. I think that tomorrow we will come on to clauses that deal with precisely those matters.
Caroline Lucas (Brighton, Pavilion) (Green)
Does the Minister understand the disappointment of those, including me, who believe that the proposals do not go far enough, and that we should look at full legal separation of investment and retail banking, and not just ring-fencing? If we do not, we risk sending a message to the public that politicians still have a surprisingly high degree of trust in the very banks and bankers who caused so much harm to our economy.
Greg Clark
I do not agree with that. We will come on to talk about what the commission referred to as the electrification of the ring fence, and whether it is appropriate to have a power to break up the whole system, so I will address that in a second, if I may. Amendments 6 to 10 concern that electrification of the ring fence, to use the memorable phrase of my hon. Friend the Member for Chichester—or, I dare say, the whole commission.
Mr McFadden
The Minister is being generous in giving way. I would like to take him back to the intervention by my hon. Friend the Member for Edmonton (Mr Love). Will the Minister confirm that paragraph 5.11 of the publication that his Department published today states:
“The Government does not believe that the case for breaking RBS’s core operations into multiple entities meets the objectives of maximising the banks’ ability to support the British economy”?
In layperson’s terms, the Government have today rejected the notion that their review will look at regional banks, as distinct from a good bank/bad bank split. Is that how we should read that?
Greg Clark
No. The right hon. Gentleman has not got it quite right. We are absolutely enthusiastic about creating regional banks, and the exchange that I had with my hon. Friend the Member for Hexham, and the changes made by the regulator to the approvals process, underline that. The right hon. Member for Wolverhampton South East (Mr McFadden) asks a specific question about whether RBS, in which we, of course, have a very substantial stake, should be broken up in that way. It is important that we have regard to value for the taxpayer. I suspect that we will talk about these things tomorrow, but I confirm that it is the Government’s view that we should not damage the potential value to the taxpayer in that way.
As members of the Bill Committee will recall, I made a commitment to introduce on Report amendments to implement electrification, and here they are. The amendments give powers to the regulator, with the consent of the Treasury, to require a group to separate completely its retail and wholesale banking operations. The regulator would be able to require the group either to sell its interests in ring-fenced or non-ring-fenced entities, or to transfer specified businesses to outside ownership. The regulator will be able to require separation if it is satisfied either that the group’s ring-fenced bank is not sufficiently independent of the rest of the group or that the conduct of any member of the group is such that it undermines the regulator’s ability to achieve its new statutory objective to ensure the continuity of core services.
The amendments set out a process for the exercise of that power. The first step is that the regulator must notify all affected members of a group that it is minded to exercise its powers and how it proposes to do so. The affected bank has the right to make representations following the receipt of each notice. Following that stage, the regulator is required to allow members of the group at least a year to take action to rectify the position. If, after that period, the regulator wishes to proceed it must issue a warning notice before a requirement to separate is imposed. The regulator would then allow five years to complete the separation required in line with the disposals required under competition law, particularly state aid interventions.
As the parliamentary commission recommended, the Treasury’s approval is required before that action can be taken. We agree with the commission that providing for a deterrent against any bank that seeks to game or evade the ring fence is a sensible reinforcement in keeping with the recommendations of the Independent Commission on Banking. Government amendments 11,12, 13 and 14 make technical adjustments to ensure that all the necessary components of structural reform comply with the ring fence and are brought within the scope of the ring-fencing transfer scheme.
Richard Fuller (Bedford) (Con)
I am grateful to my right hon. Friend for his clear explanation of how the ring fence will work. He is discussing time frames that make sense in benign economic circumstances, but some of the problems with the interaction of retail and investment banking came about in circumstances of great financial trauma. Is he confident that the measures he has proposed will work in those circumstances as well?
Greg Clark
My hon. Friend makes a good point. The use of state aid is often a response in the context of difficult circumstances. That was certainly the case in the financial crisis, and it happens in other industries as well. Five years is the standard period for these arrangements to be executed or completed, and that is the reason, anticipating an intervention from my hon. Friend, that period was chosen. I dare say, however, that that there can be reflection on that: my hon. Friend the Member for Chichester may have a different view that he may wish to share with the House later.
Government amendments 15 and 16 reflect concerns expressed both by the Commission and in Committee that the use of ring-fencing transfer schemes to restructure groups could provide unscrupulous banks with an opportunity to shirk their responsibilities, such as liability with past misconduct. The requirement for PRA approval is a substantial safeguard against that, but Government amendment 16 requires that before the PRA can consent to a ring-fencing transfer scheme it must commission an independent report to assess whether anyone other than the bank itself would be adversely affected by the transfer. Government amendment 15 requires the PRA to “have regard” to that report in deciding whether to approve a ring-fencing transfer.
The hon. Member for Nottingham East will of course have more to say about amendments tabled by the Opposition, but his first amendment was debated extensively in Committee. It requires a review of ring-fencing every two years. I am certainly not set against an independent review. Indeed, the Bill builds in future reviews, including the PRA being able to report annually on the operation of the ring fence, and being able to report every five years on whether the detailed rules it has made are still delivering the objectives of the ring fence. Requiring another review specifically to look at the case for full separation risks in many ways achieving the opposite of the Bill’s intention, which is to secure consensus, as far as that can be established, and to provide for a stable regulatory structure.
It would be paradoxical for such a review to be confined to looking at ring-fencing or full separation, but not any other remedy for deficiencies that the review might uncover. Amendment 18 is identical to an amendment that was debated in Committee. The Government’s position is clear: in the Bill, we are following the advice of the commission chaired by Sir John Vickers, which considered the case for full separation—that relates to the point made by the hon. Member for Brighton, Pavilion (Caroline Lucas)—and rejected it. It is a different policy. I know that it has some distinguished advocates, but it is a different policy. Of course, any future Government could adopt it, but they should do so properly, through thorough analysis and following parliamentary and public scrutiny.
It is worth reminding ourselves briefly of the history of the proposals before us. They were not invented during the past few weeks or months. They go right back to 2010, when the Government established the Independent Commission on Banking under the chairmanship of Sir John Vickers. The commission produced three reports, instigated two public consultations, considered 1,500 pages of written submissions and hosted more than 300 separate meetings. The Government produced a response and a White Paper, on which they again consulted fully before coming to Parliament. At each stage there was full cost-benefit analysis. Now in Parliament each detail of the policy is being debated—and has been debated in Committee—and in many cases improved.
Mr Love
The parliamentary commission consulted widely and there was considerable concern about the weaknesses and the ring-fencing that had been suggested by Vickers. That resulted in a proposal for electrification. Is the right hon. Gentleman secure in the view that we have electrified the fence enough on the basis of the amendments he is proposing today?
Greg Clark
I will be even more secure when I have persuaded the hon. Gentleman, as I hope to do. He, being a fair man, will reflect on the fact that his distinguished commission undertook pre-legislative scrutiny of the proposals made by Sir John Vickers and his commissioners. Sir John did not recommend that there should be the power to separate. In fact, he has been persuaded by the institution-specific power of separation that his commission proposed, but has reflected in evidence to his commission that to go further and introduce a system-wide power is a separate matter and should come before Parliament in an explicit way rather than, as would be the case here, through a statutory instrument following an independent review.
The proposals before us, most fair-minded colleagues would concede, fall very far short of the degree of scrutiny and rigorous assessment, including by the hon. Gentleman’s commission, that the current proposals have gone through. Parliament would not have the ability to present amendments to proposals and at that stage to take account of the recommendations even of the independent review. So the procedures proposed are less than adequate to the scale of the policy change that would be embodied in them. If we are to be serious about the need to respect the views and the role of Parliament—as I have made clear, these are important matters—we must accept that the only right and proper and democratic way of legislating for full separation is by coming back to Parliament with full primary legislation, including the rigorous process that we have undertaken.
Stephen Barclay (North East Cambridgeshire) (Con)
I very much agree with the case that my right hon. Friend is making. Is there not a danger with a fixation on structure, which the review advocated by the Opposition would promote, that we work less on making the existing electrification work and getting the behaviours right, and instead allow a focus on structure and the further review? As with any structure, it is possible to ratchet up, but it is also possible to ratchet down, and it would allow a nibbling of the electrification, which would not be constructive.
Greg Clark
My hon. Friend has some experience of these matters. I think that the debates about structure are important and that structural reform will make an essential contribution to making the system safe for the purposes of taxpayers. However, having looked into it, I think that to have hanging over the system the sword of Damocles—the origins of the metaphor were the subject of an erudite debate in the Commission—would introduce an uncertainty into proceedings that might distract from the important work of implementing the existing provisions.
Mr Love
The reality is that we are seeking to balance conflicting issues. One respects the Government’s view that Parliament should be supreme in this regard, but the alternative argument, of course, is the one that the Minister has just put to us, about the sword of Damocles keeping the feet of the banking industry to the fire. We know that the industry has not been entirely with us in relation to setting up the ring-fencing arrangements and that it needs some encouragement to make it work effectively.
Greg Clark
The hon. Gentleman gets to the nub of the matter, because of course any attempt to evade the ring fence or to nibble the electric fence, as dangerous to health as that would be, could be undertaken only on the part of a particular institution, not the system. That is why we agreed with the commission’s report—it was not part of the Vickers report—that it was necessary, for exactly the reasons the hon. Gentleman mentions, to have a sanction against that type of behaviour, and that is what we have done.
A further power to separate the whole system could not be triggered by an individual and could not punish the actions of an individual institution. That is why I think that is a very different policy. It commands the support of some very distinguished and influential people. The Glass–Steagall approach, which of course the policy is modelled on, has its place in history, but I think that history also reveals that the Glass–Steagall arrangements were not immune to the very dangers my hon. Friend the Member for North East Cambridgeshire (Stephen Barclay) pointed to. It is a good job my hon. Friend the Member for Chichester secured his amendment to the programme motion, because we are having a very interesting debate, but I would like to conclude, because there are other amendments that hon. Members would like to speak to. On that point, however, I urge the House not to allow at this stage the introduction of a very different policy into the Bill.
Let me turn to the amendments tabled by my hon. Friend the Member for Chichester, who I dare say will speak for himself in a few moments. I know that some of them were tabled to afford us the opportunity to discuss his commission’s report, and I think that this is now established as a very relevant opportunity. I will of course listen carefully to what he says. I am confident that the amendment the Government have tabled in response to the commission’s report can be improved during the Bill’s passage to take into account whatever concerns are embodied in his amendments.
Amendment (a) to Government amendment 6 would add a new condition under which the separation powers could be used: namely, when the regulator
“judges that there are serious failings in the culture and standards of the ring-fenced body or another member of its group.”
Of course, under the Government’s amendment the regulator would have the ability to separate the group if its conduct threatened to undermine the regulator’s ability to meet its continuity objective, but I think that, as the commission’s extensive deliberations showed, cultural failings might be present in banks that can result, for example, in significant harm to individual consumers or groups of consumers but nevertheless do not have systemic consequences. I think that the relevance of the proposed new power to take into account the culture is adequately covered under the provisions already in the Bill.
Amendments (b) to (p) concern the procedures for exercising the separation power. They would remove from the process: the second and third preliminary notice stages that extend to six weeks the time for banks to make representations; the requirement that the group be given a minimum of five years to effect separation; and the requirement for Treasury consent before a group can be required to separate. It is, of course, essential that a clear process be established for the exercise of the separation power. As I have said, I will listen carefully to what my hon. Friend says about reducing the number of warnings, which I think is the essence of what he is recommending, and about departing from the standard practice in financial services of allowing 14 days, rather than the six weeks that he proposes, for representations.
Mr McFadden
I want to compare the Minister’s six-year timetable with the one that the hon. Member for Chichester (Mr Tyrie) has set out in his amendments. What would be the difference for an individual group between moving to full separation under the Minister’s timetable and its doing so under the timetable that would apply if the amendments tabled by the hon. Member for Chichester were accepted?
Greg Clark
As I have said, I shall hear from my hon. Friend. I do not think there is any difference of intent between us; we have accepted the commission’s recommendation. We have taken the period of five years because that is the standard time for the disposal of assets when they are required through competition law proceedings.
I am certainly concerned, however, that the banks should be given a chance to address the concerns, and that chance would be lost if amendment (k) were followed. If amendment (p) were followed, we would deny banks the five-year period for divestments to be made that is typical under competition law. But as I have said, I remain open to considering these matters further during the Bill’s passage. I am confident that it can be improved to meet the concern, as I know that there is no disagreement in principle between me and my hon. Friend on the issue.
The requirement for Treasury consent follows from the commission’s own recommendation, without which the regulator could, on its own initiative, instigate radical structural reforms.
