Cyprus

Greg Clark Excerpts

Monday 18th March 2013 Commons Chamber

[The Financial Secretary to the Treasury (Greg Clark)]

With your permission, Mr Speaker, I shall make a statement about banks in Cyprus.

In the light of the financial difficulties faced by the Republic of Cyprus, that country’s Government have requested a programme of financial assistance from its fellow members of the eurozone. Britain is obviously not part of the eurozone and was not party to the negotiations, and there is no contribution from the United Kingdom, either through the European financial stabilisation mechanism or bilaterally.

At the end of a meeting of eurozone Finance Ministers at the weekend, it was announced that it had been agreed with the Cypriot Government that a programme of assistance worth up to €10 billion would be provided, subject to the following measures: a fiscal consolidation amounting to 4.5% of Cyprus’s gross domestic product over four years; a privatisation programme to raise €1.4 billion, or 8% of GDP; an increase in corporation tax from 10% to 12.5%; a gold and assets swap from the reserves of €1.5 billion, or 8.5% of GDP; a withholding tax on interest of €1 billion, or 6% of GDP; and a levy on deposits of €5.8 billion, worth 33% of Cyprus’s GDP, which, it has been reported, will consist of a 6.75% levy on deposits below €100,000 and a levy of 9.9% on deposits above €100,000. In return, the assistance package will allow €5 billion-worth of bond redemptions, excluding the Russian loan which will mature in 2016; €2 billion-worth of deficit financing, less privatisation proceeds; and an injection of €4.5 billion into the banks’ balance sheets.

The agreement established terms of reference for an independent evaluation of the implementation of the anti-money-laundering framework in Cypriot financial institutions.

Those are the main features of the agreement, but parts of it, including the deposit levy, require legislation in the Cypriot Parliament, and that is expected to be considered tomorrow. Accordingly, the situation in Cyprus remains uncertain and is subject to change. What is clear from the proposal so far is that the levy will not apply to foreign branches and subsidiaries of Cypriot banks, including those operating in the UK. Indeed, the two Cypriot banks in the UK, the Cyprus Popular Bank and Bank of Cyprus UK, have been open for business today.

Of course, there are British nationals who have accounts with Cyprus-based branches of Cypriot banks and who would be affected by the proposed levy if it were agreed by the Cypriot Parliament. They include serving British servicemen and women who are required to be based on the island and so, in order to go about their day-to-day activities, maintain local bank accounts. Approximately 3,000 members of the armed forces are on overseas postings serving our country in Cyprus. The Defence Secretary and the Foreign Secretary have made clear that, should these measures be approved, the British Government, as their employer, will compensate those personnel for reasonable losses incurred as a result of the situation.

Several thousand UK pensioners are resident in Cyprus. Today is a bank holiday there, and, to ensure that any payments made by Her Majesty’s Government to banks in the country reach the intended recipients, all future pension payments made by the Government to British citizens there will be temporarily put on hold until at least tomorrow. That will allow us to take stock of developments in Cyprus. All UK pensioners in the country can be assured that their future pension payments are being held safely, and that a normal payments service will resume as soon as the situation has become clear. However, recipients of these payments can switch the bank account into which payments are made with immediate effect by contacting the international pensions centre, the details of which are available on the website of the Department for Work and Pensions.

As soon as more information on the final measures taken is available, I will arrange a briefing for Members whose constituents have been caught up in the situation. I understand that this is a worrying time for other British nationals who have deposits in banks in Cyprus, but, as Members will be aware, deposits in Cypriot banks are subject to the laws and regulations of the Republic. Ministers from the Foreign Office, the Ministry of Defence and the Department for Work and Pensions will update the House as soon as they have information that is relevant to their areas, and will keep the House updated.

This is a worrying situation, not only for the people of Cyprus but for many of our constituents. It is a situation that is uncertain and subject to change, and I will return to the House with updates as events become clearer. However, I wanted Members to have the opportunity to be informed from the outset of what is known so far.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

The terms of the Cypriot bank bail-out are extremely concerning, and the market reaction today may be only the beginning of the fallout. While it is, of course, important for the Cypriot banks to be put on a secure footing, it is extremely dangerous to wider economic confidence for the fundamental trust of retail depositors to be undermined in such a way. This was a very risky decision, and we would expect the British Government to caution against such a sequestering of the funds of ordinary bank customers.

The so-called bail-in of banks in jeopardy does not always need to punish savers and depositors in this way. It is essential that the trust and confidence of ordinary bank customers across the European Union is immediately restored, with guarantees that no future bail-in arrangements will operate in this way. Surely one of the lessons from recent history is that rock-solid guarantees for depositors are a prerequisite to stability and recovery. EU Finance Ministers would not have countenanced a move such as this in larger members of the EU, yet somehow it is acceptable for smaller ones. It is never a good message to send to the public in any country that they would have been better off keeping their life savings under a mattress than in a bank.

It is particularly concerning that international institutions with UK input, including the EU and the International Monetary Fund, have adopted this precarious strategy, so I have to ask the Minister some specific questions. First, were the UK Government made aware of this proposal beforehand and, if so, when? Was the Chancellor consulted and, if so, what view was expressed? The UK may not be able to attend the meetings of the Eurogroup of Finance Ministers in a non-voting, observer capacity, but any informal decisions taken there still need referring to ECOFIN, so would it not be sensible, in future, to secure a right for observers, including the UK, to attend such crucial decision-making meetings, given the ramifications of eurozone decisions for the whole of the EU?

The Opposition welcome the decision to compensate UK armed forces personnel stationed in Cyprus who are affected, but can the Minister set out the estimated cost to the Exchequer of that policy? Are British consular officials providing assistance to other affected UK nationals? What is the Government’s estimate of the number of UK nationals affected by this decision in Cyprus? What will happen if the Cypriot Government and Parliament do not actually go along with this proposal? They are obviously between a rock and a hard place, as the further two days of impromptu bank holidays go to show, but surely such public brinkmanship by the EU and the IMF just creates even more uncertainty. What is the extent of British banking exposure and British business exposure to the Cypriot banks? How much does the Treasury estimate that UK investors will lose under this arrangement?

Many EU citizens expected that their deposits were guaranteed up to €100,000, or £85,000, under the deposit guarantee scheme directive, but we now learn that there was a caveat excluding special taxes such as this one. Should consumers be aware of any other aspects of the small print in the deposit guarantee scheme? Does this whole episode not show that we should clarify our own banking bail-in rules in this country as soon as possible, rather than, as Ministers are saying in the Banking Reform Bill process, waiting for the European Union to draw up the bail-in directive in several years’ time? Waiting years for the EU to tell us how a bail-in arrangement might operate suddenly looks like an unwise course to take. Surely we should get these issues sorted out here at home as soon as possible. This is not a matter where the UK Government can just sit on the sidelines, because issues that could fundamentally affect our own stability, growth and prosperity are involved, and we expect Ministers to take firm steps within the EU to reduce these risks now.

[Greg Clark]

I am grateful for the hon. Gentleman’s points and questions. Let me say at the outset that we will have the chance to discuss these things in more detail, but the situation is very fluid; we understand that tonight there will be a meeting of the Eurogroup members—a video conference—to discuss some aspects of it, and the Cypriot Parliament is meeting tomorrow, so I think it would be unwise to assume that the information that has come out over the weekend will necessarily represent the shape of things to come. However, I will make sure that the hon. Gentleman and, indeed, all hon. Members are kept abreast of things.

The hon. Gentleman’s point about fundamental trust needing to be established in the banking system goes to the heart of the matter. It is crucial that that applies not just in this country, but across the eurozone. It is one of the reasons why we have been supportive of the efforts being made by the eurozone to stabilise the financial system there, including by the introduction of a single supervisory mechanism. Cyprus, as I think he would acknowledge, is in a particularly acute situation, as a very large proportion of its GDP is exposed to international financial transactions and its domestic fiscal situation also leaves a lot to be desired. I think all hon. Members would recognise that the importance of maintaining fiscal discipline as well as adequate supervision of the banking system is exemplified by what has happened.

In terms of the negotiations so far and the parties to them, the hon. Gentleman should know and is, I think, aware that the discussions are among the members of the eurozone, who bear financial responsibility for bailing out Cyprus, and the Cypriot Government. They have negotiated with each other and the plan can be approved only if the Cypriot Parliament endorses it. The UK understands and has intelligence about what went on in those discussions, but was not part of them and had no influence and no votes. Ultimately, this is a matter for the Cypriots and the eurozone.

The cost of the protection that my right hon. Friends have offered to UK serving servicemen and women will depend on the final state of the arrangements, which, as I say, are not certain at this stage. I mentioned in my statement that about 3,000 UK military personnel and their support staff are employed, which gives us a limited ability to estimate the context.

On the question of the supervision of UK banks and any potential exposure, the Bank of England, as the hon. Gentleman would expect, maintains close involvement and is supervising all the banks that might have any exposure to the Cypriot authorities. The hon. Gentleman is quite right that it is necessary at both a European and domestic level to agree a means of bailing in the contributions of holders of capital so that the banks can be resolved without the types of problems we are seeing in Cyprus. We have been very clear that we want to see that and the Irish presidency is making good progress with the recovery and resolution directive. We have said that if that progress does not proceed at the pace we hope and expect to see, we can use the banking Bill to make the necessary amendments.

[Mr Andrew Tyrie (Chichester) (Con)]

This looks to be very poorly thought through, possibly dangerously so, not least because it risks triggering a run on the banks of other indebted countries. Is it not also the case that this could be a breach of EU deposit regulation, which requires a full guarantee of up to €100,000? It is not supported entirely by a tax but by shares—which clearly and demonstrably are not a tax. A minute ago, the Minister described the situation as fluid, but a fluid bail-out does not sound like a very robust policy to me. Does that not illustrate the gulf between the rhetoric and reality of the so-called banking union? Does it not illustrate that the eurozone’s problems are unresolved and blighting the UK economy?

[Greg Clark]

I agree with my hon. Friend to the extent that I think that it underlines the importance of having arrangements across the eurozone to anticipate and provide robust measures to ensure that resolution plans for such problems are agreed in advance so that there will not be this fluidity of negotiation. I completely agree with that. The measures that are being taken for banking union are designed to resolve precisely that set of circumstances. As for the legality of the situation, we will need to be assured that the arrangements proceed in accordance with the treaty.

[Mr Jack Straw (Blackburn) (Lab)]

The lack of effective supervision of the Greek Cypriot banking system has been notorious for many years and it has become a haven for Russian money laundering. What steps, either through this package or through other measures, are being taken better to control the banking system in Cyprus?

[Greg Clark]

The right hon. Gentleman will know that the agreement reached at the weekend includes action to address the reputation Cyprus has established as a potential home for money laundering and that is part of the conditionality for the package.

[Mr John Redwood (Wokingham) (Con)]

Given the importance of the euro’s stability to the London banking system and the wider world, will the British Government be lobbying the European Central Bank to ensure that it provides sufficient liquidity at all times should a run develop in a weaker bank or a weaker country, given the invitation to people to withdraw their deposits from any difficult institution?

[Greg Clark]

The pace of negotiations, thanks to the fact that today is a bank holiday in Cyprus and that that could potentially be extended, is meant to resolve the matter before a run on the banks is possible. My right hon. Friend is right that the situation is unsatisfactory and it is necessary to establish a more orderly system for anticipating or managing potential bank failures in the future. It is in everyone’s interest to ensure that there is no such collapse of the banking system in Cyprus.

[Mr Dennis Skinner (Bolsover) (Lab)]

Does the Minister realise that we have reached a sorry state of affairs when the eurozone—we are not members, thanks to the Labour Government last time round—[Interruption.] Oh yes; that is when it happened. I know Conservative Members like it, but we did it at the time. Is it not a sorry state of affairs that the eurozone can implement a poll tax, and that the Government were made aware of it at some point or other and have not told us at any time that they condemn this move? I am giving the Minister a chance now: condemn it!

[Greg Clark]

It was the policy of the Labour party to be committed in principle to joining the euro, and it was our right hon. Friend the Member for Richmond (Yorks), now the Secretary of State for Foreign and Commonwealth Affairs, who was the first in the House to say that the Conservative party would campaign against the euro and would not join. As a result of being outside the eurozone, we are not responsible for the arrangements there. We are not part of those negotiations. This is a negotiation between the Government of Cyprus and members of the eurozone.

[Stephen Williams (Bristol West) (LD)]

The amounts involved are eye-watering as a proportion of the Cypriot economy. We are used to bail-outs involving a haircut for creditors. This is the first time I have ever seen a complete scalping of depositors in order to finance a bail-in. Given that we are outside the various institutions of European decision making, how will the Government safeguard British depositors against future scalpings of this sort?

--- Later in debate ---

[Greg Clark]

My hon. Friend makes an important point. To put it into context, the European Central Bank said this morning that the situation of Cyprus and the Cypriot banking sector is unique. I think Members will reflect that it has unique problems that have required a unique and very difficult solution.