Amendment 19 is retabled as an alternative to Government amendment 6, providing for the specific full separation power. As I explained in Committee when the amendment was previously debated—when the hon. Member for Nottingham East was channelling my hon. Friend the Member for Chichester, as he frequently did—it suffers from technical flaws. That is why I committed to introducing a Government amendment to deliver its objectives.
Specifically, amendment 19 is rather vague, giving the regulator power to require a group to take steps to separate without specifying what those steps are. It also lacks provision for a minimum period over which groups must execute a separation, leaving the risk of the regulator’s ordering a rushed disposal that could be destabilising to the system.
The Government amendment is intended to address those technical problems, although I have signalled our willingness to make any further improvements that may be necessary as the Bill progresses. I hope that my hon. Friend the Member for Chichester will be able to withdraw his amendment at this stage, pending further consideration.
Chris Leslie
It is characteristic of the Minister, with his emollient tones, sometimes to give the impression of smoothing over all these issues. He is ever the swan on the surface, yet beneath the water line the chaotic paddling is evident from the Government’s response to the work of the parliamentary commission. That response was rushed out today, in accordance with the Government’s own artificial deadline of a debate on Report, which they could have scheduled so that we had time to consider where the Government stood on some of these issues.
Even the Minister’s hon. Friends did not seem to realise what he was recommending today on RBS—ruling out a review that might consider a regional banking network, for example. The message did not get through to the Government’s own Back Benchers. I do not know whether that is a whipping issue or whether other channels need to be reviewed, but something is not quite right. It would be remiss of me to pass over the fact that we are debating this Bill on Report having had in Committee no consideration of all the hard effort undertaken by the poor souls who had to serve on the Parliamentary Commission on Banking Standards. Hours, days, weeks and months of their lives went by, never necessarily to be regained. There was no response to that in Committee and there has been barely a nod in its direction on Report.
Greg Clark
This is uncharacteristically ungenerous of the hon. Gentleman, as in Committee he tabled a whole set of amendments drafted by the parliamentary commission, saving him, I dare say, a lot of weekend drafting work. I think he might want to thank members of the commission and note that the recommendations from its first report were exhaustively considered in Committee.
Chris Leslie
The right hon. Gentleman is right. Of course I thank them, but it is my sympathy for them that now requires us to speak in their favour. The Government ignored all those amendments. It is true: I have been channelling the wishes of the hon. Member for Chichester (Mr Tyrie) and, indeed, the rest of the commission. They dutifully drafted all those amendments and they were then totally ignored by the Government. The Government set up the parliamentary commission. They did not want to go for a broader independent inquiry; they wanted to take this route. They set up all the members to do all the work and have all the hearings. Their final report was more than a ream of paper— 570 pages. Not a jot of those amendments was accepted by the Government in Committee, and, significantly, the same applies on Report.
Let us be clear about this. House of Commons consideration of this Bill is not worth anything; all the business is to be done in the other place by members of the commission who are there. It will go to them in October, presumably they will consider it in October and November, and then we will get a little chunk of time at the end of the process for Commons consideration of Lords amendments. I hope that the Minister will allow us a little more latitude to have a look at what is put into the Bill at that time.
Greg Clark
I think the hon. Gentleman is labouring under a misapprehension. The amendments in this group are a response to the commission’s first report. The essence of this Bill is the ring-fencing of the banking system. This is a response to the independent commission to which the parliamentary commission responded. The amendments implement these changes. The Government always made it clear that the final report on standards and culture would be taken on board during the Bill’s passage through the House of Lords. The situation is exactly as envisaged and perfectly orderly. He is not seeing the wood for the trees. This is about the ring-fencing of banks.
Chris Leslie
Well, pardon me for daring to suggest that the Government have got this totally upside down and the wrong way round. They set up the commission and asked its members to come forward with recommendations, as they dutifully did, for which I thank them, and then ignored them in the Commons Committee and Report stages. That means that it is all to be debated in the detail that is required when the Bill reaches the House of Lords.
Mark Garnier
I, too, pay tribute to the members of the parliamentary commission, with whom I served for 10 months. Huge numbers of people were involved as well as huge amounts of effort. One statistic that has not come out yet is that we apparently asked 9,198 questions of our witnesses, so we certainly got stuck into it in a big way. It was truly a tour de force, as Members can see from the 571-page document I have in my hand.
The Commission was an incredibly important piece of work. We have been trying to deal with the fundamental loss of trust in banking and what pleased me enormously was that one of the passages quoted relatively early in the report, on page 83, was from one of our big banks, Lloyds Banking Group, and was about trust. Let me read it out:
“Trust goes to the heart of what banking is about. Customers need to be able to trust their bank to look after their savings. They need to trust their bank to manage their financial transactions smoothly; trust that their bank will be diligent and not provide levels of credit or mortgage that are more than the customer can re-pay; and trust their bank to provide products that genuinely meet the customer’s needs and which the customer can understand.”
That has been crucial to the problem we have had: of course we considered LIBOR and all the various scandals, but at the end of the day there is a fundamental mistrust between the consumer, who is not very well educated, and the banks, which are well educated. In part, we are seeking to resolve that misbalance of trust.
I urge the Minister not to be shy in legislating to help build that trust. As TheCityUK wrote, again cited on page 83:
“The sustainability of the UK’s position as the pre-eminent global financial services centre is grounded in the integrity of its financial markets and probity of market participants.”
That is key to the debate about ring-fencing, criminal sanctions and the various other important measures available to the Government in the arms race in which we are involved—ranging from the gun locker of the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso) to my offshore nuclear deterrent—to ensure that the people who run the banks pay attention and take seriously their role in looking after those institutions. I speak as someone who spent 17 years as an investment banker and 10 years as a hedge fund manager. As I have now gone into politics, I have the hat trick of holding the three most unpopular jobs on the planet—I plan to become a traffic warden when I leave this place.
We hear threats from the banking community that if we over-regulate, that community will get up and go, but there are two incredibly important points to consider, the first of which is: where would the banks go? They do not have a big range of options. A bank that wanted to go to the far east, for example, would face several problems, not least of which is the fact that were HSBC to up sticks and go to Singapore—this would apply to the remainder of the major four banks—its balance sheet would be about 1,100% of the country’s gross domestic product, and no regulator would enthusiastically receive a bank of such a size. Secondly, we should remember that several factors in this country are incredibly important to banks, such as our robust, transparent and tried-and-tested legal system. We are a member of the single market, which gives banks access to the whole of Europe; we speak English, which is the language of the international business and banking community; and we are also at the centre of the time zones.
Our regulatory regime is also absolutely crucial. A great deal of our work was to try to get rid of the implicit guarantee whereby the Government are seen as standing behind the banks in case they fall over. That guarantee can be worth anything up to £40 billion a year, depending on the stage of the cycle, and that gives the big four banks an advantage. The problem is that that anti-competitive advantage represents another barrier to entry for challenger banks, so we need to get rid of the implicit guarantee. However, by regulating firmly, well and efficiently, and by winning the race to the top on regulation, we will replace the implicit guarantee with a cheaper funding rate for the UK banks, because they will see large amounts of international capital coming to the UK to take advantage of the protection that our regulatory and legal regimes provide. I therefore urge the Minister not to be shy about coming forward and to consider carefully the amendments proposed by my hon. Friend the Member for Chichester (Mr Tyrie), which reflect the recommendations of the Parliamentary Commission on Banking Standards and have a great deal of merit.
Greg Clark
We have had a fascinating, high-quality debate. I am grateful for the contributions of all hon. Members, but especially for those of the Members who served with such distinction on the Parliamentary Commission on Banking Standards: my hon. Friend the Member for Wyre Forest (Mark Garnier); the right hon. Member for Wolverhampton South East (Mr McFadden); the hon. Member for Edmonton (Mr Love), who is no longer in the Chamber; the Chair of the commission, my hon. Friend the Member for Chichester (Mr Tyrie); and the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso). With the help of Members of the other place, they laboured hard to produce a report that not only will stand the test of time, but will be a reference document for many generations in this country and throughout the world. The report will be seen as a major contribution to addressing the less tangible aspects of culture and standards, which is something that has eluded regulators throughout the world. I am sure that the report will be read with a great deal of interest.
The report’s central judgment includes the acute point that for too long questions of standards and culture have been contracted out to regulators, rather than being an intrinsic part of the institutions themselves. That aspect of the report stood out as the essence of the required change, because it should no longer be simply for the regulators to decide on such questions, as the culture throughout the institutions should reflect the correct standards that we expect.
I spoke at length at the beginning of the debate, so I shall deal briefly with several of the points that hon. Members raised. I was asked about timetabling. On Second Reading, I made two commitments, the first of which was that the House would have adequate time to consider all provisions, including amendments proposed by the parliamentary commission. I hope that hon. Members will concede that I have been true to that in Committee and throughout our two days on Report, and I repeat that that commitment remains as the Bill goes to the other place. I also said explicitly on Second Reading that the recommendations of the commission’s final report on standards and culture would be reflected in amendments to be made in the House of Lords. Of course, those measures will subsequently be considered by this House, so our intention has not changed. It was right to expedite the response to the report so that it was available much more quickly than usual. It has been useful in informing today’s discussions, as will be the case tomorrow, and it will be available to their lordships during their consideration of the Bill.
The hon. Member for Nottingham East (Chris Leslie) asked several specific questions, including about whether Government amendment 8 contained a typo. It does not, but it would require more than the four minutes remaining for me to explain why, so I hope that he will trust me on that at least. The upper tribunal is not a new invention; it is the court that considers all references made under FSMA for adjudication.
The hon. Gentleman made a substantive point about the notice period, as did my hon. Friend the Member for Chichester and the right hon. Member for Wolverhampton South East. I was asked whether an elongated process in some way diminishes the effectiveness of the ring fence. Our intention was—and is—to implement faithfully the parliamentary commission’s recommendation on the institution-specific ring-fencing rule. As I assured my hon. Friend the Member for Chichester, I am confident that if the Government’s proposals can be improved during the Bill’s passage, all his concerns about the use of the power can be addressed. In fact, the procedure under consideration has been described as pressing the nuclear button.
Mr Tyrie
I think that was a concession, so I am extremely grateful to the Minister. I am also grateful that the response was published at the earliest opportunity—it could have been delayed, so at least we have had a chance to look at it. That shows us that the Government are listening, and the response will be helpful in the other place. Above all, it gives us more confidence that there will be full implementation of the proposals. The Government have indicated their general support for them, so I hope that we will not have to go through a rigmarole to get the necessary provisions on the statute book.
Greg Clark
I am grateful for my hon. Friend’s intervention. I always take praise when it comes—especially from him, as he is often very flinty in issuing it. I do not think that what I said amounts to a concession, because it has always been our intention to reflect the spirit of his suggestion.
Let me make an important point on the process that my hon. Friend describes. In his amendments, he does not have a time period in mind for the exercise of the power.
Greg Clark
I have one minute left, so the right hon. Gentleman will understand that I cannot give way. The proposal that there be five years to implement the action has been discussed with the regulators; it reflects best regulatory practice. In point of fact, if there were no time limit in the Bill, which is what one of the amendments tabled by my hon. Friend would ensure, that would render the use of the power without limit, so I think we are in the same territory—the right territory—in wanting to specify that there should be a limit. It should be clearly understood that there is a limit to the use of the electrification powers, in terms of a timetable, and a deadline for action. Of course it is right that the regulators should advise on the appropriate use of that. In terms of the amendment—
Greg Clark
It is a pleasure to respond to this important debate. First, I should like to correct a grievous omission in my previous remarks. During my paean to the members of the parliamentary commission, I neglected to include my hon. Friend the Member for Wyre Forest (Mark Garnier), who was behind me and therefore was invisible to me. He has been in the Chamber throughout this debate and his contribution is no less sterling and distinguished than those of the other parliamentary commission members whom I did mention. I apologise.
The new clause requires the Treasury to set a leverage target for the
“overall leverage of the…financial system”.
I welcome what I think is the spirit of the new clause. Problems with risk weights clearly contributed to the financial crisis; the right hon. Member for Wolverhampton South East (Mr McFadden) made that point. Those problems must be addressed if risk weights are to have a place in the regulatory regime of the future.
I also share the concerns raised by the parliamentary commission about the importance of having a robust minimum leverage ratio required by the regulator. As my right hon. Friend the Member for Wokingham (Mr Redwood) said, there is clearly support among Members on both sides of the House for that notion. We have consistently argued for a binding minimum leverage ratio to be implemented internationally, to supplement the risk-weighting requirements.
As has been said, the Basel III standard of 3% will come into force in 2018, following an observation period beforehand and a final calibration of the leverage ratio in 2017. Of course, national supervisors must be equipped to respond to new risks as they emerge in banks and financial markets. The PRA, in this country, is empowered to ensure that banks’ risk models are appropriately conservative and, where necessary, to set higher capital requirements.
As every hon. Member will be aware, the PRA has recently announced that major UK banks need to set out and implement plans to improve their leverage ratios and so to migrate further towards the new Basel III standard even now. The FPC has already been given a number of directive powers, including a counter-cyclical capital buffer and the power to set time-varying sectoral capital requirements. The Government have also made clear their intention to give the FPC the power to vary through time the baseline leverage ratio requirement, always subject to its never being below the requirement determined by Basel III.
Let me address the new clause, in whose support the hon. Member for Nottingham East (Chris Leslie) spoke. The first thing to say is that it requires the Treasury to give the Bank of England a target for the overall leverage of the UK’s financial system; I think I understand the hon. Gentleman correctly when I see an allusion to the inflation target perhaps given to the Bank of England. I have to say, though, that that pulls in the opposite direction to the parliamentary commission’s recommendation, which calls for the FPC—in other words, the Bank of England—to be given the power to determine leverage ratios. In its first and final reports, it noted that
“the leverage ratio is a complex and technical decision best made by the regulator and it certainly should not be made by politicians.”
The new clause cuts across the views of the parliamentary commission, if delivering that recommendation were its intention.
Moreover, the new clause would require a target for the overall leverage of the UK’s financial system. Again, this is not quite the right approach. Banks should certainly be subject to individual leverage requirements to ensure that they have sufficient capital to absorb losses, but an average leverage ratio for the entire financial sector could serve to conceal the risks in particular institutions. It would seem perverse to require the Treasury to set a target for overall leverage and so create an onus on the FPC to allow some banks to remain highly leveraged as long as this is offset by smaller or more conservative institutions running with less leverage. A system-wide average, or net, leverage ratio might be of little value in tackling excesses of leverage, and it could be positively counter-productive.
Another feature of the new clause would be dangerous. The proposal for a target requires the FPC to pursue action to meet the target. It is suggested that the FPC take action to increase leverage in the system when it is less than the target level that the Government are required to set. I am not clear how or why the FPC would want to do that. The target approach seems to me to be wrong. Financial stability is not like price stability; it cannot be boiled down to a single, symmetrical target. As a recent Bank of England paper concluded:
“No single set of indicators can ever provide a perfect guide to systemic risks, or to the appropriate policy responses…Judgement will, therefore, play a material role in all FPC decisions and policy will not be mechanically tied to any specific set of indicators.”
We need to apply caution in any consideration of enshrining in law a system that focuses on one target for systematic financial stability. Goodhart’s law is relevant in these circumstances:
“When a measure becomes a target, it ceases to be a good measure.”
I therefore hope that on reflection the hon. Gentleman will withdraw his new clause.
Chris Leslie
I am grateful for the quality of the debate that has taken place in the short time we have had.
I am glad that we tabled this new clause on leverage, because otherwise we would not have had the opportunity to start to focus on the issue. I understand what the right hon. Member for Wokingham (Mr Redwood) said about getting the balance right and the care and caution that are needed as we move towards what we want, which is a better, safer level of leverage within the overall system. It is worth reiterating that we want to do this only to make sure that banks do not over-extend themselves and become so lopsided that when they topple over they are not able to absorb the losses should things take a turn for the worse.
I am particularly grateful for the contribution from my right hon. Friend the Member for Wolverhampton South East (Mr McFadden), who rightly pointed out that saying that we need action either on leverage or on getting lending going into the real economy does not represent opposite poles of the argument. It is not as clear as that. Some are arguing not only that the extra capital could be lent out but, as he said, that compensation ratios, as they are sometimes known—the remuneration levels within banks—could also be tackled. Given that we are the major financial centre worldwide, we should not just be leaving this to international regulators. We certainly should not be leaving it to the European Union completely to decide these things for us. We have a duty in the UK to make sure that we think these things through properly and spend much more time on them.
Mr Ruffley
I shall make two brief points. First, I congratulate my hon. Friend the Member for North East Cambridgeshire (Stephen Barclay) on drawing attention to something very important to the House—that it is this Government who have got behind the idea that there should be, in certain limited circumstances, a custodial sentence for breach of a new criminal offence. It is worth reminding ourselves that although the crash occurred in autumn 2008, the then Labour Government had 2009 and the first five months of 2010 to do something about it, but it is this Government who have made their intentions clear regarding custodial sentences. For that, Ministers should be congratulated.
The second and final point is that we cannot let this debate pass without reminding ourselves of the fact that existing criminal law was not being enforced in relation to the allegations of LIBOR rigging. The Parliamentary Commission on Banking Standards came into existence as a direct result of the allegations about rigging the LIBOR market. The custodial sentences available for those activities were not seriously taken on board by the Serious Fraud Office, for in 2011, it is said, the SFO inquired into whether existing criminal offences had been committed by those manipulating the LIBOR market, and concluded that they had not.
This time last year the Chancellor of the Exchequer told the House that he would ask the Serious Fraud Office to take another look to see whether criminal offences had been committed under existing criminal law. Leading counsel advised me and I said in the Chamber that there were, on the face of it, breaches of section 2 of the Theft Act 1968 through false accounting, the common law offence of conspiracy to defraud, breach of the Proceeds of Crime Act 2002, and possibly even breaches under the Fraud Act 2006.
Although the Minister clearly cannot intervene in investigations by the Serious Fraud Office because prosecutorial authorities are quite separate from the Executive, which has always been the case and will, I am sure, continue to be the case for centuries to come, it would be useful for him to indicate what the state of play is in relation to breaches of existing criminal law that might give rise to custodial sentences in the case of those engaged in LIBOR rigging.
Greg Clark
It is a pleasure to respond to this well-informed debate. I start by welcoming the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) to the Opposition Dispatch Box. She proved rather more persuasive in Committee than her hon. Friend the Member for Nottingham East (Chris Leslie), as I was able to accept at least one of her amendments. I think that it was a single word, but I am sure that it was an excellent one, historically so.
We are considering a large group of amendments, as has been evident in the range of the debate, and it has given us the opportunity to have an initial discussion of the parliamentary commission’s recommendations on questions of individual accountability and corporate governance. We agree with the recommendations that have been made. The commission’s report has at its heart the essential point that the UK banking system depends totally on the trust it commands. If it cannot count on the trust of its customers, it cannot truly serve businesses and people, which is the only purpose of banking. If it cannot count on the trust of businesses and people in this country, it cannot possibly sustain a reputation for international pre-eminence, which is what we all want to see.
The commission’s conclusions are comprehensive. Never again must directors of banks be able to preside expensively over failure or misconduct and then claim that they simply did not know what was going on. Never again must banks simply, as the commission sees it, contract out ethical judgments to the regulator. Never again must senior bankers be able to make one-way bets with the money of ordinary working people and walk away financially unscathed, leaving taxpayers with a crippling bill.
Specifically, we will enact the new senior persons regime that the commission proposes and introduce new banking standards rules to require high standards among all staff. We will introduce the new criminal offence of reckless misconduct that has been suggested for senior bankers. We will reverse the burden of proof so that the bosses are held accountable for breaches within their areas of responsibility. We will work with the regulators to implement the commission’s proposals to defer bonuses for up to 10 years and to enable 100% clawback of bonuses where banks receive state aid. We will ask the regulators to implement the commission’s recommendations on corporate governance to ensure that firms have the correct systems in place to identify risks and maintain standards of ethics. As I have said in earlier debates, where legislation is required, we will propose amendments in the autumn in the other place.
Let me deal specifically with today’s amendments and new clauses. New clause 2 was ably moved by my hon. Friend the Member for North East Cambridgeshire (Stephen Barclay). In a powerful speech delivered without notes, he explained that the new clause seeks to reverse the burden of proof when taking action against a senior person where there are regulatory failings by a firm in that person’s area of responsibility. As the hon. Member for Edmonton (Mr Love) pointed out, that is one of the parliamentary commission’s recommendations, but I think that my hon. Friend campaigned for that even before the commission reported, drawing on his own experience as a regulator. I say to the hon. Member for Kilmarnock and Loudoun that my hon. Friend needs no tawdry trinket of the Government accepting his amendment to be lionised in this House for the contribution he has made. We very much accept the thrust of his recommendation and that of the parliamentary commission.
The PCBS put it this way:
“Senior managers of banks will no longer be able to hide behind an accountability firewall, where they are too distant from the consequences of their responsibilities to be held directly accountable when things go wrong.”
At present, the regulator has to be able to show that the person knew what was going on. That cannot be right. It means that while regulators can take action against the firm’s junior employees who might be implicated, they are unable to pin responsibility on someone higher up the chain just because, as the Commission put it, the e-mail trail goes cold when it reaches their level of management. I will take on board the case my hon. Friend made on whether it is necessary to require the corporate offence to be committed, and we will reflect on that before the Bill goes to the Lords.
New clause 3 reproduces a new clause that was considered in Committee, when I predicted that the parliamentary commission would have something to say about the approved persons regime and a code of conduct. My predictions proved uncannily accurate. The commission’s recommendation that the approved persons regime should be replaced is, of course, a major feature of its report, which we accept. We will bring forward amendments to introduce the new senior persons regime to replace FSMA’s approved persons regime. As the commission recommends, the new regime will ensure that key responsibilities within banks are assigned to specific individuals who are aware of those responsibilities and have formally accepted them. As part of the regime, we will implement the commission’s more detailed recommendations, including reversing the burden of proof, which I have just mentioned, and allowing regulators to make the approval of senior persons subject to conditions and time limits.
The regulators will also be able to make rules about the conduct of senior persons, replacing the current system of statements of principle and codes of practice. The new clauses will put in place new arrangements for regulating the conduct of individuals who are not covered by the senior persons regime. The arrangements will include provisions to allow the regulators to make rules covering financial services employees whose appointments are not subject to regulatory pre-approval.
My hon. Friend the Member for Bedford (Richard Fuller) is absolutely right: it is plausible that the deficiencies in the approved persons regime may affect not just the banking sector but other parts of the financial services industry. The relevant FSMA provisions apply to all parts of the sector, so it might be operationally simpler to apply the regime to the industry as a whole. The Government will consider, with the regulators, whether the relevant provisions should allow for the wider application that my hon. Friend has in mind.
As the hon. Member for Kilmarnock and Loudoun said, new clause 3 would not deliver the extent of the reforms that the Parliamentary Commission on Banking Standards is seeking. On that basis, I hope that the hon. Lady will withdraw the new clause.
New clause 4 also reflects a debate that we had in Committee. The commission did not recommend the introduction of a fiduciary duty or duty of care, but it did recommend an alternative route. It said that the Department for Business, Innovation and Skills should consult on changing the duties of the directors of ring-fenced banks, to prioritise the safety and soundness of the firm first, over the interests of shareholders.
The Government strongly believe that bank directors must maintain an awareness of their responsibility to safeguard the security and stability of the firm. Changes that will support a focus on stability and soundness—for example, giving directors specific duties under the proposed senior persons regime—will help. We will indeed consult on whether changing directors’ duties will help further to accomplish those intentions. I hope that that will reassure the hon. Lady.
A duty of care specifically towards customers across the financial sector is difficult to make sense of, as we have previously discussed. Would it mean, for example, that a bank had a duty of care not just to its own customers and those of its competitors but, as the proposed duty is to customers across the financial sector, the customers of an insurance company with no relevance to the firm itself? The new clause has been tabled to confirm the Government’s intentions on the wider duties of banks and their directors, and I hope that the hon. Lady is satisfied.
New clause 5 refers to remuneration. Of course, the Government have already taken significant steps in that regard; under the remuneration code, large parts of bonuses must be deferred and paid in shares, and cash bonuses must be limited. However, it is a question of not just the quantum of bonuses, but how they are decided in the first place. Next year, shareholders will have a binding vote on executive pay.
We strongly support the proposals made by the parliamentary commission. In particular, the commission has recommended that the regulator should have the power to require a substantial part of remuneration to be deferred for up to 10 years when that is necessary for effective long-term risk management. There is a subtle but critical distinction between the commission’s recommendation and the new clause. The power should be with the regulator to determine whether and in what circumstances to require extended deferral; my hon. Friend the Member for North East Cambridgeshire made that point.
The commission has commented that no single deferral period is appropriate but that it should be determined in accordance with the nature of each business and the risks and activities of the employee in question. The Government agree and will ask the PRA to consider the powers that it has to extend deferral periods as part of its consultation on implementing the commission’s proposals. I hope that that commitment will reassure the hon. Member for Kilmarnock and Loudoun and that she will not feel the need to press the matter further.