[Helen Goodman (Bishop Auckland) (Lab)]

Surely the Minister agrees that we have been in this situation before. Taking emergency measures that cause alarm is not the same as making fundamental reforms which are necessary. Will the Minister be pressing for more responsible tax and financial controls? For example, the corporation tax is to increase from 10% to 12.5%. Surely he would agree that a responsible financial policy would mean a much bigger increase.

[Greg Clark]

I do not think anyone is suggesting that the measures that have been taken are not rigorous and exacting. The reaction in Cyprus and across the eurozone indicates that these are regarded as very tough measures, including on the transparency of the banking system, particularly to avoid the reputation for money laundering. However, this is a matter for the Cypriot Government. They have had to convince their partners in the eurozone that this programme represents a credible set of conditions which can give confidence to those who are helping to bail them out.

[Mr William Cash (Stone) (Con)]

The Minister will no doubt appreciate that Mr Draghi’s comment that the European Central Bank will do whatever it takes clearly includes daylight robbery of British pensioners, among others. Does he agree that this is symptomatic of the dysfunctionality of the European Union? Will he also note that Germany has very much driven the measures itself, and furthermore that it has a surplus of £29 billion with the rest of the European Union, whereas we have a deficit of £48 billion?

[Greg Clark]

Clearly, it is a matter of regret, and lessons should be learned from the situation that Cyprus finds itself in. One of the clear lessons is that it should not have been allowed to descend into this state of indebtedness, and the banks should not have been allowed to get into their present position of vulnerability. It is in our interests, as well as in the interests of other members of the eurozone, that we have a much more soundly based banking system right across Europe.

[Mr Nigel Dodds (Belfast North) (DUP)]

I welcome the action that has been taken to protect the deposits of members of our armed forces in Cyprus, but to follow on from what has just been said, is not the lesson of this whole episode to spell out very clearly to anyone who advocates in future any greater European integration or any joining of the euro, “Hands off our money”?

[Greg Clark]

I am sure that our constituents in this country will be relieved and reassured that we are not part of these arrangements and not exposed to the consequences of the failure that is sought to be averted in Cyprus.

[Margot James (Stourbridge) (Con)]

This is a truly shocking development, impacting very unfairly on savers who are already feeling the impact of the very low interest rates brought about by quantitative easing; it is acting as a real disincentive to save for one’s older age. I congratulate my right hon. Friend on protecting members of the armed forces, but will he clarify his intentions for British pensioners, having put on hold pension payments? Can anything more be done to reassure British pensioners living in Cyprus that they will not be affected?

[Greg Clark]

It is open to British pensioners to have their pension paid into another account. They can nominate that account from now on through the Department for Work and Pensions’ website. Their pensions are safe; we will make sure of that. The Minister of State, Department for Work and Pensions, my hon. Friend the Member for Thornbury and Yate (Steve Webb), will update the House. Once the details of the final package become known, in so far as they have implications for the payment of pensions, we will update the House.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

My Cypriot constituents are shocked and angered that the much-publicised deposit guarantee scheme appears to be worthless. They are further outraged that the reason given for that is that the banks have not gone bankrupt, therefore the deposit guarantee does not apply. What action will the Minister take to speak to his EU colleagues to see what can be done, even at this late stage, to repair the damage to trust and confidence in our banking system?

[Greg Clark]

The hon. Gentleman and I had a conversation this morning. I know that he has many constituents who are very worried at this time, and I have said that I am happy to meet them so that we can understand their particular situation. It is clearly an unsatisfactory situation in which the Government of Cyprus, as I understand it, faced a choice between a measure such as this and contemplating the collapse of the banking system. That is a choice that no one would want to make. It is a choice that they made and that they are putting to the Cypriot Parliament, but just as this Parliament is sovereign, so that is true in Cyprus, and the debates that they will be having during the next two days will determine whether what has been proposed over the weekend is what pertains.

[Mrs Cheryl Gillan (Chesham and Amersham) (Con)]

The Government are right to protect the position of members of our armed services, but the Minister knows that many pensioners are exposed and I hope that he will consider extending the guarantee to British pensioners living in Cyprus. On a practical note, I believe that the Cypriot Parliament is due to vote on Tuesday evening and that the bank holiday in Cyprus has been extended until Thursday in order to keep the banks shut. Does that apply to branches of Cypriot banks in other countries, and what will happen if the vote in Parliament on Tuesday does not go the way that the Cypriot Government wish it to go?

[Greg Clark]

Discussions are continuing with the eurozone members as well as the Cypriot Parliament, so it would be wrong to speculate on the outcome. I can confirm that Cypriot bank branches in this country are open and operating normally today.

[Kate Hoey (Vauxhall) (Lab)]

The public will be outraged that British nationals are having their money stolen from them on the orders, let us be frank, of the German Government. Can we now move forward with legislation in this Session of Parliament to put on the statute book the power to have a referendum in this country on our relationship with the European union?

[Greg Clark]

The hon. Lady will know that these matters have been discussed in the House. The Prime Minister has made a speech in which he said that if he is re-elected there will be such a referendum. As to whether the legislation should come before the House before the general election, that is for others.

[Mr David Burrowes (Enfield, Southgate) (Con)]

The Minister will no doubt sympathise with a new Government picking up an appalling financial legacy and having to make tough decisions, but the raid on deposits was extraordinary and unprecedented. Will he provide assurance to my constituents that not only are the Laiki bank branches and the Bank of Cyprus, the headquarters of which is in my constituency, open for business, but the deposits are guaranteed, and that that deposit guarantee scheme applies and will continue to apply whatever the decision of the Cypriot Parliament?

[Greg Clark]

I applaud the work that my hon. Friend does as chairman of the all-party group on Cyprus. The proposal that has been made would certainly protect his constituents who have deposits in those banks, and the final terms are being discussed in the Cypriot Parliament. Certainly, those banks that have subsidiaries in the UK are governed by the UK regulators and subject to the UK financial compensation scheme.

[Mr Kevan Jones (North Durham) (Lab)]

The Minister has mentioned members of the armed forces, but clearly no scheme is yet in place. What advice is being given to members of the armed forces currently serving in Cyprus, and has the Ministry of Defence stopped the payment of wages and expenses into Cypriot bank accounts?

[Greg Clark]

The arrangements for advice on implementation of the commitment to compensate members of the armed forces cannot proceed until the Cypriots have decided on the final arrangements, which will be in the next few days. Having made the commitment to ensure that pensions are not paid into bank accounts to which access might be questionable, I will discuss the hon. Gentleman’s point with my right hon. and hon. Friends to ensure that similar arrangements are considered for the MOD.

[Sir Bob Russell (Colchester) (LD)]

The Minister is presumably unable to say how many of the 3,000 members of the armed forces serving in Cyprus will be affected, but does he agree that serving military personnel who have Cypriot bank accounts, even if they are not in Cyprus, should also be included in the scheme? Also, why will the Government be compensating only for “reasonable” losses and not full losses?

[Greg Clark]

I know that many of my hon. Friend’s constituents will be in that situation and will have bank accounts in Cyprus. We have made a commitment, but these are very early days—we learned only over the weekend that these matters are being discussed. I think it is appropriate for the Government to make an immediate commitment of reassurance to those members of the armed forces. They have no choice about being sent to Cyprus, and when they go on this country’s business it seems to me to be reasonable to make that commitment.

[Mr William Bain (Glasgow North East) (Lab)]

Does the Financial Secretary have a view on how it looks to the world that ordinary savers are losing proportionately more of their deposits than institutional investors are? Is there not a strong case for the eurozone to get on and complete arrangements to create a single resolution mechanism so that banks can be resolved in an orderly way?

[Greg Clark]

Yes.

[Jacob Rees-Mogg (North East Somerset) (Con)]

As the EU has now arbitrarily abandoned its £85,000 deposit insurance scheme, what advice would my right hon. Friend give British subjects in other European countries, such as Ireland, Portugal, Spain, Greece and Italy, whose deposits might also be at risk in future? Would it be best for them to repatriate their funds?

[Greg Clark]

The ECB made a clear statement today that the situation in Cyprus is unique, and I think that a study of the situation there would confirm that.

[Barry Gardiner (Brent North) (Lab)]

The ECB action was supposed to create stability, but it has created instability. The Minister has made it clear that the Chancellor was not consulted on that beforehand, but has the Chancellor made it clear to the ECB that, although this particular deal may be renegotiated, the instability will linger in precisely the way the hon. Member for North East Somerset (Jacob Rees-Mogg) suggests?

[Greg Clark]

The whole House has an interest in ensuring that right across Europe, in countries that are members of the eurozone or those that are not, there is confidence in the banking system. This period of several days of uncertainty is undesirable. We need to get arrangements in place, as the hon. Member for Nottingham East (Chris Leslie) said, to have clear resolution plans in advance. It needs to be sorted out quickly, because the situation is undesirable. I think that it is in everyone’s interests that it is resolved very soon.

[Dr Matthew Offord (Hendon) (Con)]

I am grateful to the Minister for the conversation he and I had about the issue earlier today. I am also grateful to Councillor Andreas Tambourides, who has discussed it with me, and to my constituent Wayne Boothroyd, who e-mailed me to ask specifically about British service personnel on the island. What assurances can the Minister give me to pass on to my constituent that members of the armed forces will be compensated for their total losses, not their “reasonable” losses, as the Minister said in his statement?

[Greg Clark]

The Defence Secretary and the Foreign Secretary have given a voluntary commitment to making sure that we do right by our armed forces, and their intentions are absolutely clear—that we should not be putting at a disadvantage the men and women who serve our country overseas, in this case in Cyprus.

[Caroline Lucas (Brighton, Pavilion) (Green)]

I am a bit surprised by the lack of moral outrage from the Minister on behalf of the people who live in Cyprus. He calls the measures vigorous and exacting, but are they not actually immoral and unfair? Will he simply say that it is wrong for the Cypriot authorities to pilfer the savings of ordinary people living in Cyprus?

[Greg Clark]

Not having been part of the negotiations, it is difficult for any Member of this House to know what the alternative was. The elected representatives of the Cypriot Government clearly accepted what was proposed in contemplation of a fate that they considered to be worse, which was the collapse of the Cypriot banking system. This is a situation that none of us wants to be in. Thank goodness that in this country, as a result of being outside the eurozone and having introduced discipline into our finances, we are not going to be.

[Stephen Mosley (City of Chester) (Con)]

We may well find that some of the biggest British losers are people who are in the process of buying or selling property in Cyprus. Can the Minister offer any reassurance to people who may have lodged money with a solicitor in an escrow account, for example, that the solicitor will be responsible for the losses and not the person who is trying to buy a property?

[Greg Clark]

My hon. Friend raises an important point. I have made a commitment to the House to provide further statements once we have more detailed information on how all these arrangements are likely to apply.

[Kelvin Hopkins (Luton North) (Lab)]

This is clearly deeply worrying for the people of Cyprus, and we have to condemn what is being done to them, but it is also worrying for millions of working people across the whole eurozone. Is this not just the beginning of a situation in which Cyprus and other countries withdraw from the eurozone and, indeed, the euro itself may be wound up? Are the Treasury, the Government and the Bank of England making preparations for that eventuality?

[Greg Clark]

The Treasury and the Government always make contingency plans for many eventualities. It is important to reflect on the statements made by the German Government and by the ECB that the situation in Cyprus is very dissimilar to that prevailing in other countries. It would not be right to draw a parallel between what is happening in Cyprus and the situation that exists elsewhere.

[Andrew Percy (Brigg and Goole) (Con)]

Many British citizens who move themselves or their assets to Cyprus will have done so believing that going to another EU country offered them some protection. This theft clearly shows what a pup we have been sold on Europe over the years. Will my right hon. Friend take up the point made by my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) and ensure that proper advice is offered to British pensioners in other eurozone nations on how they can protect their pensions or return their deposits to this country?

[Greg Clark]

The agreement that was reached at the weekend was an agreement between the Government of Cyprus and the eurozone members. The ECB has said clearly:

“It’s the Cyprus government’s adjustment programme. If Cyprus’ president wants to change something regarding the levy on bank deposits, that’s in his hands. He must just make sure that the financing is intact.”

The Cypriot Parliament will, quite properly, be discussing and debating this matter. It has some influence, and indeed some control, over how these measures are levied.

[Alison McGovern (Wirral South) (Lab)]

As the Minister made clear, whether in the eurozone or not, what affects one country in Europe affects us all. Will he therefore answer the question asked by my hon. Friend the Member for Bolsover (Mr Skinner) and give us his view on this levy on deposits?

[Greg Clark]

The Government of Cyprus agreed to this proposal. The spokesman for the German Government was very clear that how Cyprus makes its contribution—how it makes the payments—is up to Cyprus. If the Government of Cyprus, recently elected by their people, make this decision, it is for them to justify it to the Cypriot Parliament.

[Mr Philip Hollobone (Kettering) (Con)]

Is this not proof positive, if any were needed, that if a country signs up to the euro it is effectively abandoning its economic sovereignty and national independence?

[Hon. Members]

Hear, hear.

[Greg Clark]

My hon. Friend makes a point that finds an echo throughout the Chamber. As the days go by, I think we are all reassured and relieved that we did not make the decision that the Labour party made in principle to join the euro.