New clause 7 deals with protections for whistleblowers. As the hon. Lady said, we debated this in Committee, so I do no want to detain the House further today other than to reassure her that, as I explained on that occasion, these provisions already exist in legislation. Disclosures about criminal offences are already covered by the Employment Rights Act 1996. Disclosures about regulatory breaches are covered by FSMA. This proposal would cover, for example, disclosures about the breaches of the regulatory requirements in relation to the ring-fence. I assume that the second requirement is designed to give effect to the commission’s proposal that a non-executive board member, preferably the chairman, should be given specific responsibility under the senior persons regime. Again, the powers to enact this are already available to the regulator under FSMA, and we have indicated that we support the thrust of these recommendations.
Greg Clark
This summer.
New clause 11 concerns the new criminal offence of reckless misconduct recommended by the parliamentary commissioner. As we have already announced, we agree with the commission’s recommendations and will over the summer draft amendments to create such a legally watertight criminal offence, including compliance with the European convention on human rights. As my hon. Friend the Member for Bedford suggested, the commission did not recommend retrospectivity, and these provisions are intended to enact its recommendations. I hope that he will understand that.
My hon. Friend the Member for Bury St Edmunds (Mr Ruffley) was absolutely right to point out that it was of course this Government who first raised the possibility of criminal sanctions for managerial misconduct in July last year. We are grateful to the commission for its extensive work. We will follow its advice on misconduct committed by persons covered by the regime that is being set up. The commission noted the legal challenges involved in mounting a successful prosecution, but we absolutely agree that the creation of this offence should be justified by the signal that it sends and the potential deterrent effects it can have. We have to make it clear that reckless behaviour by those in charge of our banks cannot be tolerated.
New clause 13 proposes to create a new financial services crime unit. A similar amendment was discussed at some length in Committee. I can assure hon. Members that the Government fully recognise the importance of tackling financial crime. There is to be a dedicated command within the new National Crime Agency responsible for directing the national response to economic and financial crimes. The economic crime command will have a clear remit to reduce the threat from economic and financial crimes, working collaboratively across the different sectors. Substantial progress has already been made in establishing the National Crime Agency and driving early operational success against criminals who seek to engage in economic and financial crimes.
The Government accept the broad recommendations of the parliamentary commission on each of these matters. We will be acting quickly to take the opportunity afforded by this Bill to make amendments that are legally watertight and likely to pass into law in the early part of next year, just six months after the parliamentary commission’s extensive report. In acting in this way, we are keeping faith not only with the recommendations of the parliamentary commission but with the urgency of the need to enact these reforms, which I commend to the House.
Stephen Barclay
We have had a full and constructive debate that builds on the cross-party nature of the work of the banking commission. That has been reflected in the consensual tone of hon. Members’ speeches. I am very reassured by the comments of my right hon. Friend the Minister about the Government’s willingness to look at the outcome that new clause 2 seeks, which is in line with the comments made by Members across the House. For that reason, I will not press the new clause to a vote but ask leave to withdraw it.
Clause, by leave, withdrawn.
New Clause 4
Duty of Care
‘At all times when carrying out core activities a ring-fenced body shall—
(a) be subject to a fiduciary duty towards its customers in the operation of core services; and
(b) be subject to a duty of care towards it customers across the financial services sector.’.—(Cathy Jamieson.)
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Finance Bill
Greg Clark Excerpts(11 years, 4 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Greg Clark)
I think that the hon. Gentleman will find that I went to a comprehensive school in Middlesbrough, not to Eton.
Geraint Davies
I am sorry that the right hon. Gentleman no longer has any school friends. Those who have abandoned the communities from which they came have proposed legislation to punish the poorest and reward the richest, which is a great shame. It is not too late for the Minister to think again about what is fair and right in distributive economics.
The reality is that the marginal impact of this change on the competitiveness of the City of London is very small indeed; it is not a serious argument. I can imagine the greed-fuelled lobbyists who come here on behalf of the City to demand an extra £145 million being the sort of people who say, “Oh, well, we have got to give these people more money, because otherwise they will leave the country.” We have heard all that before. In any case, many of those individuals have all sorts of tax havens, about which the Government pay lip service to investigating.
At the same time as we hear alleged concerns about those rich people avoiding tax, the Government say to them, “I’ll tell you what; here’s another 5p off the income tax.” People sometimes ask why there has been a 64% increase in bonuses this year. Could it be because the Government have provoked it, as people move their income from a tax year where they pay 50p to a tax year where they pay 45p? It was completely predictable, and it was even factored into the Treasury figures in the form of behavioural changes. The perverse thing was to hear the argument, “Oh, well, we are going to move to 45p instead of 50p because more money can be raised that way. Look, we are going to encourage our mates to move all their money to save tax”—[Interruption.] That proves that it is an absolute farce.
Geraint Davies
It is interesting to see that the hon. Gentleman has changed from his red braces to blue braces—and very nice, too! I obviously do not regard the whole City of London and the banking community as parasites, as they are a major engine for exports, growth and productivity in Britain. The issue is about managed capitalism and what is the acceptable face of capitalism. It seems to me that many people on the hon. Gentleman’s side are not at all concerned, as more and more money is given to people who have already acquired enormous pots of money.
The distribution of income has shifted massively since 2010. We have seen the incomes of a large number of people in the top 10% growing by 5.5% each year over the past two years—at a time when most people have had pay cuts or pay freezes, certainly in the public sector, or lost their jobs. We have heard the Government boasting—this is their latest creative thought—that an extra 1.2 million people are in jobs, yet that has been contradicted by the Office for National Statistics. Even if there were another million extra people in work, with no extra growth and no extra output in the economy, productivity is going down and things are not going well. Nevertheless, the answer from the Government is still to give more and more money to the richest people and less to the poorest, and that is supposed to get us out of the mess, but it does not.
This stamp duty on transactions is the tip of an iceberg. I am sorry, Mr Deputy Speaker, that I have come on to describe the entire iceberg rather than the tip at the top, which we are talking about. It is important for people to stand up and be counted on this issue. There is no justification for these extra few buckets of money being thrown in the direction of those who have most. There is a great need for a more balanced growth strategy, whereby there is investment in infrastructure across the piece and where the opportunities for tax and spend are more fairly spread, so that together we can build a future that works and a future that cares—a one-nation Britain of which we can all be proud. I do not think that this suggestion makes sense, so I am very much in favour of putting a halt to this £145 million handout to people who are already rich, as it will not make any appreciable difference to the competitiveness of the City of London.
Greg Clark
This has been an astonishing debate. I have a lot of time for the hon. Member for Nottingham East (Chris Leslie), but he must have been pretty dozy in recent months if he thinks that this is a Budget measure that has emerged by stealth having hitherto been hidden from view, because it was given considerable prominence in the Chancellor’s Budget speech. The Chancellor said, in the Chamber,
“I also want Britain to be the place where people raise money and invest. Financial services are about much more than banking. In places such as Edinburgh and London we have a world-beating asset management industry, but they are losing business to other places in Europe. We act now with a package of measures to reverse that decline, and we will abolish the schedule 19 tax, which is payable only by UK-domiciled funds.”—[Official Report, 20 March 2013; Vol. 560, c. 939.]
However, the measure did not only feature in the Chancellor’s Budget speech. It was the subject of a press conference, and received quite a lot of publicity on the money pages. I should have thought that the shadow Financial Secretary would be aware of that, and would know what a good reception the proposal was given in the very important financial services industry.
Many misconceptions need to be cleared up. The hon. Member for Swansea West (Geraint Davies) talked about banking, but this measure has nothing whatever to do with banking. A regrettable consequence of what has happened in recent years is that the financial services sector as a whole has too often been equated with the banking industry and associated with its frequently catastrophic misjudgments and regulatory failures, and people have been tainted unfairly by that association. Just as there are hundreds of thousands of ordinary working people employed by banks who bear no responsibility for—indeed, are sickened by—some of the misdeeds that were committed by those at the top before and during the crisis, there are people who work hard for a living elsewhere in financial services, who contribute to our national income, the taxes that pay for our public services and our foreign exchange earnings, and who have certainly not put taxpayers' funds at risk in the way that characterised the worst excesses of the banking industry.
The investment management industry in this country is a case in point. It employs 30,000 people across the United Kingdom, mostly in areas such as administration, IT and legal services. At least 10,000 of these people, who are directly employed in the sector—I am not talking about those who are ancillary to it—are based outside London and the south-east. A large number of them are concentrated in Scotland—I should have thought that the hon. Member for Dumfries and Galloway (Mr Brown) would be aware of that—and in the north-west and the north midlands. In fact, 12% of the asset management industry is in Scotland. I am amazed that the hon. Member for Nottingham East—not just as shadow Financial Secretary, but as a Nottingham Member of Parliament—did not recognise the important contribution made by investment management in his city. He should be aware that the professional services sector in Nottingham is an important component of the city’s economy.
Chris Leslie
The Financial Secretary is characterising the Opposition as if we were somehow denigrating the investment management community. Far from it. We are simply asking this question: where is the hardship that justifies £150 million of generosity from the taxpayer at this point in time?
Greg Clark
I shall come to that. The hon. Gentleman professed not to recognise the problem that existed. As I have said, given the position that he enjoys, I would expect him to be aware of the long-standing damage to the competitiveness of an industry that employs people in his constituency. There are some very distinguished firms in his constituency. The Nottingham office of Brewin Dolphin has been there for 150 years, and I think that it is a vital component of our regional economy. These are valuable jobs, and they exist throughout the country.
The British investment management industry has a strong reputation internationally, yet—here we come to the reason for the reform—since 2000, countries such as Luxembourg and Ireland have increased their market share of domiciled funds dramatically in comparison with the United Kingdom. In fact, the UK’s share of EU domiciled funds has dwindled to less than half that of Luxembourg and has been overtaken by Ireland.
What is the reason for that? It cannot be because the reputation of British fund management has declined, as many of the funds domiciled elsewhere in Europe are in fact managed remotely by fund managers within the UK. It cannot be because the fundamental competitiveness of UK financial services has declined, because we have maintained, and very often increased, our market share in other parts of the financial services industry. For example, twice as many euros are traded in the UK than in the entire eurozone. One of the principal reasons for this competitive decline is a consequence—unintended, I am sure—of a change in the tax system that was made in 1999, and whose effect everyone agrees has been deleterious.
Schedule 19 to the Finance Act 1999 imposed a special stamp duty reserve tax—SDRT—on the investment management industry when fund managers match investors leaving a fund and surrendering their units with those joining the fund and purchasing the units. Because the fund manager is not buying any UK shares, no stamp duty reserve tax is payable, but schedule 19 imposes a tax of 0.5% on the fund manager, as if the shares have been bought. Of course, whenever a fund manager buys UK shares within a fund, full stamp duty is paid. As well as being complex and burdensome—requiring frequent tax calculations and returns to be sent to HMRC—there is a major flaw with schedule 19. Anyone who does not wish to pay schedule 19 can simply invest in otherwise identical funds, have them managed by a UK fund manager, but have them domiciled elsewhere, and that is what has happened in recent years. Such a non-UK fund could hold exactly the same equities as a UK fund, and that is happening in large numbers. It could be managed by a UK fund manager, but the investor would—by investing in a fund in Luxembourg or Ireland, for instance—not need to pay schedule 19.
Why should this matter? [Interruption.] I think the shadow Chief Secretary should take an interest, since he was not aware of the problem to which this is the solution. What are the advantages of having funds domiciled in the UK? First, there are advantages in terms of jobs, particularly in the regional economy. While fund managers can operate from anywhere, most jobs in fund management come from ancillary services and the professional services associated with them. These are high-value jobs in IT, legal services and accountancy support, and they are typically in the jurisdictions in which the funds are domiciled.
Secondly, there are advantages in terms of tax revenue. Although schedule 19 imposes SDRT on fund managers matching investors for UK funds, the Exchequer would be advantaged by having more funds domiciled in the UK, as that would involve the paying of income tax, national insurance, VAT, business rates and other taxes by people who would be employed here, rather than in Luxembourg, Ireland and other countries, and corporation tax by the companies supplying ancillary services.
Finally, who pays? It is pensioners who pay. Schedule 19 does not come out of the pay of fund managers. It is a cost of business that is invariably passed on to UK investors. It comes out of the returns and lessens the funds that are otherwise available.
Andrew Selous (South West Bedfordshire) (Con)
My right hon. Friend is making an excellent speech and I am listening with great interest. Is there not a further point in that, given that the Government have just started rolling out auto-enrolment, many lower paid workers across the country have a real interest in the health of the fund management industries for their pensions, and probably want their money managed in the UK rather than Luxembourg?
Greg Clark
My hon. Friend makes an excellent point. He is absolutely right. Already 81% of investors in UK funds are pension funds or insurers, meaning that people’s income in retirement is impaired and fewer funds are available for investment in the real economy. Two-thirds of individuals approaching retirement are contributing to a pension fund from where these charges are taken, and the introduction of automatic enrolment will mean that many more ordinary working people will be saving into a pension for the first time and will be affected.
So there is a double imperative to act now to correct this situation in which funds are moving from being domiciled by choice in this country to overseas. First, any continuing loss of competitiveness by the UK fund management industry risks destroying, possibly for ever, the critical mass and prominent global position that the industry has had. Secondly, we are on the cusp of a once-in-a-generation opportunity for the UK fund management industry, and, with it, the UK economy, because in July the EU’s alternative investment fund managers directive comes into force, creating a much more effective single market across Europe in fund management. It is estimated that €250 billion of funds may be available for the UK, and other competitors, to play host to. That is to say nothing of the significant growth shown in the emerging economies, where a burgeoning middle class is looking to make investments for which the EU is an attractive home.
Greg Clark
I want to conclude now. I hope that the House will welcome, as commentators universally have, a significant boost to the competitiveness of a very important sector for jobs in every part of the United Kingdom. I hope that, having had the explanation, the hon. Member for Nottingham East will feel willing to withdraw the new clause and await the formal consultation, which will accompany next year’s Finance Bill.
Chris Leslie
You have to hand it to the Financial Secretary, because he managed to keep a straight face throughout that, but I can almost hear the thumping of those trading desks across the City of London as people are delighted at the largesse of a £150 million tax giveaway to those poor, downtrodden investment managers, who really need that helping hand just now. That £150 million is the same amount as the Government saved when they abolished the health in pregnancy grant—that was not a priority; making sure that they abolish stamp duty reserve tax on unit trust transactions is where that £150 million had to go. That is completely crazy. They cannot even agree to a distributional analysis because they know that it is the wealthiest in the society who benefit from this. Therefore, we shall be pushing new clause 11 to a Division.
Question put, That the clause be read a Second time.
ECOFIN
Greg Clark Excerpts(11 years, 4 months ago)
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The Financial Secretary to the Treasury (Greg Clark)
A meeting of the Economic and Financial Affairs Council was held in Luxembourg on 21 June 2013 and in Brussels on 26 June 2013.
At the meeting on 26 June Ministers discussed the following items:
Contribution to the European Council meeting on 27-28 June 2013—European semester 2013
Council approved the fiscal and economic elements of country specific recommendations (CSRs) for 23 member states and also a recommendation on the economic policies for the euro area as a whole. The UK’s CSRs are broadly in line with domestic reform priorities. The Council recommendations are non-binding and there are no sanctions for non-compliance. Additionally, Council approved Council conclusions on Croatia, which joined the EU on 1 July.
Implementation of the stability and growth pact
Council adopted 15 Council decisions and recommendations on the excessive deficit procedure.
Commission/European Investment Bank (EIB) report to the European Council
The Commission/EIB presented their joint report “Increasing lending to the economy: implementing the EIB capital increase and joint Commission-EIB initiatives”. The Commission/EIB then reported to the June European Council on the implementation of the EIB’s capital increase.
Financial assistance to Ireland and Portugal
Council adopted two Council implementing decisions amending previous implementing decisions on granting Union financial assistance to Ireland and Portugal.
ECB/Commission convergence reports and enlargement of the euro area
Euro area member states adopted a recommendation in favour of a proposal to allow Latvia to join the currency union on 1 January 2014. The UK does not have a vote on the decision by EU member states to adopt the euro. Council also approved the text of a letter for the President of the Council to send to the European Council on the outcome of its discussion.
Development of policy options in the climate/energy field—follow-up to the May European Council
Following May European Council, at the request of Poland, there was a brief exchange of views on an enhanced role for ECOFIN in the debate on climate change and energy policy, as they are integral to growth, competitiveness and public finances. The presidency concluded that it would reflect with the incoming Lithuanian presidency, on the next steps for taking this forward.
ECOFIN report to the European Council on tax issues
ECOFIN endorsed this six-monthly report which ECOFIN forwards on to the European Council, summarising the progress made under each presidency on tax issues.
Report by Finance Ministers on tax issues in the framework of the euro-plus pact
ECOFIN endorsed this six-monthly report which summarises progress made under each presidency on tax issues in relation to framework of the euro-plus pact.
Proposal for a Council directive amending directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation
The Commission presented a proposal on amending the existing administrative co-operation directive. The UK could not support any aspects of the proposal that conflict with or undermine the embedding of a new global standard in the automatic exchange of information. The presidency concluded by noting that the working group will start technical work on this in July.
Banking recovery and resolution
Council held an exchange of views, with the aim of enabling the presidency to find an acceptable compromise on the banking resolution and recovery directive. However, the Council agreed to meet again on 26 June 2013 to resume discussion.
AOB: Update on legislative files
The presidency updated Ministers on the state of play of the deposit guarantee schemes directive.
At the meeting on 26 June 2013 Ministers discussed the following item:
Banking recovery and resolution
Council reached a general approach on the banking recovery and resolution directive. The compromise establishes that, through the development of a credible bail-in tool, shareholders and creditors will be first in line to bear losses when a bank fails. Insured depositors will be protected in any bank failure and the UK bank levy can act as the UK’s resolution financing arrangement. Trilogue discussions with the European Parliament and the Commission, yet to be timetabled, will commence under the Lithuanian presidency.
Finance Bill
Greg Clark Excerpts(11 years, 4 months ago)
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The Financial Secretary to the Treasury (Greg Clark)
I beg to move, That the clause be read a Second time.
New clause 6 is a technical amendment designed to give a belt-and-braces protection to prevent any possible attempt to avoid the incidence of the bank levy on the part of banks in a particular respect. Paragraph 70 of schedule 19 of the Finance Act 2011 specifies that high-quality liquid assets held by banks are not liable for the levy. This is to make sure that there is no disincentive for banks to hold assets that give liquidity protection in the event of a crisis. By their nature, the return on such assets is small, and without relief the bank levy would reduce the margins, making it uneconomic to hold such assets. It was always envisaged that the definition of assets covered would be the same as that of the high-quality liquid assets recognised by the regulator —now the Prudential Regulation Authority.
It has come to the attention of HMRC that some banks were contemplating arguing that a wider definition of assets might apply, against the intention of the original legislation. In fact, the Government do not believe that the current legislation can be interpreted in this wider way, and HMRC could and would make a legal challenge against any bank engaging in this. However, such a challenge would take some time to be heard, and in the meantime other banks could follow suit and attempt to use a wider interpretation. I hope that the House will agree that the most straightforward way to proceed is to amend the relevant Act to put the matter beyond doubt by defining high-quality liquid assets explicitly as
“assets that are eligible for inclusion in a firm’s regulatory liquid assets buffer”.
It is right that the new clause should be applicable from the introduction of the bank levy in 2011, as the Government have been clear from the outset that this was the intention. For example, the Government’s consultation document in October 2010 stated that the deduction would be for those assets
“which meet the FSA definition of high quality liquid assets for the purposes of inclusion in the liquidity buffer”.
I hope that the House will agree that it is right to move quickly to close the scintilla of a possibility that ingenious lawyers could help any bank to avoid paying its full contribution to the levy.
Chris Leslie
It is good to see the Minister popping up in the debates on the Finance Bill for the first time, at the eleventh hour. [Interruption.] That is not true; I apologise. He took part in Committee of the whole House, although he did not do the heavy lifting in Committee upstairs. Perhaps it seems now as though it never happened.
This is an interesting little Government new clause. Because of the hour, it would not be surprising if hon. Members’ eyes glazed over and they did not necessarily spot what is going on, but this is an admission from the Government that their bank levy has not been successful. In fact, they are having retrospectively to adjust the rules around the bank levy to make sure that they can net in the supposed £2.5 billion of revenue that the Prime Minister, no less, promised it would yield.
Let us recall the facts about the bank levy. In the last financial year, 2012-13, the bank levy did not bring in £2.5 billion, it did not even bring in £2 billion—it brought in a pathetic £1.6 billion. We should not forget that that does not include the cut in corporation tax that the Chief Secretary and others collaborating in the coalition gave away to the banks at that time. In other words, it raised a net £1.4 billion—a shortfall of over £1 billion on the amount that the Government said that it was supposed to produce. My hon. Friend the Member for Bassetlaw (John Mann), and others in the Chamber, could certainly think of ways in which £1 billion of revenue could be put to good use. That was the giveaway that the design of the bank levy set in train for the banks. It raised not £2.5 billion but just £1.4 billion in the last financial year.
It is worse than that, because in the previous financial year, 2011-12, the bank levy raised just £1.8 billion. Deducting from that the £100 million in corporation tax, it raised a net £1.7 billion. The levy has not brought in the money it should have. The Government said that it would raise £2.5 billion, but in total it has brought in £1.9 billion—nearly £2 billion—which is less than they said it would raise.
If any other Department promised to bring in £5 billion over those two financial years but raised only £3 billion, there should and would be outrage. However, given that the Treasury hide a lot of these issues in the complex lexicon of bank taxation, many would be forgiven for not spotting that this is an absolute scandal.
Greg Clark
I am glad to respond to this short debate.
I do not think that the hon. Member for Nottingham East (Chris Leslie) listened to my remarks earlier, in which I said that the purpose of the new clause was not to raise additional revenue, but to protect the assumptions that were there from the outset. It was always envisaged, going right back to the consultation documents that the Government published before introducing the levy, that the deduction had to be in line with the regulatory requirement. It was a rumour that legal advice was being taken on whether liquid assets could be deducted that went beyond that regulatory buffer which caused us, in anticipation, to close off that possibility and to emphasise that this definition was always what was intended and that there should be no possibility of wriggling out of it. I hope he would acknowledge that that is sensible.
The new clause is not one of the measures that we are taking to increase the yield of the levy. That is dealt with elsewhere. It will protect the yield that was always assumed would be made by the levy. As the hon. Gentleman raises the question of the yield, he will recall our debates in Committee of the whole House on the new clauses that I moved to increase the rate of the bank levy, reflecting our commitment to raise £2.5 billion from it. He will know that in the Budget earlier this year, the Office for Budget Responsibility made its assessments on the basis of the proposed increase in the levy that we have set out. This year, rather than raising £2.5 billion, the OBR forecasts that we will raise £2.7 billion. Next year and for every subsequent year, the OBR estimates that the levy will raise £2.9 billion. That means that we will recoup the under-collection of the bank levy. It is a new levy and it is not always possible to know exactly what such a levy will raise. It has always been clear that the Government intend it to raise at least £2.5 billion. The OBR’s central estimate is that we will more than recoup the requirement that we set out.
Chris Leslie
The Minister has said that there will be a £200 million increase above the £2.5 billion for this financial year. However, we have established that the Government are £2 billion behind the curve. There is £2 billion to be recouped. The Minister is culpable for the loss of significant sums of money. He has not given any commitments on that. It would be wrong if he did not go back to the drawing board and think again about this issue.
Greg Clark
Our commitment is clear that we will raise £2.5 billion a year. The amendments that we have made to the Bill will do precisely that. We have introduced a permanent bank levy, in contrast to the one-off tax that the Labour party imposed on the banks. During 13 years in government, the only bank levy that the Labour party introduced was, in effect, a levy by the banks on the taxpayer. This levy is the opposite of that: the taxpayer is benefiting from revenue from the banks.
It is right that we target the £2.5 billion yield that we have always had in mind. In addition, when we spot opportunities that might be taken to avoid the levy, we should close them. That is what the new clause does.
Question put and agreed to.
New clause 6 accordingly read a Second time, and added to the Bill.
New Clause 12
Anti-abuse measures
‘(1) Her Majesty’s Revenue and Customs shall review the possibility of bringing forward measures as part of the GAAR to work in conjunction with other G8 countries to require multi-national companies to publish a single easily comparable statement of the amount of corporation tax they pay in the UK.
(2) The Chancellor of the Exchequer shall review the effect of incorporating a global standard for public registration of ownership of companies and trusts via a convention on tax transparency, including a requirement on companies to publish a single easily comparable statement of the amount of corporation tax they pay in the UK, on Treasury tax receipts.
(3) The Chancellor of the Exchequer shall consider, when counteracting tax advantages arising from tax arrangements that are abusive, what steps HM Government could take, working alongside developing country governments, to assess how UK companies could report their use of tax schemes that have an impact on developing countries, and how the UK could assist in the recovery of that tax.
(4) Within six months of the passage of Royal Assent, the Chancellor of the Exchequer shall place copies of the review in the House of Commons Library, and consult with G8 countries on their effectiveness.’.—(Catherine McKinnell.)
Brought up, and read the First time.