[Wayne David (Caerphilly) (Lab)]

One of the fundamental rules of banking has been broken, in that the deposits and savings of ordinary people have been, in effect, taken over in part by the state. That is a fundamental breach. What assurances can the Government give us that this precedent will not be followed by other countries in the near future?

[Greg Clark]

As I said, we need to get resolution arrangements in place, but the ECB and the spokesmen for different members of the eurozone have been clear that the decision to impose this kind of levy was taken by the Cypriot Government with the eurozone. They could have done it in different ways, but that is the mechanism they chose.

[Mr Brooks Newmark (Braintree) (Con)]

Although it is absolutely right that the Government should support our armed forces personnel, I share the sense of moral outrage expressed by the hon. Member for Brighton, Pavilion (Caroline Lucas) that ordinary pensioners who have retired to Cyprus, who are citizens of ours and who do not think of themselves as members of the eurozone but as British citizens, will feel abandoned. Will the Minister assure me that he will fight hard, particularly for those pensioners who have less than €100,000 on deposit, to try to protect their money?

[Greg Clark]

Yes, but discussions and negotiations are taking place between Cyprus and the eurozone—and, indeed, in the Cypriot Parliament—on whether the proposals that were agreed over the weekend will be enacted. We have some way to go before we get to that stage and I will, of course, update the House if and when we get to that final stage.

[Chris Bryant (Rhondda) (Lab)]

I am amazed that the Minister is not more scandalised that thousands of ordinary Cypriots, in this country and in Cyprus, are going to lose money. Money will be filched from them when, frankly, the people who caused the problems—the Government of and the bankers in Cyprus—will not lose anything. Leaving that aside, how much British Government money from the Ministry of Defence and the Foreign and Commonwealth Office will be lost in Cypriot banks?

[Greg Clark]

I am scandalised that the situation in Cyprus was allowed to happen in this way. It should not have happened in terms of the supervision of the banking system or the country’s fiscal performance. We will not be able to make an assessment of our guarantee to the armed services until we see the final shape of the negotiations, but when we do I will make sure that the House knows about it.

[Bob Stewart (Beckenham) (Con)]

Further to the question asked by the hon. Member for Rhondda (Chris Bryant), it is undoubtedly true that the Ministry of Defence has funding in the Bank of Cyprus for operational expenses on our bases, including pay. Are we likely to be scalped? In other words, is it likely that our Government will bail out the Government of Cyprus?

[Greg Clark]

It is too early to make that assessment, but we should know in the next few days and I will, of course, update the House when the situation is clear.

[Andrew Stephenson (Pendle) (Con)]

Having visited our sovereign bases on Cyprus and seen the training facilities and some of the excellent decompression facilities for our troops returning from theatre, I am very concerned about the effect this proposal could have on our bases. Although I welcome what my right hon. Friend has said about compensating service personnel, will that include family members who have relocated to Cyprus with servicemen and women during their overseas posting?

[Greg Clark]

Yes, that is the intention. Clearly, if the family of a serving member of the armed forces has to relocate to Cyprus and maintain a bank account for everyday living expenses, it seems reasonable to include that in the proposed compensation arrangements. That seems to be the just thing to do.

[Mr Crispin Blunt (Reigate) (Con)]

What is the Minister’s assessment of the exposure of London financial markets to the potential crisis that may follow from this?

--- Later in debate ---

[Greg Clark]

The Bank of England keeps the arrangements under constant review. I think it is fair to reflect that Cyprus is an infinitesimal part of the European banking system and an even smaller part of the world banking system. Although this is an extremely worrying time for citizens of Cyprus and our constituents who have investments or connections in Cyprus, in the wider context Cyprus does not have the systemic importance of other countries.

[Harriett Baldwin (West Worcestershire) (Con)]

Whatever the Cypriot Parliament decides this week, this has been a torpedo across the European banking system. What advice would the Minister give to pensioners who live in Spain and Portugal about whether they should maintain large deposits in eurozone banks?

[Greg Clark]

I agree that this is a warning and that it is necessary to have more robust financial arrangements in place to prevent this sort of crisis from happening in other countries. However, I reinforce the advice of the ECB that this problem is unique to Cyprus, which is particularly exposed and is in a state of particular indebtedness.

[Mr David Nuttall (Bury North) (Con)]

Does the Minister agree that what we are witnessing in Cyprus is yet further evidence of the disastrous consequences of what happens when a country loses control of its economy by giving up its own currency?

[Greg Clark]

It is perfectly clear that the problems in Cyprus are related to its membership of the euro. Thankfully, we are not part of the euro, we do not have those problems and we have control of our own arrangements in this country—and long may that continue.

Economic Development

Greg Clark Excerpts

Monday 18th March 2013 Written Statements

[The Financial Secretary to the Treasury (Greg Clark)]

Today the Government are publishing their response to the Heseltine review, copies have been laid in the House. Lord Heseltine set out an ambitious vision in his review and the Government have responded, accepting the overwhelming majority of his recommendations.

At the centre of the Government’s response is action to tackle excessive centralisation. The Government will create a new single local growth fund from 2015 that will include the key economic levers of skills, housing and transport funding. Full details will be set out at the spending round. The Government will negotiate a local growth deal with every local enterprise partnership (LEP)—with the allocation of funds and flexibilities reflecting the quality of the LEP’s strategic economic plan and the capacity of the local area

Counter-Terrorism Act 2008 (Schedule 7)

Greg Clark Excerpts

Monday 18th March 2013 Written Statements

[The Financial Secretary to the Treasury (Greg Clark)]

My noble friend the Commercial Secretary to the Treasury, Lord Deighton, has today made the following written ministerial statement:

Paragraph 38 of schedule 7 to the Counter-Terrorism Act 2008 requires the Treasury to report to Parliament after each calendar year in which a direction under the schedule is at any time in force. This report provides details of the Treasury’s exercise of their functions under schedule 7 during the calendar year 2012.

The Schedule 7 powers

Schedule 7 provides HM Treasury with powers to implement a graduated range of financial restrictions in response to certain risks to the UK’s national interests. The risks it addresses are those posed by money laundering, terrorist financing and the proliferation of chemical, biological, radiological and nuclear weapons.

Direction given under the powers in Schedule 7

The Financial Restrictions (Iran) Order 2011 (“the 2011 order”) came into force on 21 November 2011. The order contained a direction by the Treasury requiring all UK financial and credit institutions to cease business relationships and transactions with all banks incorporated in Iran, including all subsidiaries and branches of such banks, wherever located, and the central bank of Iran.

The 2011 order was issued on the basis that activity in Iran that facilitates the development or production of nuclear weapons posed a significant risk to the national interests of the UK. The decision was made because of the risk caused by the activity of Iranian banks in facilitating the development or production of nuclear weapons. Iranian banks play a crucial role in providing financial services to individuals and entities within Iran’s nuclear and ballistic missile programmes. Iranian banks can be exposed to the risk of being used by proliferators in Iran’s nuclear and ballistic missile programmes.

In accordance with paragraph 15(4) of schedule 7, the 2011 order ceased to have effect at the end of the period of one year beginning with the day on which it was made, on 20 November 2012.

The Financial Restrictions (Iran) Order 2012 (“the 2012 order”) was made and came into force on 21 November 2012, immediately on expiry of the 2011 order. The 2012 order contained a direction by the Treasury in the same terms as that in the 2011 order. The decision to give the direction in the 2012 order, in effect maintaining the restrictions in the 2011 order in place, was made because of the continued risk to the national interests of the UK caused by the activity of Iranian banks in facilitating the development or production of nuclear weapons. The direction mitigates the risk to the financial sector of being involved in proliferation financing.

Licensing

Under paragraph 17 of schedule 7, the Treasury can exempt acts specified in a licence from the requirements of a direction requiring the cessation or limiting of transactions or business relationships between UK and Iranian banks.

In operating the licensing regime in respect of the 2011 and 2012 order, the Treasury’s aim was to minimise the impact of the restrictions upon third parties, without compromising the objective of the direction.

Six general licences were issued by the Treasury exempting certain activities from the requirements of the 2011 order:

General Licence 1—permitted existing and new transactions involving transfers of under €40,000 for humanitarian purposes;

General Licence 2—allowed personal remittances under €40,000. (This licence included cover for payments of up to €40,000 to students studying in the UK);

General Licence 3—permitted existing or new transactions related to the provision of insurance permitted by EU regulation 267/2012;

General Licence 4—allowed UK banks to continue to hold accounts for asset-frozen Iranian banks and credit payment to those accounts in accordance with EU regulation 267/2012;

General Licence 5—allowed UK banks to continue to hold accounts of non-frozen Iranian banks, although they could not process any transactions on these accounts; and

General Licence 6—provided a seven-day grace period to allow payments in progress under existing contracts to be completed.

On 21 November 2012 the Treasury issued six general licences exempting certain activities from the requirements of the 2012 order. General licences 1 to 5 replicated the provisions of those issued in respect of the 2011 order. The new general licence 6 permitted transactions or business relationships already authorised under the 2011 order.

Applications for licences in respect of transactions that fell outside the scope of the six general licences were assessed on a case-by-case basis.

Between 1 January 2012 and 31 December 2012, 142 licences were issued and none were refused:

Seventy-two licences were issued under the 2011 or 2012 order, and 70 licences were issued in relation to transactions that were caught under both the UK order and EU regulation 267/2012 (or EU regulation 961/2010 which it replaced in March 2012).

Over half of the licences were issued in connection with payments due by an agreement or contract concluded before the prohibitions. Licences were also issued to facilitate UK banks exiting their relationships with Iranian banks in accordance with the order and the winding down of frozen Iranian banks in the UK, for business relationships, and to permit specific transactions such as humanitarian payments, personal remittances, legal expenses and the repayment of loans.

The Financial Restrictions (Iran) Order was revoked on 31 January 2013. The Treasury will report further on the revocation in the 2013 report.

Oral Answers to Questions

Greg Clark Excerpts

Tuesday 12th March 2013 Commons Chamber

[Jim McGovern (Dundee West) (Lab)]

3. What progress he has made on supporting victims of interest rate swap mis-selling.

[The Financial Secretary to the Treasury (Greg Clark)]

On 31 January, the Financial Services Authority published the findings of the pilot review into interest rate swap mis-selling. The full review of 40,000 cases is now under way, and the FSA says it should be completed within six months. Small business organisations played a major role in exposing the scandal, so I can announce to the House that from today bodies representing consumers, including small businesses, will be able to apply to make super-complaints to the Financial Conduct Authority, giving them fast-track access to the regulator. That important power should help to ensure that any future misconduct is detected quickly and put right.

[Jim McGovern]

I thank the Minister for that answer. My constituent, Mr James Boyle, has a contract with Clydesdale bank, which seems to be excluded from the review. The main banks—RBS, HSBC, Barclays and Lloyds—are all included. Why are the Clydesdale bank, and my constituent, excluded from the review?

[Greg Clark]

I can confirm that the Clydesdale bank has now become part of the review, as have all the other principal banks. The hon. Gentleman has raised the case of his constituent with me before; even though the product was not within the review’s terms of reference, Clydesdale has agreed to consider it as part of the review.

[Andrew Bridgen (North West Leicestershire) (Con)]

I have constituents who are concerned that the FSA may come under pressure from the banks to water down its findings and reduce the scope of the redress scheme, to their disadvantage. What can my right hon. Friend say to reassure my constituents about that important issue?

[Greg Clark]

My hon. Friend raises a very important point. The review is under the auspices of the Financial Services Authority, and each bank has had to appoint independent reviewers who are themselves accountable to the FCA. It is absolutely crucial that the objectivity they bring to bear cannot be compromised, and I have given the FSA clear feedback that it should have that in mind during the review.

[Andrew Selous (South West Bedfordshire) (Con)]

4. What steps he has taken to increase the amount of (a) lending and (b) equity financing to the real economy.

--- Later in debate ---

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

11. What recent estimate he has made of the extent to which the rate of increase of average earnings has kept in line with the rate of consumer price inflation.

[The Financial Secretary to the Treasury (Greg Clark)]

The average gross weekly earnings of full-time employees rose by 2.8% between the last quarter of 2011 and the last quarter of 2012, while consumer prices rose by 2.7%. As a result of the increases in the personal tax allowance and rising employment, average household disposable income has increased by 2.8% more than inflation.

[Chi Onwurah]

Clearly the Chancellor has no understanding of what it is like to get by on a low income when increases in prices such as VAT mean debt and hardship for many families. Equally, last week the Office for Budget Responsibility confirmed that the Prime Minister has no understanding of his economic policies either. Is that why the Chancellor is implementing a tax cut for millionaires—because he does not understand real life or economics?

[Greg Clark]

If the hon. Lady had a grasp of economics, she would understand the need to take people out of taxation, which is what we have done through the increase in the personal allowance. In fact, that increase affects the lowest paid most of all and is equivalent to a pay increase of 4.5% since the general election. A higher personal allowance is a better policy than the shadow Chancellor’s plan to introduce the 10p rate, which the Financial Times described as “a pretty basic howler”.

[Miss Anne McIntosh (Thirsk and Malton) (Con)]

The shadow Chancellor is a very gracious chap and, I am sure, would wish to commend the Government for taking 25 million people out of tax by the simple measure of increasing the personal allowance. Can my right hon. Friend share with the House what that means for an individual’s annual budget?

[Greg Clark]

Yes. By next month it will be worth £600 a year for every basic rate taxpayer, which is an enormous increase. For someone on median earnings, it is equivalent to a pay rise of 4.5%. I would have thought that the shadow Chancellor, who professes to be interested in helping the low-paid, would endorse the policy.

[Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)]

12. What estimate he has made of what the annual value of his planned reduction in the additional rate of income tax to 45% would be to a person earning £1 million a year.

--- Later in debate ---

[Jacob Rees-Mogg (North East Somerset) (Con)]

Although article 153(5) of the treaty on the functioning of the European Union may be esoteric to some, it is rather important because it prohibits the European Union from running an incomes policy. It seems to me that the bonus limit is an incomes policy; it is not a power of the European Union and therefore ought to be resisted by the Government by all possible means. Will the Chancellor take it to the European Court of Justice?

[The Financial Secretary to the Treasury (Greg Clark)]

I am delighted to answer my hon. Friend’s question. We are looking carefully at the provisions of the treaty and at every aspect of the proposals. We think that this country has a particularly rigorous set of arrangements, and we do not want to see them diluted.

[Nia Griffith (Llanelli) (Lab)]

T4. Companies are telling me that with demand at rock bottom and infrastructure projects failing to get away from the starting blocks, they see little incentive for investment in UK industry. When drawing up the Budget, will the Chancellor consider expanding the scope of enhanced capital allowances to cover a broader range of investment, and therefore encourage companies to invest in the UK rather than take their money elsewhere?

--- Later in debate ---

[Mark Reckless (Rochester and Strood) (Con)]

House building approvals are up by two thirds. Does that reflect the success of the Government’s funding for lending schemes, the Financial Secretary’s successful planning reforms, or the sustained period of record low interest rates?

[Greg Clark]

All of the above.

[Mr Michael McCann (East Kilbride, Strathaven and Lesmahagow) (Lab)]

T7. My weekend surgeries were dominated by constituents facing backdated payment demands from Her Majesty’s Revenue and Customs, despite the fact that they had discharged their responsibilities and had been assured that their tax affairs were in order. Does the Minister think it is right to put people through financial stress and misery because of HMRC mistakes and staff cuts?

Financial Services (Banking Reform) Bill

Greg Clark Excerpts

Monday 11th March 2013 Commons Chamber

[The Financial Secretary to the Treasury (Greg Clark)]

I beg to move, That the Bill be now read a Second time.

The Bill has a simple objective at its heart, which is to answer what the Chancellor has called the British dilemma: how can Britain be one of the world’s leading financial centres without exposing ordinary working people in this country to the terrible costs of banks failing?

Let me illustrate both sides of the dilemma. The financial services sector is one of our most important industries. Together with related services, it employs around 2 million people in this country, two thirds of whom work outside London. Even in the recession, financial services contribute about £1 in every £8 of government revenue to pay for public services. The industry is by far our biggest exporter, generating last year a £47 billion surplus from overseas trade and providing us with vital foreign exchange earnings.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

The Chancellor is on record as saying that this is a critical piece of legislation if we are to get the banking system right, yet he chooses not to appear before us today. There has been no explanation of why the Chancellor is not in the Chamber. Could the right hon. Gentleman give us one?

[Greg Clark]

I should have thought it was reasonable for the Financial Secretary to the Treasury to introduce a Bill on financial services.

Let me continue to make my point. The financial services sector is of great importance to Britain, but that importance carries risks for this country. At their peak, the banks’ balance sheets amounted to 500% of UK GDP, compared with 100% in the US and 300% in France and Germany. In 2008, for example, the Royal Bank of Scotland was the biggest bank in the world and, as we all know, Britain also witnessed the first bank run for more than a century, with depositors queuing in the streets to get their savings out of Northern Rock. RBS and HBOS had to be bailed out, with £65 billion of taxpayers’ money needed to shore up the banks.

The system of regulation failed, as did the culture of the banking sector, in not preventing and resolving the crisis without recourse to taxpayers’ money or otherwise putting people’s deposits at risk. That is why fundamental reform was needed, the first pillar of which has been put in place through the passage of the Financial Services Act 2012, which received Royal Assent in December and establishes a clear and distinct role for prudential regulation and conduct regulation, a role that was blurred and ineffective.

The Bill is the second pillar of those reforms and it reflects the considered views of no fewer than two expert commissions. The first, chaired by Sir John Vickers, was the Independent Commission on Banking, whereas the second, chaired by my hon. Friend the Member for Chichester (Mr Tyrie), was the Parliamentary Commission on Banking Standards, on which many Members of the House have served.

Let me say something about the process we followed, briefly summarise how the Bill reflects the recommendations of each commission and then explain in some detail the rationale for the few remaining areas in which the Government’s proposed approach differs.

[Alison McGovern (Wirral South) (Lab)]

In his discussion of the process, will the Financial Secretary explain why, given that the crash in 2008 to which the Bill is a response was one of the most momentous economic events in my lifetime and the lifetimes of many people, and given the importance of its proposals, the Chancellor did not see fit to lead the debate today?

[Greg Clark]

I am disappointed that my presence here does not satisfy the hon. Lady. The Chancellor trusts his Financial Secretary to speak at the Dispatch Box. I do not know how it is in the Opposition.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

Will the Minister at least tell us where the Chancellor is? Is he watching on television? Is he doing some shopping or knitting? What is going on? Where is the Chancellor right now?

[Greg Clark]

I should have thought that the hon. Gentleman would reflect on the fact that the Chancellor has many serious responsibilities and he is discharging them at the moment.

Let me talk about the process that we have followed, then I will address in some detail the particular aspects of content. The process that we have followed has sought to come up with the best possible way to address the dilemma that I described, and to do so by building, as far as possible, a broad consensus. That may not be there—yet—on every particular, but I think most Members would concede that Sir John Vickers’ commission has come closer to achieving that than many people thought possible.

The Independent Commission on Banking was established as soon as possible after the general election, in June 2010. It took extensive evidence before publishing an issues paper in September 2010 and an interim report in April 2011, on which it consulted, before publishing its 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 the responses to the consultation, a draft Bill was published last October and the Parliamentary Commission on Banking Standards was asked to subject it to pre-legislative scrutiny. The parliamentary commission’s report was published on 21 December last year and many of its recommendations were accepted in the Bill published in February and laid before the House.

At the time of introduction, I made it clear from the Dispatch Box that we would table further amendments in response to the commission’s future recommendations as the Bill proceeds through both Houses. I hope that Members on all sides would agree that this has been an exceptionally extensive process of both policy development and scrutiny of emerging proposals, and I repeat what I said to the right hon. Member for Wolverhampton South East (Mr McFadden) last month, that I will personally insist on taking a constructive and open-minded approach to the views of this House throughout the Bill’s passage. To the extent that the Bill reflects the unanimous views of Parliament, it is immeasurably strengthened.

[Kelvin Hopkins (Luton North) (Lab)]

Does the Minister accept that one of the major factors in the 2008 crisis was the complete failure of the auditing sector to get a grip on what banks were doing? Will he be putting forward proposals for strengthening audit for the future?

[Greg Clark]

That was not a set of particular recommendations in the reports that were commissioned, but I know that it is of some interest to members of the parliamentary commission and, as I will go on to say, we stand ready to consider their further recommendations, and I dare say they might have something to say in that respect.

[Chris Leslie]

I want to pick up on the Minister’s statement that he wants to take this parliamentary process seriously and listen to the debates. If that is the case, why on earth has he ignored the clear recommendation of the Parliamentary Commission on Banking Standards that there should be a three-month gap between the publication of the Bill and the Committee stage in the House of Commons? We will not have a Committee stage at a time when we can fully take account of the final recommendations of the commission. Is that not totally contemptuous of the Commons parliamentary procedures? Perhaps that is why the Chancellor has not turned up for the debate.

[Greg Clark]

I just said that I intend to be constructive and to pursue the approach that we have taken. If the hon. Gentleman will be patient, I will respond shortly to that particular recommendation.

Let me summarise the principal contents of the Bill where they reflect the advice of one or both of the commissions, before I set out the areas in which we take a different view. One of the central recommendations of the Independent Commission on Banking is that the UK banks should ring-fence

“those banking activities where continuous provision of service is vital to the economy and to a bank’s customers.”

That recommendation has attracted widespread support, and the Bill creates the basic architecture of the ring fence by making it an objective of the regulator—the Prudential Regulation Authority and, if necessary, the Financial Conduct Authority—to secure the continuity of core services by preventing ring-fenced bodies from exposing themselves to excessive risks, by protecting them from external risks, and by ensuring that, in the event of failure, core activities can carry on uninterrupted, the so-called resolution objective. The core activities are defined, as recommended by Vickers, as the taking of retail and small and medium-sized enterprise deposits and overdrafts, but they can be added to if required through secondary legislation.

In response to the parliamentary commission’s recommendations, the Bill is now clear that to be ring-fenced means that the five so-called Haldane principles of separation should be followed, namely that the ring-fenced bodies should have separate governances, including boards; remuneration arrangements; treasury and balance sheet management; risk management; and human resource management. As the parliamentary commission has also recommended, directors of banks will be held personally responsible for ensuring that the ring-fence rules are obeyed. The parliamentary commission also made a recommendation that the ring fence should be electrified. That is to say that, if the rules are breached, the banks should be forcibly split.

While the Bill is before the House, the Government will bring forward amendments to provide a power to require the full separation of a banking group, where, in the opinion of the regulator and the Government, such separation is required to ensure the independence of the ring-fenced bank. As hon. Members know, the parliamentary commission made a further recommendation for a power to trigger separation of the entire system, which I will come to shortly.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

How confident is the Minister that over the coming years the all-powerful financial lobby will not water down the ring fence and return to a business as usual scenario?

[Greg Clark]

That is a principal source of concern. Sir John Vickers, the author of the report, has given evidence in public that he is confident that the arrangements are robust, but we reflected on one of the recommendations of the parliamentary commission to provide this electrification so that there are consequences for a bank that tries to game the system. That is right and it is a valuable contribution from the commission.

[Mr Andrew Tyrie (Chichester) (Con)]

Sir John Vickers has in evidence to us also endorsed in full our proposals for electrification, part of which the Government are rejecting.

[Greg Clark]

I will deal with the important recommendation made by my hon. Friend’s commission very shortly.

For the sake of completeness, let me summarise the Bill’s other main provisions.

[Stewart Hosie (Dundee East) (SNP)]

The Minister said that electrification would work because the regulator—the PRA or the FCA where a financial institution is not PRA-regulated—will be given the power to ensure core services. Does he see any issues arising if the PRA and the FCA perhaps take a different approach to what they might do to the same institution? Is there a concern about two different regulators looking at different institutions on the same matter?

[Greg Clark]

The hon. Gentleman makes an important point, which we considered in drafting the Bill. We would expect all of these activities and institutions to be regulated by the PRA. The FCA was included in the Bill as a means of ensuring that if some other activities were to take place in the future—although we do not envisage that happening—it would not be necessary to come back to the House. That is our clear intention.

Let me summarise what the Bill does include before I go on to talk about what it does not. As proposed by the independent commission, the Bill provides that deposits protected by the Financial Services Compensation Scheme—the deposits of individuals and small businesses up to £85,000—will be preferential debts in insolvency. The Bill provides the regulator with the power to require ring-fenced banks to maintain a buffer of at least 17% of what is referred to as the primary loss absorbing capacity—that is, equity, other non-equity capital instruments, and debt that can be written down or converted into equity in the event that a bank fails. This allows losses to fall on the bank’s wholesale creditors—sophisticated financial investors—rather than on ordinary taxpayers, as was the case with RBS.

A legitimate question arises as to whether additional loss absorbency requirements should apply, in an international financial centre such as the United Kingdom, to the overseas operations of UK-based global banks. This has been much debated in the House, both before the parliamentary commission and elsewhere. It is obviously right that where the overseas businesses of a UK-based bank could pose a threat to UK financial stability, or to the British taxpayer, that bank should issue loss-absorbing debt against the entirety of its group operations. Equally, where overseas units do not pose such a threat they should be exempt from loss-absorbing debt requirements, not least to avoid creating a false impression that the UK somehow stands behind those overseas businesses.

The question that has exercised the commission is this: who should decide? The Government have listened to the Financial Services Authority and the parliamentary commission on how that should work. We agree that the requirement should follow the strategy for managing the failure of each group, known as the resolution strategy. Where a UK parent company will provide support to resolve failing overseas operations, the regulator must ensure that the parent company issues loss-absorbing debt against the entire group. However, where a bank’s overseas subsidiaries would be resolved locally by overseas regulators without reliance on the UK parent, the parent company should not be required to issue loss-absorbing debt against those overseas subsidiaries. Crucially, it will not be the bank’s call but the decision of the regulator and the Treasury as to whether group primary loss-absorbing capacity—PLAC—should be held.