Question put, That the clause be read a Second time.
The House divided: Ayes 231, Noes 300.
Financial Policy Committee
Greg Clark Excerpts(11 years, 5 months ago)
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The Financial Secretary to the Treasury (Greg Clark)
The June 2013 “Financial Stability Report” of the Financial Policy Committee (FPC) and the FPC’s response to the Chancellor’s “Remit and Recommendations for the Financial Policy Committee” have today been laid before Parliament.
The “Financial Stability Report” includes the committee’s view of the current stability of the UK financial system, its assessment of the outlook for stability, a summary of the activities of the committee over the previous five months, and any new policy decisions by the committee by way of recommendations and directions.
The report forms a key part of the accountability mechanism for the FPC under the Bank of England Act 1998 as amended by the Financial Services Act 2012.
On 30 April 2013, the Chancellor wrote to the Governor of the Bank of England, as chair of the FPC, to specify the Government’s economic policy and to make recommendations to the committee concerning its objectives and functions.
The FPC is required to respond to the Treasury setting out any action it has taken or intends to take in accordance with the Treasury’s recommendations and, if it does not intend to act in accordance with a recommendation, why not.
Oral Answers to Questions
Greg Clark Excerpts(11 years, 5 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Steve McCabe (Birmingham, Selly Oak) (Lab)
9. What his Department’s estimate is of the likely level of public sector net debt as a share of GDP in 2015-16.
The Financial Secretary to the Treasury (Greg Clark)
Public sector net debt is forecast to be 85% of GDP in 2015-16, compared with 94% of GDP and accelerating had the policies of the previous Government continued to be pursued.
Steve McCabe
Let us hope that that estimate proves more reliable than previous efforts. In the interests of transparency, and given tomorrow’s comprehensive spending review, is the Minister now ready to admit that the national debt has risen from £828.7 billion to £1.19 trillion under his watch? If we eliminate the Royal Mail pension fund, as we have been advised to do, and the Bank of England gilts from quantitative easing, is it not true that borrowing in 2012-13 is up, and not down as the Chancellor told this Chamber?
Greg Clark
Like you, Mr Speaker, I take a great interest in the hon. Gentleman’s speeches in this House, and I know that he is deeply interested in fiscal policy. Since the beginning of the year, he has spoken 102 times on the subject of public spending cuts, but in each and every intervention he has opposed spending cuts. To cut the debt, we have to cut spending. He should learn that, and the Labour party should as well.
John Stevenson (Carlisle) (Con)
Does the Minister agree that one reason why our debt is such an issue is that the previous Government ran budget deficits in the good times as well as the bad and that the only way to reduce debt is to get the deficit down?
Greg Clark
My hon. Friend is absolutely right. We know that between 2001 and the time they left office, the previous Government trebled the national debt, yet when the shadow Chancellor was asked whether they were too profligate and had too much national debt, he said no. Labour’s new policy is the old policy: more spending, more borrowing, more debt. It is time they learned.
Chris Williamson (Derby North) (Lab)
The Prime Minister assured us that by 2015 the books would be balanced. Is it not a fact that as a consequence of the Chancellor’s abject economic failure we are now looking at the deficit reaching £96 billion by 2015? What does the Financial Secretary have to say about that?
Greg Clark
I have followed the hon. Gentleman’s interventions over time and he should be familiar, as we all are, with the study from the Institute for Fiscal Studies that made it very clear that if the policies of his party had continued, the debt would be £200 billion higher.
Mr Julian Brazier (Canterbury) (Con)
Does my right hon. Friend agree that if we look across the channel to countries such as Italy, we see what can easily happen if a Government lose control of public spending?
Greg Clark
The channel is not very far from my hon. Friend’s constituency, so it is possible to look across. He will know that the UK cut its structural deficit by more than any other G7 country over the past three years, whereas Labour racked up the largest structural deficit in the G7. The shadow Chancellor confirmed on Sunday that he would borrow more money in 2013, 2014 and 2015. Labour says it has a new policy, but it is the old policy—to borrow more and to go further into debt.
Andrew George (St Ives) (LD)
10. What progress he has made on implementing the housing market measures announced in Budget 2013.
ECOFIN
Greg Clark Excerpts(11 years, 5 months ago)
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The Financial Secretary to the Treasury (Greg Clark)
A meeting of the Economic and Financial Affairs Council will be held in Luxembourg on 21 June 2013. The following items are on the agenda to be discussed.
Contribution to the European Council meeting on 27-28 June 2013—European semester 2013
Council will consider the fiscal and economic elements of the country specific recommendations (CSRs) for member states. The UK’s CSRs are broadly in line with domestic reform priorities. The Council recommendations are non-binding and there are no sanctions for non-compliance.
Implementation of the stability and growth pact
Council will discuss the implementation of the Commission’s recommendations related to the excessive deficit procedure (EDP) for a number of member states.
Commission/European Investment Bank (EIB) report to the European Council
Following the March European Council, the Commission, together with the European Investment Bank, are expected to report to the June European Council on the implementation of the ElB’s capital increase. The Commission/EIB will present their initial findings to Council.
Financial assistance to Ireland and Portugal
Council will consider two Council implementing decisions amending previous implementing decisions on granting Union financial assistance to Ireland and Portugal.
ECB/Commission convergence reports and enlargement of the euro area
The euro area member states will make a recommendation to the Council on Latvia’s euro adoption. The UK does not have a vote on the decision by EU member states to adopt the euro. ECOFIN will also prepare a letter for the President of the Council to send to the European Council summarising discussions.
Development of policy options in the climate/energy field—follow up to the May European Council
At the request of Poland, Council will hold a state of play discussion on this item.
Code of conduct (business taxation)
As with each presidency, the Council will be asked to endorse conclusions accompanying the code of conduct group report on progress made under the Irish presidency.
ECOFIN report to the European Council on tax issues
This is the six-monthly report which ECOFIN forwards on to the European Council, summarising the progress made under each presidency on tax issues.
Report by Finance Ministers on tax issues in the framework of the euro plus pact
This is the six-monthly report which summarises progress made under each presidency on tax issues in relation to framework of the euro plus pact.
Proposal for a Council directive amending directive 2011/16/U as regards mandatory automatic exchange of information in the field of taxation
The Commission will present a proposal on amending the existing administrative co-operation directive. The UK will look to ensure that any amendments do not conflict with or undermine the embedding of a new global standard in the automatic exchange of tax information.
Banking recovery and resolution directive
The presidency will seek a general approach on the banking recovery and resolution directive (BRRD). The UK supports the concept of a strong framework in Europe for bank recovery and resolution and broadly welcomed the Commission’s proposal. It will be important that any agreement on the BRRD delivers a credible and useable bail-in tool. Domestically, the UK has already taken tough action to reform the banking sector. This includes implementing a new resolution regime, the largest bank levy in Europe and structural reforms to the banking sector (for example, the Vickers ring-fencing).
Any other business
The presidency intends to give a state of play update on the deposit guarantee schemes directive.
Financial Transaction Tax and Economic and Monetary Union
Greg Clark Excerpts(11 years, 5 months ago)
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Greg Clark
The US Government also have serious misgivings: the Treasury Secretary, Jack Lew, has said that, despite objections from financial and non-financial trade associations and Government officials in the United States, Canada, Australia, Japan, Korea and other countries regarding the global reach and negative impact of the proposal, their concerns remain unanswered.
[Official Report, 18 June 2013, Vol. 564, c. 790.]
Letter of correction from Greg Clark:
An error has been identified in the response provided during the Financial Transaction Tax and Economic and Monetary Union Debate.
The correct response should have been:
Greg Clark
The US Government also have serious misgivings and the Treasury Secretary, Jack Lew, has received a letter from Congressmen saying that, despite objections from financial and non-financial trade associations and Government officials in the United States, Canada, Australia, Japan, Korea and other countries regarding the global reach and negative impact of the proposal, their concerns remain unanswered.
Financial Transaction Tax and Economic and Monetary Union
Greg Clark Excerpts(11 years, 5 months ago)
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The Financial Secretary to the Treasury (Greg Clark)
I beg to move,
That this House takes note of European Union Document No. 16988/1/12, a Commission Communication on a Blueprint for a Deep and Genuine EMU: Launching a European debate, an Un-numbered European Document dated 5 December 2012, a Report from the President of the European Council: Towards a Genuine Economic and Monetary Union, European Union Documents No. 15390/12, a draft Council Decision authorising enhanced co-operation in the area of financial transaction tax, and No. 6442/13 and Addenda 1 and 2, a draft Council Directive implementing enhanced co-operation in the area of financial transaction tax; observes that the European Scrutiny Committee has reported on these documents and concluded that they raise questions relating to parliamentary sovereignty and primacy as well as fiscal and monetary issues; notes that the European Commission Communication states that ‘Interparliamentary co-operation as such does not, however, ensure democratic legitimacy for EU decisions. That requires a parliamentary assembly representatively composed in which votes can be taken. The European Parliament, and only it, is that assembly for the EU and hence for the euro’, and that the report from the President of the European Council concludes that ‘further integration of policy making and a greater pooling of competences at the European level should first and foremost be accompanied with a commensurate involvement of the European Parliament in the integrated frameworks for a genuine EMU’; further notes that the proposals for the Financial Transaction Tax have been challenged by the Government in the European Court of Justice; notes that recent European Treaties and protocols have emphasised the role of national parliaments throughout the European Union as the foundation of democratic legitimacy and accountability; and believes that this role is the pivot upon which democracy in the United Kingdom must be based on behalf of the voters in every constituency.
I am grateful for the opportunity to discuss these important issues and thank the European Scrutiny Committee for recommending them for debate. I shall focus on the financial transaction tax before turning to the matter of economic and monetary union. As many hon. Members, and certainly members of the European Scrutiny Committee, will know, the Government have applied to the European Court of Justice for the annulment of the Council decision authorising an FTT under the enhanced co-operation mechanism. I am pleased to be able to set out our concerns about the initiative.
Many Members will know that we have been here before, in 2011, when the European Commission proposed a wide-ranging financial transaction tax that would have applied across the entire European Union. Just like the current proposal, that tax would have applied to all trades, market participants and financial instruments; it would have applied to Government bonds, corporate bonds, equities, derivatives and other financing instruments, and to long-term and short-term transactions. Just like the current proposal, too, that tax would have affected the entire financial system, reducing returns to pension funds and savers, increasing companies’ and Governments’ financing costs and reducing European competitiveness at a time when the EU, frankly, needed competitiveness and growth. It might have been conceived as a way of raising revenue from a small number of people in the financial industry, but it would in fact have been paid by savers and by companies. The Commission itself forecast an impact—a negative impact, I need hardly say—on EU-wide gross domestic product of 1.76%.
The Chancellor made it clear that we would not accept the measure—certainly not at a time when the EU was trying to grow and attract business. He said the UK would have no part in it, and partly as a result, the proposal was dropped. Sadly, however, it was not dead, and this January, under a procedure known as “enhanced co-operation”, 11 member states chose to resurrect it. We believe that member states should be free to set their own tax policies, and if they choose to co-ordinate their tax policies, that, too, is their right. Although we believed and continue to believe that the proposed FTT is a bad idea, it is of course open to member states to pursue it—provided it is lawful, complies with the EU treaty and respects the rights and competences of those member states that choose not to participate.
Bill Esterson (Sefton Central) (Lab)
I am grateful to the Minister for apparently making the argument for international co-operation in order to overcome the concerns that he has raised. President Obama has made the point that Wall street was responsible for the financial crisis, so Wall street had a responsibility to solve the problem. Does not the same apply here, provided that there is an attempt at international co-operation?
Greg Clark
I will come on to the hon. Gentleman’s point. I would point out that President Obama and his Treasury Secretary are deeply concerned about the progress of this financial transaction tax, which does not meet any of the in-principle ambitions that people have had for some time. It is a cause of a great alarm among those who believe in free trade around the world.
The proposal under the enhanced co-operation procedure is modelled substantially on the 2011 version. It contains a feature known as the “establishment rule”, under which a UK financial institution would be deemed to be established in the FTT area for the purpose of the tax by virtue of the mere fact that its trading counterparty is headquartered in a country participating in the tax. So in practice, a UK pension fund purchasing a UK Government bond from a UK branch of a German bank would be obliged to pay the tax, and it would pay the tax not to the Exchequer in this country, as would have been the case if we had signed up to the FTT, but to an overseas authority. Likewise, a UK company with significant Treasury operations would potentially be in scope of the FTT when its counterparty happened to be headquartered in the FTT area.
Jacob Rees-Mogg (North East Somerset) (Con)
What obligation would the British Government be under either to enforce or to collect this tax if the FTT were adopted as proposed?
Greg Clark
That goes to the heart of our concern, because under the mechanism set out, we would be under such an obligation, which we consider to be a breach of the protections we enjoy, in particular not to have to incur costs when the benefits do not flow to a non-participating member state. That is precisely one of our objections.
Mr Bernard Jenkin (Harwich and North Essex) (Con)
Does the proposal not expose the beguiling attraction of allowing enhanced co-operation as a gesture of good will to our European partners, when in fact it is a trap enabling them to exercise powers through qualified majority voting, without our participation, which then creates obligations in relation to our own financial transactions, even though they might be taking place outside the EU? My right hon. Friend expresses support for co-operation between free, sovereign states in their tax affairs, but that is not what we are talking about here, because enhanced co-operation is likely to result in obligations that are enforceable in European Community law, even though we have not had a chance to vote on them.
Greg Clark
My hon. Friend makes a powerful point. That is precisely why we are challenging the legitimacy of the proposal. The enhanced co-operation procedure is available to member states provided it is legal and compliant with the treaty, and our view is that it is certainly not. In particular, the extra-territorial effects—exactly what my hon. Friend is concerned about—are contrary to article 327 of the treaty on the functioning of the European Union, as it fails to respect the competences, rights and obligations of the non-participating member states. Furthermore, the decision to proceed with the FTT has extra-territorial effects for which there is simply no justification in customary international law. The Select Committee has been prominent in its scrutiny of that, and no doubt its Chair will have something to say about it.
We should consider the economic effects of the tax as well as the legal issues. What we are discussing is obviously very important to the economy of the United Kingdom, where 2 million people are employed in financial and related professional services. That sector has created a trade surplus for the country at a time when I think all nations should be trying to increase their trade, and its activities are highly integrated with those in other EU countries. Our best estimate is that 30% of over-the-counter derivatives trading in London involves a counterparty in a proposed FTT zone country; similarly, about 30% of investors in UK gilts are located overseas, which means that the FTT is even likely to affect UK Government funding costs.
However, it is not only the financial sector that would be affected. The European Association of Corporate Treasurers, which represents those who manage companies' finances throughout Europe, has said, very explicitly, that the FTT
“will fall on companies in the real economy, and compound the negative effects of the financial crisis.”
In this country, the CBI agrees.
Alison Seabeck (Plymouth, Moor View) (Lab)
What would be the implications of the UK’s rejection of the FTT? Would the Government raise the bank levy rate for what I believe would be the sixth or seventh time?
Greg Clark
As the hon. Lady helpfully points out, we, unlike many other European countries, have a bank levy. The levy is targeted to raise £2.5 billion a year, but it will raise more than that this year, because we said we would increase it to ensure that it raised the amount it was targeted to raise. It is rather higher than the French and German levies.
The CBI has said that the FTT proposal “discourages important business activities” and
“undermines the ability of the financial sector to promote economic recovery”.
The European fund managers association, which is responsible for the welfare of millions of pensioners throughout Europe, has described the FTT—again, very explicitly—as a tax on savers, which will threaten the operation of capital markets and have a damaging impact. I am interested to note that the hon. Member for Nottingham East (Chris Leslie) appears to be sanguine about the effects on savers. I should have thought that the views of pensioners and others with an interest in a prosperous retirement would concern us all.
Chris Leslie (Nottingham East) (Lab/Co-op)
I am not entirely clear about the Government’s policy. I think that, once upon a time, the Chancellor said that he was in favour of the principle of a financial transaction tax. Is that no longer the case?
Greg Clark
In fact, we already have a financial transaction tax. It is called stamp duty, and it has existed for a long time.
Let me say something about the opinions of markets outside the European Union. Representatives of other jurisdictions are appalled by the plans, particularly our major trading partners. In the United States, the Investment Company Institute says that the tax would “crash across borders”, and that
“All investors would be hit.”
The US Government also have serious misgivings: the Treasury Secretary, Jack Lew, has said that, despite objections from financial and non-financial trade associations and Government officials in the United States, Canada, Australia, Japan, Korea and other countries regarding the global reach and negative impact of the proposal, their concerns remain unanswered.[Official Report, 20 June 2013, Vol. 564, c. 5MC.]
Luciana Berger (Liverpool, Wavertree) (Lab/Co-op)
The Financial Secretary mentioned stamp duty. Stamp duty has an extra-territorial application, which he used as a reason for not introducing a financial transaction tax. Further to the point raised by my hon. Friend the Member for Nottingham East (Chris Leslie), may I ask why, following a G20 meeting in Pittsburgh back in 2009, the then shadow Chancellor supported the principle of a financial transaction tax, and why he is opposing it now while not coming up with an alternative?
Greg Clark
I shall say more about stamp duty shortly, but I am sure the hon. Lady, who I am sure is a student of these matters, will be aware that it was agreed at Pittsburgh in 2009 that the International Monetary Fund should conduct a study to establish whether there was an international basis for proceeding. It conducted that study, and found that there was no such basis.
I hope that, given the international concern about the proposed tax, the House understands that we have no choice but to challenge it. Not only are there numerous problems with the design, but the proposal flagrantly disregards the position of those who choose not to participate.
The hon. Member for Nottingham East pointed out that the Chancellor had said that we had no objection to the principle of a financial transaction tax. Of course that is the case. How could we possibly have an objection to a financial transaction tax, given that we in the United Kingdom have had one since 1694? It is called stamp duty, and it is very different from the proposed design of this tax. It contains, for instance, an exemption for intermediaries to avoid the “cascade effect”, whereby at every stage of a transaction a tax racks up throughout the chain. That has a very negative impact on the costs faced by savers and companies. We have no objection to levelling the playing field with countries, including France, that have recently adopted stamp duty-type taxes of one sort or another, but other countries, particularly the United States, are far from being close to a consensus. If the hon. Gentleman has taken an interest in the matter, he will know that President Obama and his Administration have described this development as very troubling.
Of course Britain will play a leading role in promoting global standards when it comes to taxes, but I think the whole House would acknowledge that, in international negotiations, we should focus on what will give us a realistic chance of making a big difference to people, rather than choose to divert effort and negotiating capital into what, given the views of others, would be simply a gesture.
Andy Sawford (Corby) (Lab/Co-op)
The right hon. Gentleman is a fair-minded Minister when it comes to most matters on which I have dealt with him. I think he is right to say that it would be in the interests of this country to pursue a financial transaction tax—indeed, he has acknowledged that his party views it as such. Can he tell us how many times Ministers from our Government have made representations to the American Government on this matter, given the importance of financial services to both our economies?
Greg Clark
I am grateful to the hon. Gentleman for his kind words, but when we have a chance to participate in and lead international gatherings, we must decide where our negotiating capital or authority can best be deployed. The Prime Minister decided, correctly in my view, to pursue tax transparency at international level, through our leadership of the G8 and in other forums. I think that the hon. Gentleman, who is as fair-minded as he considers me to be, would be churlish not to acknowledge the considerable breakthrough achieved by the Prime Minister in recent months, and by the Chancellor before him in Mexico, in respect of tax transparency. I believe that that is an example of the palpable progress that even the Opposition should applaud.
Andrea Leadsom (South Northamptonshire) (Con)
In the context of transparency, does the Financial Secretary agree that creating an unlevel playing field in which some countries participate and others do not, which is what this financial transaction tax will do, could fall foul of the second markets in financial instruments directive, which requires best execution in all transactions? In an essentially international if not global business like financial services, might not those wishing to conduct transactions on behalf of their customers struggle with the idea of using a jurisdiction that had imposed an unlevel financial transaction tax?
Greg Clark
My hon. Friend is right. This runs contrary to the whole direction of the reform that we have been promoting and think it essential for the EU to promote, namely movement towards a single market in which operating across borders becomes progressively easier and more transparent. I do not think it sensible to do what the hon. Member for Nottingham East would prefer to do, which is make a global financial transaction tax a greater priority than what we are achieving in terms of tax policy, at a time when we are making great progress.
Nor would it be right to leave out of the motion the reference to the UK’s legal challenge to the current proposed FTT, which it is widely acknowledged would hit British pensioners—we know the Opposition have them in their sights at the moment—and which is the whole basis of this Committee’s scrutiny of the proposal.
Bob Stewart (Beckenham) (Con)
If an FTT were imposed on us, where would the money be sent? Would it be sent to the EU, a country or some quango? Where would the money go?
Greg Clark
It would go to the country which was liable for the transaction tax that fell due there, but it would not go to this country, despite the fact that we would incur the costs of enforcing it and collecting the money. There would be no benefit whatever to the UK taxpayer. It would be unfortunate if at a time when we should be enhancing Her Majesty’s Revenue and Customs’ ability to collect taxes, we were, in effect, requiring extra resources to be expended on something that was of no benefit whatever to UK taxpayers.
Neil Parish (Tiverton and Honiton) (Con)
Does my hon. Friend agree that in the context of the City of London needing to be attractive for financial transactions, all this tax would do is add yet another burden? We want more people to come to the City of London and trade, not fewer, and I feel that this tax would drive people away.
Greg Clark
I agree. It is not only the London economy that would be damaged; the whole European economy would be damaged, too. That cannot be in the interests of EU members, but members are, of course, sovereign and can make their own decisions, provided that that does not interfere with our competences and rights.
Andrea Leadsom
The hon. Member for Nottingham East (Chris Leslie) says, “Ah, the Financial Secretary is against it all together!” However, the European Commission itself has done an assessment that shows how extraordinarily costly this will be in terms of jobs and revenues to the member states who introduce it.
Greg Clark
That is absolutely right, although one of the unsatisfactory aspects of the FTT proposal is that it has been frustrating trying to obtain an accurate view of its impact from the Commission. Not enough analysis has been conducted. We know that the original estimate of the impact was a reduction in EU GDP of 1.76% and a loss of half a million jobs across the EU. Mysteriously, those figures have changed, but we have had no rigorous explanation for that.
In the limited time available to us today, I should address the other documents that are the subject of this debate, in particular the one on economic and monetary union. Late last year, the European Commission published its blueprint for a deeper EMU, and the President of the European Commission provided a report called “Towards a Genuine Economic and Monetary Union”. Those reports put forward ideas for possible steps to a more integrated euro area. They are of particular concern to the European Scrutiny Committee, chaired by my hon. Friend the Member for Stone (Mr Cash), and I am sure he will want to speak about the implications for the primacy of this House and this Parliament.
So far these are not formal proposals but contributions to a wider debate in Europe about what may be needed to bring long-term stability to the euro area. I am sure that further documents will be referred to the Committee and we will have the opportunity to debate them in this House, but I want to emphasise very clearly that the UK will not be part of these arrangements, and although leaders at the December 2012 European Council agreed on a more limited work programme than that set out in these reports, they do raise important questions that need to be addressed.
The European Council December 2012 conclusions were very clear that any new steps towards strengthening economic governance would need to be accompanied by further steps towards stronger legitimacy and accountability. The European Parliament has a role at the EU level as further integration of policy making and greater pooling of competences take place among the euro-area countries, but this does not mean the European Parliament has primacy over national Parliaments, whose role is absolutely essential and inviolate.
As my right hon. Friend the Prime Minister said in this House on 12 December in his post-Council statement —and in response to my hon. Friend the Member for Stone, I think—we believe that national Parliaments are closest to people across the EU and that is why they should be at the heart of providing democratic legitimacy within the EU.
Mr James Clappison (Hertsmere) (Con)
I am pleased to hear my right hon. Friend make those comments, but the vision so clearly set out in the motion about where primacy in the EU should lie is completely different from the EU vision that the van Rompuy report sets out, which proposes a step change with the European Parliament having primacy over national institutions. Does my right hon. Friend agree that we need to face up to this, and decide whether or not we want to be part of that vision?
Greg Clark
My hon. Friend is right, and that is why I was keen to have this debate and make sure the Committee’s concerns on this matter can be aired at an early stage. As I said a few moments ago, the proposals so far do not cohere into proposals that will come forward to be scrutinised, but this debate offers an opportunity for this House to send a clear message, as my hon. Friend may be able to do later, during this process of working-up ideas as to what this House’s clear expectations are with regard to the role of national Parliaments. That is very important.
Mr William Cash (Stone) (Con)
I hear what my right hon. Friend says, but in the light of the assumption, based on what the Chancellor has said, about the remorseless logic of allowing the core member states to go ahead with proposals for monetary union—which are implicit in the 52 pages of the blueprint alone—does he accept that our policy is allowing this to happen, and although we may not, it appears, be directly involved, we will certainly be affected by it?
Greg Clark
We have taken the view that the problems in the euro area that require resolution should be resolved by its members, and it is in the interests of the international economy that that should be so. My hon. Friend is right to point out, however, that our interests are engaged in this, and we will make use of our powers and rights in the EU to insist that those interests are protected. An early example of that is in the single supervisory mechanism, where through repeated interventions and insistence by the Chancellor and me at ECOFIN meetings, the Prime Minister was ultimately able to secure agreement by way of a text in the regulation of that mechanism explicitly stating that there should be no discrimination against any country or currency as a result of these arrangements.
These matters will come up from time to time, and protecting our interests requires eternal vigilance. The work that the Committee does in scrutinising and bringing matters to our attention in advance of discussions at European level is crucial to that, which is why the importance of this Parliament needs to be underlined, and will be by this debate.
Mr John Redwood (Wokingham) (Con)
Monetary union is like having a bank account with the neighbours, and now the neighbours who have put the money in are panicking about the other neighbours who are taking the money out. We see in these documents that EMU is going to progress with much tighter fiscal and banking controls. Is the Minister going to want to keep all British banks out of the extra controls, as we would then no longer be in charge of them, or does he think that the euro activities of our banks must be part of this new centralised scheme from Brussels?
Greg Clark
We have been very clear, and the single supervisory mechanism is a good example, as I have said. We have our arrangements for the supervision of our banks, which are centred around the Bank of England, and it is absolutely right that they should continue in that way, but as each of these proposals is made, we will need to look to our national interest and make sure that our rights are protected.
Michael Connarty (Linlithgow and East Falkirk) (Lab)
That was a specific point, but I want to say that it is not only Members of the right hon. Gentleman’s party who have serious questions about primacy. On the European Scrutiny Committee, there is a cross-party problem in particular with the President of the EU’s report “Towards a Genuine Economic and Monetary Union”, which talks about contracts written by the EU—by the Commission—that will be binding on the countries that sign them, and that will then have penalties if they do not carry them out, taking power away from those countries. There is also the question of what happens then with the impact—
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. Mr Connarty, you were late coming in, so then to make such a long intervention is not good for the Chair either, especially as you will want to speak, as will a lot of other hon. Members. Short interventions are required.
Greg Clark
The hon. Gentleman makes a powerful point, and I was wrong in seemingly indicating that it was only Government Members who share some of these concerns. He has a long and distinguished record of being not only concerned but an active force in drawing attention and suggesting remedies to some of these matters.
On the proposals before us, one suggestion that has been made is that there should be new mechanisms to increase the level of co-operation between national Parliaments and the European Parliament to contribute to this process—it certainly will not be the end of the matter. It has been stated that how it is done is a matter for the Parliaments to determine themselves. I understand that the Conference of Speakers of EU Parliaments agreed in April to set up such an inter-parliamentary conference to discuss EMU-related issues. The conclusions of that meeting state that the conference
“should consist of representatives from all the National Parliaments of Member countries of the European Union and the European Parliament”.
That reflects one of the recommendations in the Select Committee’s report.
The Government have consistently highlighted the importance of these issues since the December European Council. For example, it was highlighted by the Prime Minster in his Bloomberg speech in January, when he set out his agenda for EU reform. He was clear that the future European Union we need must entail a bigger and more significant role for national Parliaments. He said:
“It is national parliaments, which are, and will remain, the true source of real democratic legitimacy and accountability in the EU”.
My right hon. Friend the Foreign Secretary has said that
“if the European Parliament were the answer to the question of democratic legitimacy we wouldn’t still be asking it.”
He went on to outline a concrete set of ideas, including the proposal to have an EU “red card” system that would allow national Parliaments, working together, to block legislation that should not be agreed at the European level. Furthermore, we have said that we would support calls by this House to summon a European Commissioner to explain a proposal directly to this Parliament if the Committee demanded it.
Mr Jenkin
I wholeheartedly support the principles set out on the primacy of national Parliaments in the Prime Minister’s Bloomberg speech, but neither of the proposals that the Minister has just mentioned—the red card and the summoning of an EU Commissioner—addresses the primacy issue. The red card just creates another opportunity for our national Parliament to be outvoted by other national Parliaments, and summoning an EU Commissioner has no legislative effect whatsoever. What are the Government going to table in concrete terms that will assert the primacy of national—
Mr Deputy Speaker
Order. Mr Jenkin, I have mentioned that we want short interventions. That was your second intervention and you are hoping to speak as well. If you want Members to get in, we are going to have to use the time well—it is going very quickly.
Greg Clark
Thank you, Mr Deputy Speaker, I will be brief. Of course these are not panaceas; they are not solutions to the problem. I have said that when these proposals come forward in a more coherent form than they exist in these discussion documents, we will need to ensure that this House—rather than the European Parliament—unambiguously is the body we look to for the endorsement and the legitimacy of these things.
These are important debates. We are at an early stage of the discussions of economic and monetary union, but I applaud the desire of my hon. Friend the Member for Stone, on the part of the Committee, to discuss them at an early stage. I am sure that we will come back to them time and again. We are not expecting major decisions to be made in the weeks ahead, but as with the financial transaction tax and as always, we are very aware of the national interest and will always staunchly pursue and promote it. We will very much have in mind the importance of safeguarding the primacy of this House. Mr Deputy Speaker, I see from your look that both the Chair of the Committee and many other hon. Members are keen to contribute to our discussion, and I look forward to hearing their advice and guidance on both these important issues.
Chris Leslie
The Minister was talking about the European variant of the FTT, but of course he was forced then to admit that we have already got a partial FTT of sorts—the stamp duty that is in place. I will discuss that in a moment, but it was very instructive that he was vehemently against the extra-territoriality aspects of the European version. Of course the EU version does need to change, and I am not saying in any way that it is perfect. His argument is, “They should stop extra-territoriality aspects in their financial transaction tax”, but our stamp duty contains many of those characteristics, and individuals—those trading UK shares and UK equities—are liable wherever that trade takes place in the world. So the Government clearly have not thought through their position on these things.
Greg Clark
The hon. Gentleman will know that stamp duty follows the issuance principle—in other words, the tax follows where the instrument is originated. The proposed FTT contains that and a residence principle, so it captures a far wider range of transactions, as well as this cascade point which stacks up and racks up the impact. So it is a very different FTT from, and a very much inferior FTT to, the stamp duty.
Chris Leslie
Why on earth then does the Minister not engage in the process, change people’s minds, get a better design, deal with this residence principle properly and let us have a financial transaction tax that is in all of our best interests, particularly across those global centres?
The Minister talked about not having objections to an FTT on equities, but he did not say anything about bonds or derivatives in that context. So I challenge him again on the principle: is he absolutely against any sort of FTT on bonds or derivatives? It sounded as though he was, but I say to him that he has to start waking up and engaging with other jurisdictions on these particular points rather than trying to stop it.
Chris Leslie
Oh dear, oh dear, oh dear! The hon. Gentleman cannot seriously be suggesting that he is going to vote against the amendment because we have to leave out the reference to further noting that there is a Court challenge. I would have been quite happy to have tabled an amendment that did not leave out that bit of terminology, but—I am sure that you can confirm this, Mr Deputy Speaker—we did not do so because the Clerks tell me that a motion can only have 250 words. Of course, the Government use up their 250 words in the motion, so we needed to find space to insert the reference to the principle of the financial transaction tax. The hon. Gentleman should trust me: I have been considering the point and I did not want to leave anything out of the motion, but we wanted to put that reference in. I hope that with that assurance, he will think again, because the amendment is eminently supportable.
Greg Clark
Well, of all the ingenious ways to concoct a rationale. It is very instructive that out of all the 250 words, he chose to leave out the reference to the challenge to the European version of the financial transaction tax. He could have chosen many others. It is revealing that that is the part of the motion that he thought should be removed.
Chris Leslie
It is a sentence that takes note of something self-evident. Of course there is a challenge—we all know that there is a challenge and that the Minister’s agenda is to try to throw a spanner in the works and do what he can to stop that European variant of the FTT. He should consider what is in the motion; we did not particularly want to remove any of those other aspects of it. Taking note of the challenge was quite a good bit to leave out. Let me restate the case on which we must focus.
Chris Leslie
I think that any financial institution that could have a systemic impact on our economy and UK financial services needs to be regulated from within the Bank of England and by our regulatory structures. I hope that there will be a match between our arrangements and the European arrangements. That has been part of my anxiety about the Government’s design of the Prudential Regulation Authority and the Financial Conduct Authority in the context of the Bank of England and how they fit together with the supervisory structures in Europe. We have had that debate and I think it will continue to be played out over the longer term.
For the time being—for today—the time has come for the Government to get serious about a financial transaction tax. Doing whatever they can to put a spanner in the works and turning their back on the idea is just not good enough. At a time when deficits are persistently high because of rock-bottom growth, leading economies, including those of Britain and the United States, need alternative revenue measures from continuing financial market speculation to relieve pressures on lower and middle-income households and the public services they use.
There are many lessons from the banking crisis, the most obvious of which is that the sheer globalised might of financial trading can overpower the plans and defences of individual nation states. Governments should not just shrug and accept that fate, which is why the Opposition urge Conservatives and Liberal Democrats actively to champion a financial transaction tax and the reform agenda to harness international financial markets so that they serve our societies and our economies.
If ever there was a time to seek international consensus on a financial transaction tax it is now, as countries continue to deal with the aftermath of the global financial crisis and the large deficits it created. Deducting a tiny fraction of 1% of the value of trades in equities, bonds and derivatives could raise significant sums if introduced in a concerted way across the principal world financial centres.
The House of Commons Library has considered what would happen if we applied the EU variant of the tax in the UK and says that it would yield some £10 billion annually. I do not stand by that figure—I do not think that it is necessarily convincing or viable—but it prompts the question of what could be achieved in the UK by a tax with a more modest and sensible design.
I do not decry the 11 EU countries for forging ahead on the issue—it is a brave decision for those EU countries to go it alone. Even with the participation of Germany, France and Italy, there are still risks involved, and although we are not participating at present we should not withdraw from the debate, not least given the size and importance of the City of London.
Greg Clark
I am intrigued by what the hon. Gentleman has just said. He cites the House of Commons Library, which has said that the tax could raise £10 billion, and says that that would be useful. Is he arguing that such a financial transaction tax would be in addition to stamp duty? Is he proposing such a tax?
Chris Leslie
I think that we need to have a financial transaction tax, ideally in concert with other international centres, in addition to stamp duty. That would be a sensible and modest reaction to the modern circumstances of the financial services sector. As I said to the Minister earlier, he has got to snap out of his “no can do” attitude and to wake up and realise that the public want alternatives. They want different ideas, and the financial transaction tax could offer a good way forward.
Opposition Members support the principle of a financial transaction tax with the widest global participation. London and New York City are the two largest global financial centres. Our view is that enforcement of the FTT needs both to move in concert. The Government ought to support our amendment, which is totally unobjectionable. We should not have to wait for a change of Government to move this agenda forward. We should be building those alliances, especially with the United States. That is a very important task.
Greg Clark
In the couple of minutes available to me, I will attempt to respond to what has been a spirited debate on both sides. It has been so spirited that the speech of the hon. Member for Nottingham East (Chris Leslie) rather startled the hon. Member for Blackley and Broughton (Graham Stringer), who did not expect to hear anything so—
Greg Clark
It was fainter praise than good.
I am grateful to my hon. Friend the Member for Stone (Mr Cash) for his kind words. I am glad that we were able to accommodate the two debates that he was keen to have. I welcome the contribution of the hon. Member for Brent North (Barry Gardiner), the characteristic tour de force on Waterloo day from my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) and the flinty contribution of the hon. Member for Linlithgow and East Falkirk (Michael Connarty), who shares many of the views of my hon. Friend the Member for Stone on the primacy of this place.
This has been a fascinating and enlightening debate. We have discovered that the policy of the Opposition in calling for a financial transaction tax turns out to be to call for an additional financial transaction tax. As has been clear from the exchanges across the House, we already have a financial transaction tax in this country; it is called stamp duty. The hon. Member for Nottingham East made it very clear that he proposes an additional tax on British savers, pensioners, mortgage holders and business of up to £10 billion. He said that that would come not from the magic—
Chris Leslie
On a point of order, Madam Deputy Speaker. It is important that the Minister’s misinterpretation of what I said should not be allowed—
Madam Deputy Speaker (Dawn Primarolo)
Order. That is not a point of order, but a point of debate. Resume your seat, Mr Leslie.
Greg Clark
I am grateful, Madam Deputy Speaker. It will be clear for people to see on the record that this is another proposed tax from the magic money tree that the hon. Gentleman frequently has recourse to.
We are not against a financial transaction tax in principle. We have one in stamp duty. The idea that we should not refer this matter to the ECJ is totally inappropriate. I commend the motion to the House.
Question put, That the amendment be made.