[Mr Love]

Of course, the UK regulator will have to know whether the third-country regulator will accept responsibility for the subsidiary. How does the Minister intend to ensure that the UK regulator can be reassured that the third-country regulator will accept responsibility for the subsidiary should it get into trouble?

[Greg Clark]

The hon. Gentleman is absolutely right. That will be one of the requirements—the regulator, and indeed the Treasury, will need to be satisfied by the bank that the overseas regulator has accepted, and credible arrangements are in place, to ensure that no liabilities will fall on the UK taxpayer.

[Mr Tyrie]

I apologise for interrupting the Minister a second time. Just to be clear, will it be the regulator or the Treasury that will ultimately decide what constitutes adequate PLAC? A moment ago he referred to the regulator and the Treasury. Which will it be?

--- Later in debate ---

[Greg Clark]

The resolution plans have to be agreed between the regulator and the Treasury, so both will have that responsibility.

[Stewart Hosie]

Just to get some clarity on the previous point about the relationship with overseas regulators, if both the Treasury and the regulator are required to be convinced of the plan, how will that work in the relationship with, say, the single supervisory mechanism in Europe? Will it, too, not be required to be convinced, or at least will discussions not have to take place, to determine first where liability might lie and then whether the resolution plans are adequate?

[Greg Clark]

The reason for arranging this through the resolution plans is that they should be agreed in advance and everyone should be clear who will be responsible. It is no good the Treasury or the regulator in this country thinking that an overseas jurisdiction will pick up the bill if they were actually blissfully ignorant of it, so the hon. Gentleman is absolutely right that there has to be that clarity.

As I promised on 4 February, I have provided Parliament with drafts of the principal statutory instruments so that the House, while scrutinising the Bill in detail, can understand more clearly how the powers that the Bill grants are intended to be used. As a further aid to scrutiny, I will also make available to the House, in advance of consideration in Committee, a so-called Keeling schedule giving a consolidated text of those parts of the Financial Services and Markets Act 2000 that will be amended by the Bill, including the amendments the Bill will make.

Let me turn to some of the relatively few recommendations of either the Independent Commission on Banking or the parliamentary commission on which the Government have not been persuaded. There are four main areas to consider. The first is the timing of scrutiny, which the hon. Member for Nottingham East (Chris Leslie) mentioned. I hope that hon. Members will accept, from the process I described earlier, that these proposals have already benefitted from an exceptional degree of consideration, both in the amount and, if I may say so, in the august quality of its scrutineers. It will soon be three years since the Vickers commission began its work, and it is less than two years until all the secondary legislation must be enacted if this work is to be completed in this Parliament, as I think we all hope it will be. The Bill is comparatively short—20 clauses— and the time envisaged for its Committee stage is not unreasonable for consideration of all the amendments proposed by the parliamentary commission in its report published today.

However, I know that the parliamentary commission has other advice to give, and I welcome its commitment to produce its final report by the middle of May. Once we have received the commission’s advice, we will of course want the chance to be able to take it. I therefore give this commitment: subject to the usual channels, I will make sure that this House has enough opportunity to consider and debate whatever further recommendations the commission makes in its final report.

[Mr Love]

I thank the right hon. Gentleman for that commitment. Another issue that made life more difficult for the parliamentary commission was the lack of any knowledge of the delegated legislation that he has said will go through the House. Will he give some indication as to when that will be published so that although the parliamentary commission might not have that information available to it, the Public Bill Committee may?

[Greg Clark]

I am grateful for the hon. Gentleman’s point. As I said, I have published some of the principal statutory instruments and more will be available before the Bill goes into Committee. I will make sure that the House has access to the principal measures; as he knows, minor measures will sometimes follow. I repeat that it is absolutely my intention that the Bill should be properly considered and scrutinised by this House. The strength of these arrangements will benefit from their being exhaustively considered and enjoying the full confidence of the House.

[Mr Tyrie]

I apologise for interrupting for a third time, but I want to clarify the scrutiny question. The Government intend to get the Bill out of Committee before the date that the Banking Commission had proposed that it should go into Committee. Therefore, this all boils down to how much time we are going to get on Report. Will the Minister now, at the Dispatch Box, give a commitment to two days on Report?

[Greg Clark]

I cannot do that, but I repeat my commitment that this House will have the opportunity fully to consider the amendments proposed by my hon. Friend’s commission. He has not yet produced his report, so we do not know what he has in mind, but I have been as clear as I can at the Dispatch Box that there is no intent to avoid scrutiny; quite the opposite.

[Chris Leslie]

The Minister talks in very emollient tones, because he likes to sound moderate, but this is a series of instances of contempt for the House of Commons’ powers and our ability to scrutinise the Bill. The Government ignore the recommendation of the parliamentary commission, they then try to whisk the thing out of Committee before we have even had a chance to consider the recommendations of the commission, and now, when asked for a mere two days on Report, the Minister will not even give that commitment. The Chancellor is not here, either. In what seriousness do the Government hold this Bill? There is a sense that it is just part of a rubber-stamping exercise for them.

[Greg Clark]

The hon. Gentleman will discover that through our debates in Committee he will have plenty of opportunity to scrutinise the Bill. When we have the commission’s recommendations, if we think that they need more than a day on Report then I will make the case for that. Whatever happens, I will ensure that this House has the opportunity fully to consider these matters.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

I am afraid that I want to press the Minister further on the same point. He said that the Government would ensure that there was full consideration in this House of further recommendations from the Parliamentary Commission on Banking Standards, yet the timetabling motion that he will move later says:

“Proceedings in the Public Bill Committee shall…be brought to a conclusion on Thursday 18 April”.

That is before the date of the parliamentary commission’s final report. How meaningful will be his commitment to full consideration of those proposals, given that he is rushing the Bill through Committee before the commission, which I remind the House was set up by the Chancellor, has even issued its final report?

[Greg Clark]

The right hon. Gentleman will find that he is satisfied with the scrutiny that is available. It is a question of chickens and eggs. We have not yet had the recommendations of the commission, on which he serves. When it makes its recommendations, if we think that they require more time then we will certainly make sure that there is plenty of opportunity for the House to scrutinise these matters.

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

Will the Minister give way?

[Greg Clark]

I will give way for the last time.

[Ed Balls]

I remind the Minister that, around the time of the LIBOR scandal a year ago, a serious proposal by the Opposition for a full, open public inquiry into these issues was rejected by the Chancellor in favour of a parliamentary commission. The commission’s recommendations on process as well as substance and the House of Commons’ scrutiny of its recommendations —which will not even have been made by the time the Committee stage is complete—are being treated in a way that is very much against the spirit of the Chancellor’s announcement last summer, when he rejected a full public inquiry. If the Minister can get hold of the Chancellor before the vote at 10 pm, he should tell him that the Government should reconsider the contemptuous way in which they are treating the House of Commons and the all-party parliamentary commission of both Houses. It is not in line with the spirit of the discussions that the Chancellor had last summer with the chair of the commission, the hon. Member for Chichester (Mr Tyrie).

[Greg Clark]

The right hon. Gentleman will find that he will be perfectly satisfied with the degree of scrutiny that the recommendations, which have not yet been made, will receive. I have made that commitment and he will see it in time, even if he is not very trusting at this stage. I hope he will change his view.

One of the parliamentary commission’s policy recommendations was for a general reserve power to split up the entire banking system if it were considered to be appropriate in future. The Chancellor, the chairman of the commission—my hon. Friend the Member for Chichester—and, indeed, the Archbishop of Canterbury had a learned and erudite discussion about the origin of the sword of Damocles metaphor. The Government’s view is that such a power would, in effect, introduce a different policy—one that was considered and rejected by the Independent Commission on Banking, which concluded that full separation would have higher costs for a gain

“that might not even be positive”—

without anything like the three-year period of scrutiny and analysis that this policy has enjoyed.

The proposal would, in effect, legislate for two policies at the same time—ring-fencing and full separation. We must legislate for the policy that the Vickers commission proposed. If a future Government were to consider that ring-fencing was no longer the right solution—which they would be perfectly entitled to do—they should conduct a full analysis of the case for alternative reforms and, in the light of that analysis, introduce new legislation to Parliament.

In addition, the parliamentary commission has proposed that the exercise of the reverse power by the Prudential Regulation Authority should include safeguards, including a Treasury veto, to ensure that the regulator behaves in a non-discriminatory way. The Government agree that there should be such a veto and will table an amendment to provide for a firm-specific power to require separation while the Bill is before the House. In addition, a further safeguard is available for any bank that believes it has been treated unfairly—namely, recourse to the courts.

One very important point that both the Vickers commission and the parliamentary commission agreed is that, in addition to the enhanced capital requirements on ring-fenced banks, there should be a minimum leverage ratio and that it should apply to unweighted assets of 4.06%, rather than the Basel III standard of 3%.

Let me be clear: this Government support the introduction of a minimum leverage ratio. It provides a simpler measure than risk-weighted assets, the calculation of which can be complex and disputed. Furthermore, it has been established empirically that a rise in the leverage ratio often preceded credit booms in this country and overseas.

The question remaining is about the precise level of the leverage ratio. I referred earlier to the British dilemma of how to maintain an internationally competitive financial sector without imposing risks on domestic taxpayers. This is a case in which that dilemma is, to be frank, most acute. When it comes to capital requirements, international agreements have already established that different countries will have different requirements. The European Union capital requirements directive, CRD4, provides for member states to have discretion to go beyond agreed capital requirements.

In the case of the leverage ratio, the 3% Basel III recommendation was for the requirement to be binding only from 2018, and it is not clear yet whether there will be the flexibility in European law to increase it as Vickers and the parliamentary commission recommend. The Vickers commission did not recommend that the higher leverage ratio should apply before 2019, in order, for reasons that I think we all understand, to minimise the impact on lending in the short term while the economy is still recovering.

Furthermore, during our repeated consultations, concerns have been raised by institutions such as building societies that they could be caught by a 4% leverage ratio despite having a relatively low-risk portfolio of assets, thereby restricting lending to home owners. Moreover, it would lead to assets in Spanish property, for example, being viewed as equal to US Government bonds for the purposes of the calculation. Our view, therefore, is that at this time we should follow the international approach and press for countries to have power to set a higher ratio from 2018, following a review in 2017.

Having said that, in the interests of transparency, we agree with the recommendation of the Financial Policy Committee that banks should disclose their leverage ratios from 2013. I confirm that they will do so from this year.

[John Mann (Bassetlaw) (Lab)]

Does the Minister perceive there to be a problem for very small building societies, because they are more disadvantaged than large institutions and could be swallowed up, thereby reducing competition in the market rather than increasing it?

[Greg Clark]

I have taken to heart the need to allow into the market smaller players, whether they be building societies or banks. I will say something about that shortly which I hope will satisfy the hon. Gentleman.

[Mr McFadden]

I suggest to the Minister that he has just ducked the British dilemma that he set out at the beginning of his speech by saying on the one hand that we have a huge financial services sector, but on the other hand that we are going to go at the speed of the slowest ship out of Basel on the capital and leverage rules. Is not the proper response to having a huge financial services sector relative to our economy to ensure that we have adequate rules to protect the UK taxpayer, rather than always going for the lowest common denominator internationally on such standards?

[Greg Clark]

I think that the right hon. Gentleman would concede that what Vickers recommended will advantage us and protect the British taxpayer in a number of respects, including through ring-fencing and higher capital requirements. We are already doing those things. He will know that Vickers did not recommend an early increase in the leverage ratio. I have been candid with the House that we would like to see one. However, in line with what Vickers advised and given the discussions that are taking place in other jurisdictions, we think that it is right to have the consideration in 2017, with a view to introducing the higher leverage ratio later.

[Mr Love]

The Minister said earlier that capital requirements and the leverage ratio were protections for the UK banking sector. However, capital is based on risk-weighted assets, which, as he has accepted, are controversial and, to many people’s minds, do not provide the level of protection that is required. It therefore becomes acutely important that the leverage ratio provides that protection. As has been said, given the size of the UK banking industry, it is critical to prioritise safety and soundness. Those things will be delivered by a higher leverage ratio.

[Greg Clark]

I do not disagree with the hon. Gentleman’s analysis. A higher leverage ratio is important. However, we have reflected the view of the Vickers commission that a higher leverage ratio is not necessarily required immediately. It is our intention to bring it in following the review in 2017. That is a reasonable time frame. I repeat that it is our intention that there should be a backstop ratio.

The final major difference between the Bill and what was recommended by the parliamentary commission is that it does not include proposals on how creditors, rather than taxpayers, will be expected to bear the costs in the event of a bank failure. We are working with other European countries to develop a credible and effective bail-in tool as part of the European recovery and resolution directive, reflecting the recommendations of the global Financial Stability Board.

The Irish presidency of the EU has set out plans to make rapid progress towards concluding the recovery and resolution directive. The RRD is due to come into force in 2015 and the bail-in tool by 2018. Given that progress, we have not included clauses on the matter in the Bill, but if agreement cannot be reached, which we do not expect to happen, we will consider tabling amendments later in the Bill’s passage to allow the UK to act alone.

[Andrea Leadsom (South Northamptonshire) (Con)]

Does my right hon. Friend agree with me and Andy Haldane that bank account number portability could make a positive contribution to the prospects of easy resolution in the event of a future bank failure?

[Greg Clark]

My hon. Friend is a passionate advocate of that, and I think that what I will say about it will please her. I hope that she will be able to contribute to the debates on it in the weeks ahead.

The Government intend to go further on the matter of competition than was suggested in the reports of the two commissions. I strongly believe that the concentrated nature of the UK banking industry is unacceptable. I want to see far greater possibility, and indeed reality, of entry into the market by new banks and building societies. One of the barriers to that has been access to the UK payments system. Potential challengers have to win the permission of incumbents to be able to use the system. The Government will therefore shortly consult on a proposal to make access to the payments system regulated, to ensure that it is available on fair, reasonable and non-discriminatory terms. Subject to the findings of the consultation, the Government will consider tabling amendments to the Bill to give the regulator the necessary powers. I think that would address my hon. Friend’s ambitions.

[John Mann]

I welcome the Minister’s comments. Will he also table an amendment to recreate the Halifax building society out of the state-owned Lloyds-TSB bank? That would immediately create a major competitor on the high street that would be hugely popular, as it was before it was bought out.

[Greg Clark]

We want to see greater competition and more entrants. The hon. Gentleman will know that in the case of the banks in which we were in the unfortunate position of having to take a shareholding, the arrangements that govern that shareholding require us to operate at arm’s length of the interests of other shareholders. No doubt he will be able to make his points throughout the passage of the Bill.

[John Mann]

This is a Bill, and it can become an Act, so the Minister could table a Government amendment to do precisely what I said. Why is he not taking the opportunity to recreate the Halifax building society, which hundreds of thousands—perhaps millions—of consumers across the country would greatly welcome?

--- Later in debate ---

[Greg Clark]

All I would say is that that is not one of the Government’s proposals. We operate at arm’s length, but if the hon. Gentleman is a member of the Bill Committee he will be able to table such an amendment, and I am sure it will be vigorously debated.

I hope that in years to come the Bill will be viewed as a landmark piece of legislation in the history of our economy. I readily concede that a Bill entitled the Financial Services (Banking Reform) Bill does not set the heart racing, but important legislation can have a profound effect on our economy and come to represent a particular approach. That is shown by our familiarity even today with an American Act, the Glass-Steagall Act, the common name for the US Banking Act of 1933. I am modest and realistic enough to hold out no hope or expectation that this Bill will be referred to in 80 years’ time as the Clark-Javid Act, but if the House’s scrutiny is as thorough and constructive as I hope it will be, the names of Vickers and, dare I say, Tyrie might find a place in the history books. The hon. Member for Nottingham East and even myself might get a footnote.

The real test of the Bill is for it to establish once and for all the conditions in which the British banking system can be a global success story for decades to come while contributing to, not detracting from, the prosperity of the British people. I commend the Bill to the House.

--- Later in debate ---

[Chris Leslie]

Hindsight is a wonderful thing. All I say to the Father of the House is that we are now in a situation where we have a new Financial Conduct Authority, the Prudential Regulation Authority, the Financial Policy Committee and the Monetary Policy Committee. The Bank of England is of course still involved, and the Chancellor of the Exchequer will still have a number of powers. He may not have realised it, but the Government’s changes have not exactly simplified the regulatory environment. I digress. That was the Financial Services Act 2012, but we are addressing the Financial Services (Banking Reform) Bill in 2013.

[Greg Clark]

When I took over my role, I read the Hansard report of the November 1997 debate. I commend it to the hon. Gentleman because it makes it absolutely clear that we opposed the creation of the FSA in the form proposed because we predicted it would be a mess. The then shadow Chancellor, my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley), said:

“The process of setting up the FSA may cause regulators to take their eye off the ball, while spivs and crooks have a field day.”—[Official Report, 11 November 1997; Vol. 300, c. 732.]

That is exactly what happened.

[Chris Leslie]

Conservatives have a tendency to try and rewrite history, but this really takes the biscuit. If the Minister is seriously saying that he would have preferred to have stayed with a non-statutory regulatory arrangement, which was the option available, he should stand up and admit it. He often asks where the apologies are, but we have accepted that we should have adopted a more prudential approach to regulation than the arrangements in the Financial Services and Markets Act 2000. It is now equally important, however, that Conservative Members recognise that regulation is a good thing, that we need regulation of the financial services sector and that they were wrong to prefer a self-regulatory, non-statutory environment. Until they do that, they will never really confront the demons that still exist within the Conservative party’s philosophy.

Financial Services (Banking Reform) Bill

Greg Clark Excerpts

Thursday 7th March 2013 Written Statements

[The Financial Secretary to the Treasury (Greg Clark)]

I have today deposited in the Libraries of both Houses drafts of the following secondary legislation to be made under the Financial Services (Banking Reform) Bill:

The draft Financial Services and Markets Act 2000 (Ring-fenced Bodies and Core Activities) Order;

The draft Financial Services and Markets Act 2000 (Excluded Activities and Prohibitions) Order;

The draft Financial Services and Markets Act 2000 (Fees and Prescribed International Organisations) Order.

These illustrative drafts are for the benefit of Members in advance of the Second Reading of the Bill. The Government will formally publish a draft of all secondary legislation for public consultation later in the year.

Loan to Ireland

Greg Clark Excerpts

Thursday 7th March 2013 Written Statements

[The Financial Secretary to the Treasury (Greg Clark)]

I would like to update the House on the loan to Ireland.

Ireland completed the eighth quarterly review of its International Monetary Fund and European Union programme of financial assistance on 23 January 2013, following which the utilisation period for the sixth instalment of the UK bilateral loan began.

Upon request, the Treasury disbursed the sixth instalment of £403.37 million on 6 March 2013, with a maturity date of 7 September 2020.

The interest rate charged on the loan is calculated as set out in the loan agreement as the UK’s cost of funds plus a service fee of 18 basis points per annum, creating an effective per annum interest rate on this tranche of the loan of 2.312%. The UK more than covers its cost of funds.

The Treasury will provide a further report to Parliament in relation to the bilateral loan as required under the Loans to Ireland Act 2010 as soon as is practicable following the end of the next reporting period, which ends on 31 March 2013.

The Government believe that it is in our national interest that the Irish economy is successful and its banking system is stable. The Government continue to support Ireland’s efforts to improve its economic situation.

Financial Services and Markets

Greg Clark Excerpts

Wednesday 27th February 2013 Commons Chamber

[The Financial Secretary to the Treasury (Greg Clark)]

I beg to move,

That the draft Bank of England Act 1998 (Macro-prudential Measures) Order 2013, which was laid before this House on 24 January, be approved.

One of the most significant failings of the previous system for regulating financial services was the lack of clear responsibility for financial stability. It has been all too easy for the identification and management of risks to financial stability to fall in the cracks between what those organisations believed were their respective roles in protecting and promoting stability in the financial sector. That confusion was a key contributing factor to the emergence of the financial crisis in 2007. None of the institutions involved was effectively horizon-scanning to identify macro-prudential risks to stability across the financial system.

In the light of those failings, the Bank of England Act 1998, as amended by the Financial Services Act 2012, gave the Bank of England clear responsibility for financial stability. To support that objective, the Act creates a new committee of the Bank, the Financial Policy Committee, with the role of identifying, monitoring and managing systemic risks to the UK financial system. In order to carry out that role, the FPC will need macro-prudential measures to mitigate the risks to stability it identifies. The FPC will act through the regulators, which work directly with financial institutions.

The FPC will do that in two ways: first, through recommendations, which can be made to the regulators, to industry, to the Treasury, within the Bank and to other persons; and, secondly, through directions that can be given to the Prudential Regulatory Authority and the Financial Conduct Authority. The FPC’s direction power is governed by the measures set out in the order before the House. The regulators must comply with a direction, but they will have discretion over its timing and implementation method.

Before discussing the measures that will be granted to the FPC, it is worth noting that there is an international consensus on the need for macro-prudential regulation. International regulations such as Basel III and the capital requirements directive IV go some way towards establishing minimum standards while retaining room for national discretion, although areas such as the leverage ratio remain under discussion. The UK strongly supports the ability of national supervisors to exercise discretion where appropriate.

In February 2011 the Government and the Bank established an interim FPC to undertake, as far as possible, the work of the statutory FPC ahead of the passing of the relevant legislation. One of the tasks set for the interim FPC was to analyse and recommend macro-prudential measures over which the statutory FPC would have direction-making powers.

[Mr Andrew Tyrie (Chichester) (Con)]

The Minister has just mentioned the leverage ratio. There are two crucial issues: first, the leverage ratio should be firmly in the hands of the FPC, not the Government; and, secondly, the UK should be able to act unilaterally, rather than necessarily having to wait indefinitely for international agreement—we should not move at the speed of the slowest. Indeed, the United States demonstrates how necessary that is. Does the Minister agree with that sentiment and, if so, why is that not reflected in what he is announcing today?

[Greg Clark]

As my hon. Friend knows, that has been a matter of much debate in the Treasury Committee and the Banking Commission, both of which he chairs. It is appropriate to have regard to the international debate on this. There is a difference between the debate on the leverage ratio and the two other tools that we will move on to talk about, the sectoral capital requirements and the counter-cyclical buffer, over which, it has been established internationally, there should be domestic discretion. We are not at that stage with the leverage ratio, as he will know, but I can certainly confirm to the House that the Government’s intention is to provide the FPC with a time-varying leverage ratio by 2018, subject to a review by the European Banking Authority, which is planned for 2017.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

I am intrigued by the Minister’s 2018 commitment, but would it not make good and prudent legislative sense to take the opportunity in the draft Financial Services (Banking Reform) Bill, which will arrive in the House imminently, to insert provisions that would allow the leverage ratio to be triggered sooner if there is a delay in the international discussions?

[Greg Clark]

We do not expect such a delay. The discussions are continuing and are live, as we know, so we do not expect to need that, but of course it is open to the House as it debates the Bill, presumably at some length, to keep that under review as the discussions progress.

The statutory instrument we are debating today relates specifically to the ability to set sectoral capital requirements. I will deal with that tool first before briefly covering the others. The interim FPC recommended that the statutory FPC should have a power of direction to vary financial institutions’ capital requirements against exposures to specific sectors over time. It argued that the over-exuberance that precedes crises often begins in specific sectors before spreading further. The Government agree that this targeted approach would allow these risks to be managed more effectively and proportionately than raising capital requirements more generally. The FPC has stated that it would wish to avoid what it terms an

“overly activist, fine-tuning approach”,

which should limit this risk. However, there may be times when using the tools in a granular way may be necessary, so the Government will keep the use of this tool under review to ensure that it is being used effectively and proportionately. There is also a risk that imposing sector-specific requirements could displace excessive risk into other sectors, so the FPC will need to monitor carefully the impact of any policy interventions using this tool and perhaps consider adjusting more general capital requirements if displacement turns out to be a significant problem.

I should take this opportunity to bring to the House’s attention the one change that the Government have made to the order following the consultation that we undertook on the draft version that was made available for that purpose. The current order excludes investment firms that are not regulated by the PRA from the FPC’s power. This will ensure that systemically important firms are captured while smaller firms that are not systemically important will not be subject to additional requirements.

Let me discuss briefly the other macro-prudential tools that the Government intend to give the FPC: the role of setting the UK’s counter-cyclical capital buffer; and, as we have briefly discussed, the power to intervene to limit leverage ratios. These are not covered by the draft order, but it might be useful if I provide a bit of context to the debate. The counter-cyclical capital buffer is part of the Basel III agreement, and it will be implemented in Europe by the capital requirements directive, commonly known as CRD 4. The directive aims to ensure that banking sector capital requirements take account of the macro-financial environment in which banks operate. It will be deployed by national jurisdictions when excess aggregate credit growth is judged to be associated with a build-up of system-wide risk to ensure that the banking system has a buffer of capital to protect it against future losses. Banks, building societies and larger investment firms will be required to build up capital during upturns. This will help to increase the resilience of the financial system and might also dampen the credit cycle. Unwinding these requirements in the downturn once the threat has passed might help to mitigate contractions in the supply of lending.

It is clear that with its macro-prudential focus, the FPC will be the body best placed to determine the level of the counter-cyclical capital buffer. This was supported by the results of the Government’s consultation. As the counter-cyclical capital buffer is expected to be provided for in CRD 4, on which discussions are continuing, the simplest way to incorporate it into UK law is via regulations made under section 2(2) of the European Communities Act 1972 to transpose into UK law the provisions of CRD 4 which relate to the counter-cyclical capital buffer.

It is vital that the FPC’s decisions in relation to the counter-cyclical capital buffer should be subject to comparable procedural and reporting requirements to the FPC’s other tools. Therefore, in addition to the requirements imposed by the EU legislation, the Government intend to ensure that the counter-cyclical capital buffer will be subject to the same transparency requirements as other FPC decisions, with a summary of the FPC’s discussions when taking decisions on the buffer set out in the FPC’s meeting records, and the FPC’s use of the buffer covered in the biannual financial stability report. The Government will make any necessary changes to achieve this in the regulations that incorporate CRD 4 into UK law.

The interim FPC recommended that the statutory FPC should have a power of direction to set and vary a minimum leverage ratio. The Government think that a leverage ratio could indeed be a useful macro-prudential tool for the FPC. The unweighted nature of the measure would guard against risk weights underestimating the true riskiness of assets and provide a directly comparable figure across firms. Firms’ leverage ratios were a useful indicator of failure during the last crisis, and the period immediately preceding the crisis was characterised by sharp increases in leverage. The Government strongly support the inclusion of a backstop leverage ratio in the EU prudential toolkit and consider it an essential measure to ensure that leverage remains at sustainable levels. It is clear that there is some way to go, but the review in 2017 will address that, and it will not be implemented across the EU until 2018, so we have some time to consider it.

[Mr Tyrie]

Will the Minister explain what possible logic there is to maintaining the leverage ratio at exactly the same level as a back-stop for risk weights of more than 10% as when the risk weights were set at only 8%?

[Greg Clark]

The discussions on those need to proceed separately—I think that the Financial Services (Banking Reform) Bill Committee will have some vigorous discussions—but the order relates solely to the sectoral requirements.

The Government will, of course, be able to add to the suite of macro-prudential tools in the future by further order, subject to the approval of this House and the other place. At the moment, we believe that the measures I have described are appropriate and sufficient starting points for the FPC. The Government expect the tool kit to adapt and evolve as the international debate and academic literature on the subject develops and empirical experience becomes more widely available. We expect the FPC to make recommendations to the Treasury if its macro-prudential measures require amendments or the addition of new measures is required. I hope that my explanation has been helpful.

--- Later in debate ---

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

I rise to put two points to the House. First, I object to the statutory instrument on a matter of principle, which I will outline. Secondly, I want to ask the Minister why he included residential property among the first prudential tools. Some of the tools make sense—including commercial, and, obviously, investment and financial services—but the residential property one does not.

Specifically, I object to how we are dealing with discussion, debate and decisions on the macro-prudential tools. I have constantly raised the matter in the Treasury Committee and the Independent Commission on Banking, and I have raised it on the Floor of the House with the Chancellor. As my hon. Friend the Member for Nottingham East (Chris Leslie) said, these can be seen as boring matters, but it is accepted that they could lead to decisions that affect the standard of living of many of our constituents; affect the future of industries such as the construction industry; and affect the economy. The decisions will be taken by non-elected individuals and tonight appears to be the House’s only opportunity to debate and challenge the measures.

The matter is being dealt with by statutory instrument. In other words, we have 90 minutes to discuss the measures and cannot amend them. We can only vote against the whole measure if we disagree with it or feel strongly about any part of it. The measures are proposed by the Government. If Opposition Members have strong feelings, they have only one chance to influence the decision, and they must turn down the whole order. That is a nonsensical procedure.

I have raised the matter with the Chancellor of the Exchequer in the Chamber. He indicated that he understood the measure’s sensitivity and importance and that he had an open mind. He accepted that the usual channels would deal with it. I pay tribute to him for placing the order on the Chamber’s agenda rather than dealing with it upstairs in Committee in the normal way. That is a step forward. The FPC is made up of unelected individuals, but they set policy, so the statutory instrument is a pretty disgraceful way to deal with the matter. Statutory instruments and secondary legislation are not supposed to deal with policy or principle—they deal with measures that need to be adjusted as time passes. They are not a way to decide things of such importance.

The Treasury Committee raised the matter with the Minister when they discussed macro-economics. He seemed to accept what we said and I have a quote if he challenges me. However, his approach to the question—sadly, because he is a well regarded Minister—was this: “We’ve appointed these individuals and should not second-guess them.” That is a recipe for disaster.

The Treasury Committee yesterday heard evidence from the Monetary Policy Committee, including officers and non-executives from the Bank of England. It was a hairy meeting, because those individuals take decisions, but there was no sign that the battle of inflation is definitely winning the argument against the battle for growth. If we read the words of the former Chancellor, my right hon. Friend the Member for Edinburgh South West (Mr Darling), and see the present Chancellor, we can see the difficulty they have had in getting so-called independent bodies to accept the sensitivity of some of their decisions. It is an impossible task. The bodies shelter under their independence. Both Chancellors have experienced this, and if they want bodies to do something they feel is necessary, the issue of independence is thrown back in their face: “You gave us independence and therefore you should not interfere”. I am worried about this issue, which is why I am taking the opportunity to put it on the record.

On residential matters, to which my hon. Friend the Member for Nottingham East referred, one of the macro-prudential tools discussed in the Financial Policy Committee and dropped was loan-to-value mortgages. Most of us were pleased when that was dropped, but it was a runner and was being discussed in Financial Services Authority circles for some 18 months. I am certain, from watching the industry, that that had a great effect on the industry’s decisions—it was trying to second-guess the FSA. The business of 90% and 80% mortgages had a devastating effect on individuals and couples who were trying to buy a house and begin family life. They were unable to take that step because the regulator was signalling to the regulated that they should be going in the direction of 90% and 80% at a time when the economy was dying for the construction industry to pick up and start building houses, which would have had a roll-on effect of people buying carpets, furniture, curtains and so on. The regulator was conditioning the decisions and behaviour of the regulated—it is that sensitive.

On a higher level, we are going through this business with the Monetary Policy Committee. As someone said—maybe in a crowded House this might have an effect—when an individual or a couple cannot get a mortgage, they do not blame the building society. When the building societies say it is the Monetary Policy Committee, they come to see us and we say it is the Monetary Policy Committee. The ordinary person in the street will ask, “Who set up the Monetary Policy Committee? Who is it answerable to?” It is answerable to us, but it is not really answerable to us because there is no real opportunity to make things happen. A yearly remit from the Chancellor is hardly a procedure for democratic accountability, and we are prevented from dealing with these matters on the Floor of the House in order to indicate our displeasure and unhappiness. I see the Treasurer of Her Majesty’s Household, the right hon. Member for Uxbridge and South Ruislip (Mr Randall), a very prominent member of the usual channels sitting in the Chamber. I hope he is listening to this debate and gets people to think about it.

I want to ask the Minister why on earth residential property was placed in the initial order. This is 2013. The Minister is as anxious as I am—probably more than I am—to see houses being built and sold and the whole procedure started. There is no question of any systemic risk in the foreseeable future. Even when the problems were at their worst, there was no systemic risk, just an industry with problems. I accept that some banks that had over-extended on their loans had real problems. I accept the point about the commercial side and the likes of RBS and HBOS—it was on a greater scale and of greater concern than on the residential side—and the point about investment and financial houses. However, for the MPC to start worrying—in shades of the FSA—about systemic risk in the construction industry spreads unnecessary alarm.

[Greg Clark]

indicated assent.

[Mr Mudie]

I see the Minister nodding. I am sure that he will explain, but that is the sort of thing I am talking about. If the loan-to-value ratio had been in this statutory instrument—if the interim FPC had stuck at it—I think this place would have been full and the Minister would have had little choice but to allow the thing through. None of us could have tabled an amendment stating how important it was that the rest of it went through; as politicians and constituency MPs, we would have had to vote against the whole thing to prevent it from happening. I hope that the Minister will consider both those issues.

[Greg Clark]

Let me respond to the points made by the hon. Members for Nottingham East (Chris Leslie) and for Leeds East (Mr Mudie). They made some thoughtful points about the House’s ability to scrutinise the powers that will be available to the FPC, particularly those relating to residential mortgages. Their comments went to the heart of the dilemma behind the setting up of these institutions and powers. The purpose of macro-prudential policy is—to adopt the analogy often used—to take the punch bowl away from the party just when the guests are getting over-exuberant. For the first time, there will be a group of people with the explicit task of monitoring conditions and taking a considered view of what is in the interests of financial stability but which might not be at the forefront of the minds of the people participating, either as practitioners, commercial players or politicians.

The hon. Member for Nottingham East acknowledged the consensus on the need to set up these institutions of macro-prudential policy, but that does not take away from the fact that their establishment is designed deliberately to introduce a necessary tension into the debates. The question arises, then, of whether these powers can be exercised appropriately—for example, whether the House has appropriate scrutiny and discretion over them.

One reason why we have initially given the FPC a minimal—I think he will agree—set of powers through a statutory instrument being debated on the Floor of the House is that these things should be properly scrutinised. We timed this debate so that it could follow the hearing of the Treasury Select Committee, of which the hon. Member for Leeds East is a member and which has considered this matter in recent days. Our intention is that these things should be properly scrutinised and well considered. It is for the Government to bring forward proposals about what the tools should be. Future proposals will be put before the House, and Ministers will be accountable to the Committee and the House. Indeed, the statutory instrument is available for debate. As the hon. Members would acknowledge, we have not loaded it with so many different provisions as to give the House a Hobson’s choice.

[Mr Mudie]

As a member of the Treasury Committee, I hear it said all the time that we have the ability to scrutinise, and that people are accountable to us. That carries little weight with me; it does not impress me. This is ultimately a question of who takes the decisions when a Minister or a Chancellor—such as the last Chancellor—going through a crisis meets an unelected Governor and asks him to do something in the interests of the economy and the future of the country, and the Governor says no. That is what we are talking about.

[Greg Clark]

Let me go on to describe some of the other elements involved. I said that we had committed to bringing to the House particular measures that could be debated. The hon. Gentleman has anticipated one such possibility. He was correct in suggesting that, if we had been proposing a power over the loan-to-value rate, the House would have been substantially more occupied than it is at the moment, that such a matter would engage Members and that there would have been a fuller debate on the matter. However, this is not the only mechanism by which scrutiny can take place.

The secondary objective of the Financial Policy Committee has been mentioned. Through the scrutiny of the House and of the hon. Gentleman’s Committee, that objective has been set up, and it means that the FPC’s duty to support the court of the Bank of England in achieving its financial stability objective is subject to supporting the policy of Her Majesty’s Government, including their objectives for growth and employment. That is significant. That power is there for a reason, and we expect it to be used. It requires the Chancellor of the day to write annually to the FPC to set out what he expects it to have regard to in making its decisions. The House will have the ability through that mechanism to scrutinise and take a view on whether Ministers—in this case, the Chancellor—are giving the right directions to the Committee in terms of what it should understand the Government’s economic objectives to be. I believe that the mention of growth and employment will address one of the concerns that has been raised.

It is worth noting that the measures we are talking about relate to peacetime; they are not for use in a crisis. The Chancellor will retain the ability to give directions to the Bank in a time of financial crisis, for example, when that is in the public interest. The measures before us are for use in the normal course of events.

There will also be a requirement on the FPC to account for its decisions. It will appear before the Treasury Committee after it has held its meetings and published its reports, and it will have to explain the basis of its recommendations and directions. It has made a commitment to setting out in advance the types of indicators that it will bring to bear on those questions, so there will be no arbitrary use of discretionary powers. The committee will seek to be predictable in regard to the types of instrument that it will use.

On the format of statutory instruments, the parliamentary Delegated Powers and Regulatory Reform Committee will take a view on whether the choice of procedure is appropriate. I think that the hon. Gentleman will approve of the fact that the affirmative resolution procedure is to be used in these circumstances.

Let me address the hon. Gentleman’s point about residential property, which is of course a matter of interest to our constituents. It has been pointed out that all these matters have a bearing on our constituents. I think he would acknowledge that any review of the recent financial crisis—and, indeed, of financial crises around the world—would note that housing bubbles are often associated with the kind of over-exuberance and excess that contributes to financial instability, which the arrangements that we have in place are designed to address. It is appropriate for the powers to be there. These sectors have been debated at the European level, and this is one of a limited number of sectors for which it is anticipated that the national regulators should have a sectoral power.

I think it important to note that the power to make recommendations and give directions is available to the FPC, but that there is no requirement that it should get in the business of micro-managing these sectors. It seems to make sense, on the basis of history, for this initial set of sectors to be included. The powers are there, as I say, but there has been some debate about whether they should be more specific in respect of loan-to-value powers, which is not part of the proposals. It is no part of the Government’s purpose, as the hon. Gentleman rightly anticipates, to prevent what we hope will be an increase in home ownership and house building as a result of the order.

Let me deal with some points raised by the hon. Member for Nottingham East. He forcefully made the point that we need an explanation from the Financial Policy Committee of why it is using its powers. This should not take place in a vacuum or in secret. I completely agree, and this is provided for in the Financial Services Act, as the hon. Gentleman, a veteran of the Committee, knows. Section 9S requires the FPC to give an explanation of the reasons for its use of direction powers, and the explanation needs to be published in the financial stability report and it needs to account to Parliament for its use of the powers.

Let me pick up one of the hon. Gentleman’s earlier points, which was not quite right. He mentioned credit card repayments, for example. The powers provided for in the statutory instrument do not go into that level of detail, and the FPC will not have those powers and they are certainly not in this order—and neither are the loan-to-value powers available.

The secondary objective addresses the hon. Gentleman’s point about the necessary symmetry of these arrangements. Macro-prudential regulation is certainly about damping down excessive exuberance when it takes place, but on the other side of the cycle, by retreating from some of the provisions by varying requirements downwards, it also has the power to reverse the dampening of those sectors.

[Chris Leslie]

I am sorry, but as I read the order, I note that it says that UK firms can be required to maintain “additional” funds, but there seems to be no provision to dial it down the other way. Have I misread the order?

[Greg Clark]

What I am referring to is the fact that if the requirements have been dialled up, they can be dialled down. That will be required. The fact that they are time varying precisely reflects the different conditions that will apply from time to time.

The hon. Gentleman mentioned the exemption for small firms, and he was quite right to raise the issue of what proportion of mortgages might be covered. To be clear— when he sees my remarks, he will be clear—the exemption applies to small investment firms. It is still the case that all deposit takers and banks, including building societies, will be within the scope of the power. That contribution will be recognised.

As to whether we should take the power—either through the order or, more likely, through the Banking Reform Bill or previous legislation on the leverage ratio, which is a live issue—it is already possible by order under the Financial Services Act to make provisions to vary the leverage ratio. Such an order would, of course, be subject to prior parliamentary approval. There is no requirement for additional primary legislation; the powers will be there at the time we expect to bring the provisions into force.

The hon. Gentleman asked about the penalties for contravening the views of the Financial Policy Committee. The committee makes recommendations to the regulators, and it is the regulators—the PRA and the FCA—who are responsible for implementing them. The hon. Gentleman will know—again, from the Financial Services Act—that considerable powers are available to the FCA and the PRA, in the form of regulatory sanctions, constrictions on firms’ activities, and unlimited fines. That is why the sector regulators have the powers of direction.

The hon. Gentleman raised a geographical point, asking whether the sectoral powers could be used to specify a particular area. The answer is that they could, if there were evidence of a particular problem in a particular area. However, as he will recall, there is a general requirement for the FPC to act proportionately, and one of the principles that has been agreed is that it should not become involved in the micro-management of these matters or in close detail. I consider it unlikely that it would make recommendations on a narrow geographical basis.

I hope that I have responded adequately to the points that have been made this evening. I gather from the Whips that I may have done so to the satisfaction of the House, and I hope that it will agree to the recommendations.

Question put and agreed to.

Resolved,

That the draft Bank of England Act 1998 (Macro-prudential Measures) Order 2013, which was laid before this House on 24 January, be approved.

Coventry and Warwickshire City Deal

Greg Clark Excerpts

Thursday 14th February 2013 Commons Chamber

[The Financial Secretary to the Treasury (Greg Clark)]

I congratulate my hon. Friend the Member for Warwick and Leamington (Chris White) on his excellent speech, and on securing a debate that is very important to his area. In the two and a half years for which he has been in the House, he has already established a reputation for being a tenacious champion of manufacturing industry and, indeed, the area that he represents. I know that his passion for manufacturing and for the creation of jobs in his area is entirely shared by our hon. Friends the Members for Rugby (Mark Pawsey) and for Nuneaton (Mr Jones). It is delightful to see them both in the Chamber.

As Members will know, the debate is very timely. The expressions of interest in the next wave of city deals were submitted just a few weeks ago. I am considering them as we speak—not at precisely this second, but as soon as I leave the Chamber I will resume my consideration of them. This bid is a tribute to the joint working and the enthusiasm that has been generated locally. The litany of different organisations that my hon. Friend the Member for Warwick and Leamington mentioned underlines the degree of support for and consensus behind what could be a major opportunity for his area, if we are able to approve this city deal.

My hon. Friends will know that I visited Coventry last month to discuss the evolution of the city deal bid, and I was particularly impressed by the level of representation from all the local authorities in the area and businesses at the highest level. Sir Peter Rigby, the chairman of the local enterprise partnership, chaired the meeting, and other business organisations were represented, as were the universities and people from right across the board. It was clear that this is a united bid, very much looking to a very positive future for the area. It was particularly impressive to see everyone working together in that way.

It was also impressive to see the laser-like focus on manufacturing and skills there. My hon. Friend is absolutely right to say that one of the proudest traditions of the area that he and his colleagues represent is that of being the heartland of British manufacturing. Far from that being a story just about the past, it is very much a story of today and of the future. The people behind this bid were prescient in emphasising that the undoubted opportunities that will flow through the increasingly internationally competitive world of advanced manufacturing can be grasped only if we make sure that the work force in the area are equipped with not only manufacturing skills, but the particular skills that the new technologies of the future in this field will offer. The support of the universities, in particular, and of the research institutions make it clear that this is a very high-quality offer that is being made.

My hon. Friend will understand that it would be invidious of me to give any kind of nod or wink to him this evening—tempting though that might be—not least because this evening’s proceedings will doubtless be being viewed by 19 other places around the country. They will be very envious of his good fortune in securing this debate, so he will forgive me if I do not do that. Let me instead take the opportunity to reflect on the city deals process and the arrangements we have put in place. I start with a point that my hon. Friend made, which is that we should recognise the importance of local strengths in the future of our economy.

Obviously, it is of prime importance that our country has the right macro-economic conditions to sustain growth and prosperity in the future. Paying down the deficit we inherited and having an economy in which international lenders can have confidence is the foundation of any future economic success. All Government Members are engaged, day after day, in making the changes necessary to secure that. However, it is also important that we have the right micro-economic conditions: a tax system that is supportive of business and enterprise, and that encourages investment; and flexible labour markets that allow people to go into the places with an expanding number of jobs and allow employers to expand employment with confidence. Again, the work being done in not only my Department, but the Department for Business, Innovation and Skills and the Department for Work and Pensions is very much geared to having those conditions in place.

If we do all that, it is still necessary to reflect that our economic prosperity ultimately depends on local places prospering. Economic growth does not happen in the abstract; it happens in particular places, when employers locate, expand their production and take on people. These are places that people can visit and address; they are tangible.

For too long—over many decades—how we have conducted our economic policy has paid too little heed to the importance of locality. It is tempting for politicians in Westminster and our officials in Whitehall to peer out from London SW1 and assume that the rest of the country is uniform, when we know that one of the glories of our country is that it is full of areas, towns and cities with proud traditions that are the foundation of our future economic success. The city deals programme is intended to ensure that that sense of place is part of our economic policy.

As soon as one considers that we should have a sense of place in economic policy, it becomes obvious that every place is different. We have already discussed the importance of manufacturing in the traditions in the west midlands, but that is true across the country. Everywhere has its local traditions and capabilities. Even cities as close together as Liverpool and Manchester are very different in their economic character, their skills, trades and industries, their politics and in almost every respect, so to treat them as if they are identical seems to me to deny them the possibility of living up to their potential and planning for the future.

The city deals programme was designed to reflect the differences between places. We started with the eight bigger cities outside London and in July 2011, when the Prime Minister asked me to become the Minister responsible for cities, we gave each of those cities the right to take the initiative and set out to negotiate what, in their view, would be the measures that would best unlock their potential. There was some scepticism at the time about whether it would be possible to break the monopoly of Whitehall in determining how things should be done, but in less than a year we were able to conclude a city deal with each of those eight places, which were transformational. In Greater Manchester, for example, £2 billion of local investment in infrastructure is being made in return for the city’s share in the resulting prosperity. In Leeds, apprentices and school leavers are being trained in the skills that the city’s future economy needs, as Leeds and the authorities around it have identified needs that should attract a particular focus.

[Mr Marcus Jones]

My right hon. Friend is making an extremely important point about locality and the need to ensure that we tailor the Government’s support package to each area. Does he agree with me that that is a far better and more effective approach than that taken by the previous Government through regional development agencies such as Advantage West Midlands? Private sector employment fell during that time rather than increasing. I appreciate that, as he has told us, my right hon. Friend will not be able to tell us the result today, but does he agree that if the Coventry and Warwickshire city deal was granted, it would be a far better step forward for the area than the previous regime?

[Greg Clark]

My hon. Friend is absolutely right. The problem was that the regional development agencies were branch offices of Whitehall in the country, which seems to be the opposite of the approach we need to liberate the entrepreneurialism and local strengths of particular areas. The areas should be coming to Whitehall, as they are—as the Coventry and Warwickshire local enterprise partnership has—and saying what they want to do. The problem with the RDAs was that it was the other way around.

The RDAs described a geography created by administrators rather than something that reflected the genuine historic and economic geography that prevails. The west midlands is one example, but the north-west is another. The identities of world-renowned cities such as Manchester and Liverpool were subsumed and became totally anonymous in the Northwest Regional Development Agency, so it is absolutely necessary to make these changes. My hon. Friend is right to point out that even in their own terms the regional development agencies were a failure because the differences between London and the south-east and the regions widened during all that time. So it was right for city deals to be a priority.

One of the contrasts between our country and other countries on the continent of Europe, for example, is that in Germany almost every German city outside the capital of Berlin has a higher income per head than the national average, whereas in this country only one of the bigger cities outside London, Bristol, is above the national average. All the others are below. On the continent, not just in Germany but in France, Italy and other countries, the powerhouses of the regional economy drive the national economy, whereas regrettably over the past 20 years ours have been lagging behind that.

[Mr Jones]

I thank my right hon. Friend for giving way again. He is making an extremely important point, which is reflected in the west midlands region, where gross value added has been on the decline since the mid-1970s, with the decline in manufacturing industry and the unbalancing of our economy. What he says is absolutely right. With the city deal that we hope to get for Coventry and Warwickshire, we could see that manufacturing base start to increase again, accompanied by an increase in gross value added and a better average income in our area, compared with the south-east and London.

[Greg Clark]

I totally agree with my hon. Friend. That is exactly the point of the city deals programme. It is designed to reflect what is undoubtedly the case, especially with the strength and breadth of the local engagement that this bid demonstrates. Who better to be able to make the decisions and the analysis of what is needed for the Warwickshire economy than the business people, the civic leaders and the leaders of some of the finest universities in the country, who are there? It is important that we build on those strengths.

[Mark Pawsey]

Does my right hon. Friend agree that it is refreshing that local people and local businesses, having determined what is best to grow the local economy, ask not for infrastructure, roads, buildings or grandiose schemes, but for investment in people and in skills that will enable the economy to grow and prosper?

[Greg Clark]

My hon. Friend accurately reflects the difference between places. In some places the pressing need is for infrastructure because they have a legacy of infrastructure that is not fit for purpose, that has been made redundant and out of date. In other places the need is to supply the skills. That is the beauty of the bid programme.

Let me say a little about the second wave of city deals. Following the success of the eight initial city deals, I was very keen that the programme should be spread to other cities and areas around the country, so we have issued an invitation to 20 more areas to make a proposition to the Government. It is important to emphasise at this stage that these are expressions of interest and will be evaluated as such. It is not the final word. Those that are invited to go forward will be asked to engage intensively with me and my officials so that we can shape a proposition that can then be put to my ministerial colleagues for approval. There will be some way to go in those negotiations. It is right to remind people locally as well as in the Chamber that this is not the last word. It is an important expression of interest, but it has a further way to go.

We have said that there is no limit on the number of city deals that we will be able to conclude. For all those expressions of interest that demonstrate potential, my ambition is that we should be able to take them forward and achieve something important with them. Having spoken in Coventry with the leaders whom my hon. Friend the Member for Warwick and Leamington mentions, I think it important that we take advantage of the focus on advanced manufacturing and on skills, and the benefit of important institutions such as the Manufacturing Technology Centre and the motor industry research centre being located there.

The prospect that is held out is for 5,000 high quality engineering jobs. I can think of no finer contribution that my hon. Friend, following his advocacy today, could give to his constituents than to inject that into the future of his economy. Without pre-empting the announcement that will be made shortly, I congratulate him on his excellent support for a very encouraging bid.

Question put and agreed to.

UK’s Counter-Terrorist Asset-Freezing Regime

Greg Clark Excerpts

Thursday 14th February 2013 Written Statements

[The Financial Secretary to the Treasury (Greg Clark)]

My noble friend the Commercial Secretary to the Treasury, Lord Deighton, has today made the following written ministerial statement:

Under the Terrorist Asset-Freezing etc. Act 2010 (“TAFA 2010”), the Treasury is required to report quarterly to Parliament on its operation of the UK’s asset-freezing regime mandated by UN Security Council Resolution 1373.

This is the eighth report under the Act and it covers the period from 1 October 2012 to 31 December 2012. This report also covers the UK implementation of the UN al-Qaeda asset-freezing regime and the operation of the EU asset-freezing regime in the UK under EU Regulation (EC) 2580/2001 which implements UNSCR 1373 against external terrorist threats to the EU. Under the UN al-Qaeda asset-freezing regime, the UN has responsibility for designations and the Treasury has responsibility for licensing and compliance with the regime in the UK under the al-Qaeda (Asset-freezing) Regulations 2011. Under EU Regulation 2580/2001, the EU has responsibility for designations and the Treasury has responsibility for licensing and compliance with the regime in the UK under part 1 of TAFA 2010.

Annexes A and B to this statement provide a breakdown by name of all those designated by the UK and the EU in pursuance of UN Security Council Resolution 1373.

During this period the independent reviewer’s second annual report on the operation of the TAFA 2010 was laid in Parliament. The report made one recommendation, to which the Treasury will respond by 14 February 2013.

The following table sets out the key asset-freezing activity in the UK during the quarter ending 31 December 2012: