Financial Services Bill (Ways and Means)

Greg Clark Excerpts

Monday 10th December 2012 Commons Chamber

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

I am grateful for the chance to explain that. There is not a formula, because the funds that come to the Exchequer are net of the enforcement costs the Financial Services Authority incurs. In any given year, things would depend on what has been spent and what revenues come in, therefore.

Question put and agreed to.

Financial Services Bill (Programme) (No. 4)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the Financial Services Bill for the purpose of supplementing the Orders of 6 February, 21 February and 23 April 2012 (Financial Services Bill (Programme), Financial Services Bill (Programme) (No. 2) and Financial Services Bill (Programme) (No. 3)):

Consideration of Lords Amendments



1. Proceedings on consideration of Lords Amendments shall (so far as not previously concluded) be brought to a conclusion at 10.00 pm.



2. The proceedings shall be taken in the order shown in the first column of the following Table.



3. The proceedings shall (so far as not previously concluded) be brought to a conclusion at the times specified in the second column of the Table.

Financial Services Bill

Greg Clark Excerpts

Monday 10th December 2012 Commons Chamber

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

I beg to move, That this House agrees with Lords amendment 1.

[Mr Deputy Speaker]

With this it will be convenient to consider the following:

Lords amendment 2.

Lords amendment 3, and amendments (a) and (b) thereto.

Lords amendments 4 to 15.

Lords amendment 16, and amendment (a) thereto.

Lords amendments 17 to 21 and 148 to 178.

[Greg Clark]

It is a pleasure to be muscling in at this late stage of our proceedings on the Bill, but I feel it is a bit of a cheek to do so given that many Members have laboured many hours over these clauses in Committee—

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

indicated assent.

[Greg Clark]

The hon. Gentleman was one such Member.

We are in agreement with all their lordships’ amendments, and this first group demonstrates that the Government have listened to Parliament’s concerns and have amended the Bill accordingly.

The governance of the Bank of England was one area of concern, and it was debated at length in this place and the other place. The Government agreed that the Bank’s expanded responsibilities warranted taking another look at its governance arrangements. The Treasury Committee produced an excellent report on this subject just over a year ago—I note that the Committee Chairman, my hon. Friend the Member for Chichester (Mr Tyrie), is present—recommending that the Bank’s non-executive directors be given a greater role in scrutinising the Bank’s work, including the ability to commission and publish reviews of the Bank’s performance.

The current version of the Bank of England Act 1998 does not actually describe the non-executive directors as non-executive, but various amendments before us in this group will finally clarify the terminology in respect of the Bank’s court of directors by distinguishing explicitly between the non-executive and executive members.

On more substantive governance matters, amendments 3, 6 to 9, 148, 149, 151, 152, 154, 155, 169, 172 and 173 fulfil the substance of the Treasury Committee’s recommendations in this area via the creation of a powerful new oversight committee made up of the non-executive directors of the Bank’s court of directors. The oversight committee’s remit covers the entirety of the Bank’s objectives and strategy. This remit is already broad enough to allow the oversight committee to look at any aspect of the Bank’s work it believes appropriate to examine, including the effectiveness of its crisis management co-ordination with the Treasury, as suggested in an amendment proposed by the hon. Member for Nottingham East (Chris Leslie). I am sure he will comment on that.

The oversight committee will have a statutory right to access the meetings and papers of the Financial Policy Committee and the Monetary Policy Committee, and it will have the power to commission reviews of the Bank’s performance from external experts or from the Bank’s own policy makers, and publish the reviews and monitor the Bank’s response to them. In line with the Treasury Committee report, these performance reviews will be undertaken retrospectively. The Committee recommended that they should take place at least a year after the period to be reviewed, in order to avoid second-guessing at the time of the policy decision. Just to be absolutely clear, the oversight committee’s remit to review the Bank’s performance is limited to the Bank’s objectives and strategy only; it does not extend to the Prudential Regulation Authority. The only role of the oversight committee in respect of the PRA is to determine the remuneration of the members of the PRA board. Because the PRA will be operationally independent in carrying out its statutory functions of regulation, it will be directly accountable to Parliament. The Government expect that the Treasury Committee will wish to summon the senior PRA executives and, where necessary, the non-executives to account for the PRA’s actions.

Amendment 167 will require the court of directors to publish a record of each of its meetings, fulfilling another of the Treasury Committee’s recommendations from its report. We have also listened to concerns in respect of the Financial Policy Committee, which focused on the role of economic growth in its decision making and the balance of its membership. Amendment 10 gives the FPC a secondary objective to support the Government’s economic policies, including growth, which will sit alongside existing requirements, such as the brake on the FPC taking action that would damage long-term sustainable growth. Amendments 4, 5, 150, 156 and 157 aim to rebalance the FPC by removing one of the Bank members, leaving a voting membership of 10 people—five Bank members and five non-Bank members.

Amendments 16, 17 and 19 to 21 go further to increase the transparency and accountability of the FPC. The FPC will be required to prepare an explanation of each of its actions, setting out publicly the reasons for its decision to take the action and its reasons for believing that the action is compatible with the FPC’s objectives, including to contribute to economic growth, and the various factors to which it must have regard, including proportionality. The FPC is also required to include an estimate of the costs and benefits of the action, where it is reasonably practicable to do so.

Amendment 17 requires the FPC to review the decisions that it has already taken in order to consider whether the actions are still necessary, or whether they should be revoked or removed. That will help to ensure that the FPC’s directions and recommendations do not remain in place for any longer than is necessary. The FPC must publish the explanations of its actions and a summary of its reviews in the next financial stability report.

The remainder of the amendments in this group represent further agreements made in the House of Lords in response to points raised in debate. Amendment 168 makes it absolutely clear that the Chancellor must always appoint a non-executive member of the court to be its chair. Amendments 174 to 176 continue the immunities from liability for damages that the existing regulators have and extends them to the new regulators. The Government have made amendments in the House of Lords to ensure that if the PRA or FCA commissions the other regulator, or the Bank of England, to carry out an investigation or produce a formal report on its behalf, the body that has been commissioned is also covered by the immunity.

This group of amendments represents a significant package of changes to the legislative framework for the Bank and the FPC, in response to points raised both in this House and in the House of Lords, and I commend it to this House.

[Chris Leslie]

It is a great pleasure to welcome the new Minister to these rather long-winded proceedings. I believe we started on this Bill back in February, but he should not worry, as this is shortly to be followed by the banking reform Bill and possibly even a banking standards Bill—to be determined—so we will probably have plenty more opportunities to chew over these issues then. It is a little preposterous to have a knife coming down at 7 o’clock, by which time we have to put the Question on 150 or so of these Lords amendments. That gives us about 25 seconds per amendment [Interruption.] I will get on with it; I lost about a dozen amendments just then.

That is why we have tabled several amendments to those Lords amendments—you will be impressed with that, Mr Deputy Speaker—and I wish briefly to explain why we have done so. The first Lords amendment that we are seeking to amend is Lords amendment 3, which, as all hon. Members here know, deals with the creation of an oversight committee within the Bank of England as a sort of subset of the court of directors, where it is to have a reviewing and, supposedly, a scrutinising role. There is a problem: the oversight committee has a series of responsibilities, not one of which is set out, in overseeing what the Bank of England does. The committee has a set of responsibilities to monitor, to review procedures and to conduct performance reviews, but all of that is retrospective—it looks backwards, not forwards. May I gently suggest to the Minister that it might be more appropriate if he were to call this a “hindsight committee” rather than an oversight committee, because as things stand I do not think there is a sense in which this is a proper check and balance within the governance of the Bank of England?

Why does that matter? It matters because the Government are giving phenomenal new powers to the Bank of England within our economy as an overarching financial regulator. The Minister says that the PRA is independent and will report to Parliament, but let us be honest: this is a creature of the Bank of England and the Bank will control very much what happens in the regulatory framework. Although we welcome the concession that was made to create an oversight committee, people have misgivings—we will probably hear about some of them, perhaps from members of the Treasury Committee, in a moment—that there is still a very hierarchical and centralised set of governance structures in the Bank of England.

We therefore need to make sure that this crucial verb “oversee” is included in the oversight committee’s remit. That would help to shift the balance of power between non-executives and executives in the Bank of England framework just that bit more. These are important lessons of governance, certainly from the private sector. While we are moving towards that executive and non-executive balance, it is important that we recognise that the Bank of England is being dragged into the 21st century. If we are taking the opportunity to do that in legislation, making that particular change would be very welcome.

The other amendment we wish to make to Lords amendment 3 relates to crisis management. As I said, the Bill gives massive new powers to the Bank of England, but in a crisis there will be very little time to figure out and design standing orders, or to work out arrangements for who will meet whom and for how decisions can involve the right people. You will recall, Mr Deputy Speaker, how during the global financial crisis crucial decisions affecting billions of pounds of taxpayers’ money and whether people could access the cash machines were made in the space of hours over weekends. In hindsight, it would have been nice to have had a carefully planned set of arrangements, and this Bill needs to learn the lessons from that. We are concerned that the crisis management arrangements are still thin and inadequate. We have suggested that if there is going to be an oversight committee in the Bank of England, the Bill needs to set out explicitly that it is to have a duty to ensure the adequacy and effectiveness of arrangements with the Treasury for crisis management.

There is no role for the new financial conduct authority in the drafting of the arrangements. Apparently it does have a veto, but it is not part of the drafting of that memorandum of understanding. The Government are still resisting proposals to ensure that deputy governors and the chief executive of the FCA can consult directly with the Treasury in circumstances where there might be differences of opinion. Given the import and the size of the FCA, the PRA and the FPC within the Bank, it is important that the deputy governors have an ability and a right to talk to the Treasury, so that everything is not hidden and suppressed within one view of the Governor of the Bank of the England.

There is a very bizarre set of provisions excluding the ability of the memorandum of understanding to make provision about the relationship between the Bank of England and the PRA, which goes to prove that the PRA is very much a creature of the Bank. It also suggests that the Governor will have powers to suppress the voice of the PRA in a crisis. Shockingly, there is no parliamentary approval process for that MOU; no statutory instrument arrangement has been made, as I understand it. The crucial paragraph of the MOU that deals with what happens in the white heat of an emergency simply says, “Oh well, there will be ad hoc or standing committees just to sort these things out.”

That is not good enough. The whole of best practice in preparedness and in emergency and contingency planning would suggest that now is the time for Her Majesty’s Treasury and the Bank of England to sit down and calmly and methodically work through what would happen in those circumstances. There should be some draft standing orders to pre-empt those scenarios.

--- Later in debate ---

[Mr Tyrie]

If the hon. Lady will forgive me, I will not linger on those points for too long, because the Committee has set that out in some detail in a number of reports. On her first point, in a nutshell, one need only look at the corporate governance arrangements of almost any public sector body, or indeed any public company, to see that the lines of accountability are powerfully drawn between their non-executives and the executive arm. That is almost completely lacking in the court, whose role is heavily circumscribed and, until recently, involved nothing more than oversight of the Bank’s budget. Indeed, I have been told informally that until recently an unspoken requirement of membership of the court was to have no great knowledge of financial matters, and certainly not to interfere with them. That strikes me as the negation of genuine oversight, but perhaps those who whispered such thoughts in my ear were making mischief.

On the hon. Lady’s second point, it is of course crucial that somewhere in the accountability framework there is a group of people who are capable of asking for detailed information in order to make the scrutiny meaningful. The Treasury Committee, in our investigations into Royal Bank of Scotland, found that we needed to send specialist advisers into the FSA to obtain the necessary papers to ensure that they were taken into account in its report on RBS. I do not think that it would be a healthy state of affairs if the Treasury Committee ends up having to send specialist advisers into the Bank of England to perform such a role. It would be far better to have a group of non-executives in the Bank of England whose explicit task is to look for those documents and to be available to help us do the scrutiny directly. My reply to her questions touches only the surface of the more detailed reply that could be given, but it has been set out in some detail in at least two Treasury Committee reports.

Next year we will have a new Governor. He could, of course, grasp the opportunity to improve all this, and no doubt he will form views about governance, ones that might benefit from legislative change. The Banking Commission will also make recommendations on standards, culture, competition, governance, regulation and sanctions for rule-breaking by bankers. Any or all of those might require statutory action. I would be grateful for an assurance on that from the Minister, so will he commit the Government to broadening the scope of the banking Bill to ensure that further amendments to FSMA, including in the areas I have just mentioned, can, if necessary, be made next year?

[Greg Clark]

I can give my hon. Friend that assurance. The Government have already said, I think in response to the question of data on lending to deprived communities, that if we do not succeed in establishing agreement with the British Bankers Association, we will use the forthcoming banking Bill to make those changes. If the distinguished members of my hon. Friend’s Commission, following their considerations, have recommendations that will require legislative changes, we will of course have vehicles available for that.

[Mr Tyrie]

That reassurance is helpful. I will take it back to both the Treasury Committee and the Banking Commission.

[Mr Tyrie]

Well, he is a very clever man. I am confident that at the time of his appointment he would have been unable to pass the FSMA test, but I have no doubt that by the time he comes before the Treasury Committee for his pre-appointment hearing he will have mugged up fully on it all.

I have spoken for 14 minutes already, which is four minutes longer than I make a point of ever speaking in the House these days, so I will move swiftly to one last point. The Minister, as he pointed out, started looking at the Bill three quarters of the way through the process of putting in place a new system of financial regulation. I will wager a pound to a penny that he has found the tangled web of legislation that we have just been discussing extremely confusing. In fact, I wager that he has found it, in places, to be a nightmare and impossible to understand. I wager the same amount that the officials advising him do not always understand it either, and that is no reflection on the high-quality advice he is no doubt getting. Will he be prepared at least to consider rewriting FSMA afresh when he comes to adapt it to take account of the banking Bill, because that is what regulators have told us they would prefer, what the Governor of the Bank of England said he would prefer and what would enable the industry, the public and Parliament to have a much more intelligible piece of legislation?

It is a great shame that that approach, which was vigorously put forward at the time, was rejected when the Government first announced that they would proceed with amendments to FSMA. The Governor was pressing for it very strongly, and he had allies in Parliament. We now have a second chance, and I very much hope that the Minister will consider taking it. He will need to bear in mind that there will be 100—perhaps 1,000—official voices telling him not to do that, but just occasionally there are moments when a Minister can greatly improve the quality of the statute book. Would he be prepared at least to consider rewriting the Bill so that we have one fresh piece of legislation that everyone can understand?

[Greg Clark]

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

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

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

[Mr Mudie]

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

[Greg Clark]

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

[Chris Leslie]

I understand the Minister’s argument. However, we are talking about a lot of power in the hands of a single individual—the single point of potential institutional disruption, as the Chairman of the Treasury Committee called it. Surely the sun king is capable of responding to some internal questioning, scrutiny and challenge, and that would be a healthy thing to have. Some kind of more proactive oversight might therefore not be such a bad idea after all.

[Greg Clark]

All those things are provided for in the Bill; the question is whether the word that the hon. Gentleman seeks to introduce is a matter of semantics or would bring in scrutiny of current decisions. That is a point of difference between us. In the House of Lords there are many people with experience of being very effective non-executive directors, as I know from my distinguished constituent, Baroness Noakes. Most people would recognise that she is meticulous and robustly independent in the scrutiny that she brings to matters, and she regarded the wording of the Bill as entirely compatible with that. It is not right to go against what the Treasury Committee recommended and to have the second-guessing of immediate decisions.

Let me say something about the existing powers. The report by the Treasury Committee recommended that ex-post reviews of the Bank’s performance should be carried out, and those are provided for. In fact, the current wording of subsection (2) of new section 3A of the 1998 Act requires the oversight committee to

“keep under review the Bank's performance”,

and that is consistent with the Committee’s recommendations. We think that this wording strikes the right balance between ensuring effective retrospective scrutiny of the Bank’s policy performance and avoiding a situation whereby the non-executive members of the court would be constantly second-guessing the decisions taken by the Bank’s expert policy committees and executives.

Amendment (b), tabled by the hon. Member for Nottingham East, would give the oversight committee an additional function to keep under review the adequacy and effectiveness of the Bank’s arrangements with the Treasury for crisis management. It is very important that that should be under review, for all the reasons he said. Subsection (2) of new section 3A gives the oversight committee a broad remit to keep under review the Bank’s performance in relation to all its objectives and strategy. It is absolutely clear—I would like to confirm this from the Dispatch Box—that the effectiveness of the Bank’s relationship and co-ordination with the Treasury in crisis management is fundamental to the Bank’s achievement of its objective to protect and enhance stability. As such, the oversight committee can already undertake or commission a review into the effectiveness of these arrangements if necessary. In fact, in January this year the Bank said in its response to the Treasury Committee that the oversight committee should, among other things, assess whether the Bank is fulfilling effectively its duty to notify the Treasury of risks to public funds at the appropriate time. There is no substantial difference between us that the amendment is seeking to expose.

[Chris Leslie]

The problem is the threadbare nature of the memorandum of understanding, particularly the infamous paragraph 20, which says:

“However, the Chancellor and the Governor may agree to establish ad hoc or standing committees.”

That is so thin that it is important for the oversight committee to make it a top priority to ensure that there is preparedness and that it is thinking through the circumstances in which a crisis may occur, and that needs to be placed explicitly in the Bill.

[Greg Clark]

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

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

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

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

[Mr Mudie]

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

[Greg Clark]

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

[Chris Leslie]

I am delighted to hear that concession from the Minister. We have suggested a super-affirmative procedure for some of the regulations. That would give the Treasury Committee and others more time to look at the issues and ask the other Select Committees about the effect on, for example, housing and communities and local government. If the Minister is willing to open that door, we would support him.

[Greg Clark]

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

[Mr Mudie]

Has the Minister just been handed fresh instructions?

[Greg Clark]

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

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

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

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

[Mr Tyrie]

Turn around.

[Greg Clark]

I will not turn around and look at my officials in the Box, because I am sure I would get some black looks. My hon. Friend would not expect me to make a commitment, but I know—this is the case with everything he says—that he speaks from experience and that he examines the issues meticulously. I will look at what he has said, but I ought not, at this late stage, to raise his hopes too high.

Lords amendment 1 agreed to.

Lords amendment 2 agreed to.

After Clause 2

Oversight Committee

Amendment (b) proposed to Lords amendment 3.—(Chris Leslie.)

Question put, That the amendment be made.

--- Later in debate ---

[Madam Deputy Speaker]

Clearly the Government thought long and hard about how to answer the question—a little too long, in fact—and information was released to the press before the hon. Gentleman received it in writing, although he has it now. There is not a great deal that I can do from the Chair, but I recommend that the hon. Gentleman takes the matter up with the Procedure Committee. Nine months is a little long, as I am sure most Members of the House would agree.

Let us move on to the next group of amendments.

[Greg Clark]

I beg to move, That this House agrees with Lords amendment 24.

[Madam Deputy Speaker]

With this we may take Lords amendments 25, 41, 63, 78, 86, 128 to 138, 147, 231 to 233 and 236.

[Greg Clark]

The amendments in this group relate to key considerations that have underpinned the design of the new conduct regulator. The Government have been clear that regulation should focus on making financial markets work well, and on securing better outcomes for consumers.

Access is critical. Without access to a bank account, for example, it is difficult for individuals to participate fully in the economy and even in society. To support access, Lords amendment 25 adds a new “have regard” to the Financial Conduct Authority’s competition objective. Therefore, when considering whether effective competition is in the interests of consumers, the FCA must have regard to

“the ease with which consumers…including consumers in areas affected by social or economic deprivation, can access”

the services they may wish to use.

That reflects discussions in the other place, and it is right to make it clear that the regulator’s duties embrace those affected by deprivation.

[Mr Thomas]

The Minister gave the example of access to a bank account, but may I draw his attention to the issue of access to a bank branch in order to access one’s bank account? Already, a series of communities no longer have bank branches. Will he say how the FCA will use this new power to consider communities that lack not access to a bank account but access to a bank branch in the first place?

[Greg Clark]

The hon. Gentleman makes a reasonable point. However, having set up the FCA to put supervision into practice and added this concern to its objectives, it would be unreasonable for me to tell it how to exercise its powers before it has even come formally into existence. It will consider the issue of access and come to a view. That will be open to scrutiny by the Treasury Committee and, I dare say, other Committees of the House.

Where the FCA has identified a problem with access, the regulator will consider whether it could take action to close gaps in provision by promoting competition in the interests of consumers. It may also consider whether its own rules and requirements are imposing a burden on competition and restricting access.

[Nicholas Soames (Mid Sussex) (Con)]

Does my right hon. Friend agree that it matters that it is not too difficult to open an account in the first place? Every bank treats anyone who wants to open an account as a first-class money launderer, but it is essential that opening an account is not too complicated.

[Greg Clark]

My right hon. Friend is absolutely right. That is the import of the amendment I mentioned—we have stressed its importance. The Bill has substantially improved regard for competition, including by addressing the possibility that regulators, whether inadvertently or by neglect, might impede it. An explicit requirement to have regard to competition will help in that matter.

Consumer credit is a topic of great interest. A number of provisions in the Bill enable the transfer of the regulation of consumer credit from the Office of Fair Trading to the FCA. That will take place by April 2014 and constitutes a major transformation in the regulation of consumer credit. As all hon. Members know, there was strong cross-party consensus in the House of Lords on the need for strong regulation of the payday loans market. Members on both sides of this House feel just as strongly.

[Tracey Crouch (Chatham and Aylesford) (Con)]

There has been a proliferation of payday loans companies setting up in Chatham high street. Hon. Members have raised the issue for some time, so I welcome the Government’s decision. When will the university of Bristol research into a cap be published? Will it be published before Christmas?

[Greg Clark]

My hon. Friend is a real campaigner—anyone who suffers poor treatment in Chatham can count on her vigorous support in defending themselves against people who have more power. My understanding is that the research being conducted by the university of Bristol is pretty close to completion. I am not certain whether it will be published just before or just after Christmas, but I will ensure that my hon. Friend is alerted as soon as it is laid before the House.

Lords amendment 78 clarifies that the FCA will have the power to impose restrictions on the cost and duration of a regulated credit agreement. It ensures that potential loopholes that could be exploited by unscrupulous firms are addressed—for example, by ensuring that the FCA’s rules under the power cover linked charges and connected agreements. The amendment provides for the agreement to be unenforceable by the lender, for any money or property secured against the loan to be returned to the borrower, and for compensation arrangements to be put in place.

[Helen Goodman (Bishop Auckland) (Lab)]

Will the Minister clarify for the House whether the rules apply to organisations such as BrightHouse, which sells furniture and white goods at very high interest rates as well as via straightforward money transactions?

[Greg Clark]

The hon. Lady would not expect me to comment on a particular firm when I do not know the details, but she makes a perfectly reasonable general point. If a firm is a regulated provider of credit, the provisions apply to it in the same way.

[Helen Goodman]

But it sounds as if people selling goods at exceptionally high interest rates on hire purchase agreements are not regulated credit providers. Therefore, is there not a bit of a loophole in what the Minister offers?

--- Later in debate ---

[Greg Clark]

I do not believe there is a loophole. Firms are required to be regulated for those aspects of their business that provide credit to consumers. They therefore fall squarely under the FCA’s powers.

The Government tabled a number of amendments in the Lords to ensure a smooth transfer of consumer credit regulation from the OFT to the FCA, and to ensure that the FCA regime is proportionate and gives the right protection to consumers. We also introduced amendments in response to concerns raised by the House of Lords Select Committee on Delegated Powers and Regulatory Reform. For example, Lords amendment 136 requires the Treasury to have regard to the importance of securing an appropriate degree of protection for consumers and for the principle of proportionality.

Lords amendment 130 responds to the Committee’s concern about double jeopardy. It provides that when criminal sanctions under the Consumer Credit Act 1974 and regulatory sanctions under the Financial Services and Markets Act 2000 are available to the FCA in relation to the same act or omission, a person may not be convicted if he has already been subject to sanctions under FSMA.

Lords amendment 233 and associated technical amendments address a possible loophole that might otherwise emerge as a result of moving from a CCA-based regime to a FSMA-based regime. Under FSMA, it is an offence to carry on a regulated activity without authorisation, whereas under the CCA it is an offence to lend money or collect debts without the right category of licence. The Government tabled amendments in the Lords to make it a criminal offence to lend or collect money without the correct permission. That addresses the risk of sophisticated illegal money lenders seeking authorisation for a lower-risk activity, only to use that as cover to engage in lending or debt collection, to the potential detriment of consumers. Lords amendment 233 also ensures that any agreements entered into or being enforced by a person without the necessary permission become unenforceable, meaning that important protections in the CCA for victims of illegal money lenders or debt collectors are replicated in the new regime.

Lords amendments 63 and 232 make changes to how the appointed representatives regime under FSMA will operate when firms carry out a credit-related activity—for example, by acting as ancillary credit brokers. The amendments create a limited carve-out from the provision in FSMA that firms cannot be both an appointed representative and authorised at the same time. They provide that if a firm is authorised for a particular category of consumer credit activity, it would also be able to become an appointed representative.

Consistent with CCA provisions, the Bill allows the Treasury to enable trading standards to prosecute offences under FSMA. Government amendments enable the Treasury to confer similar powers on the Department of Enterprise, Trade and Investment in Northern Ireland. They enable the Treasury to confer powers on trading standards and DETI to investigate offences under FSMA.

The amendments to which I have spoken so far have been concerned with the new regime, but the transfer to the FCA will not take place until April 2014, and it is clear that there are problems in the sector that the OFT needs to address in the meantime. The findings of the recent OFT report into compliance standards in the payday lending market show that compliance levels are low and that a number of practices that clearly cause consumer detriment are rife in the sector. To empower the OFT to operate as effectively as possible in the interim period, Lords amendments 138 and 147 give the OFT a new power to suspend consumer credit licences with immediate effect if it considers that necessary urgently to protect consumers.

Finally, on social investment, the Government tabled Lords amendments 24 and 41 to ensure that the particular needs of different sectors and the consumers that use them are taken into account—they are not specific to social investment but apply to alternative and innovative business models more generally. Lords amendment 24 requires that, when the FCA is considering its consumer protection objective in future, it will be required to have regard to the different expectations of consumers in relation to different types of financial service. In other words, if people with their eyes open go into a social investment model, it will be entirely appropriate for advisers to advise on such products.

Lords amendment 41 adds a new regulatory principle to clause 3B—the principle applies to both the Prudential Regulation Authority and the FCA. The measure requires them to have regard to the different nature and objectives of different financial services businesses. It is intended to make clear that there should not be a one-size-fits-all approach to regulation, because sectors such as social investment have an important part to play.

[Mr Thomas]

I apologise for interrupting the Minister’s strand of thinking on the social investment measures, but may I take him back to payday lenders? The noble Lord in the other place introduced a series of Government amendments designed to deal with the problem. Will the Minister offer the House a definition of payday lenders, so that we have a sense of who the Government seek to tackle with the amendments?

[Greg Clark]

I will not do that for much the same reasons I gave in response to the previous intervention. The Lords amendment clarifies that across all regulated lenders the FCA has broad and powerful powers, if I can put it that way, to intervene to protect consumers, including on the price or rates of interest they are charged, according to its assessment of the detriment faced by consumers. It is right to frame it in that way, and to empower the regulator to pursue sometimes even novel forms of credit that might be operating to the detriment of consumers, rather than to risk specifying in the Bill detail that might be overtaken by time or the ingenuity of people seeking to cause damage to our constituents.

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[Greg Clark]

The hon. Gentleman knows that the term, “payday lender” is relatively informal and loose. It is important for the FCA to have the powers it needs to protect consumers. Its focus should be on the consumer, rather than on a current definition of a practice pursued by a supplier. That is the way it is cast and it is the right power. From the discussions in the House of Lords last week—as he might imagine, I paid close attention to them—it was apparent that everyone who has taken a close interest in the past weeks, months and, in some cases years, was content that the powers vested in the FCA, which are clarified in the amendment, address all the concerns shared by Members on both sides of the House.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

I encourage the Minister to broaden his comments to encompass all our concerns about high-cost credit companies. Having seen the wonderful damascene conversion to the need to tackle these companies, many of us want to ensure that we do not inadvertently miss out on not just those payday or short-term lenders, but doorstep lenders, logbook loans and hire purchase agreements. High-cost credit encapsulates all those issues, and I think it would be welcome to the regulator to know that the intention of Parliament is precisely to tackle the whole industry.

[Greg Clark]

I am grateful to the hon. Lady for her point, which makes the point I was making to the hon. Member for Harrow West (Mr Thomas). To use the term “payday lenders” exclusively is to miss a broader range of potential practices that may cause detriment to consumers, and that is why this approach is about the powers vested in the regulator.

[Yvonne Fovargue (Makerfield) (Lab)]

Will the FCA be able to look at other concerns such as the misuse of continuous payment authority by both high-cost lenders and fee-charging debt management companies? The unrestrained use of continuous payment authority causes one of the biggest detriments to consumers that I have seen.

[Greg Clark]

The short answer to that is yes. The FCA’s powers will be broad, and defined by practice rather than activity. We have been clear that it might not be just the level of interest charged, but other practices associated with the lenders that come within the ambit of the regulator. It is clear that it will use those powers vigorously to promote the interests of all our constituents.

I will leave my introductory remarks on that point. I am sure that Members wish to contribute and I will seek to respond to any points raised when I make my winding-up speech.

[Chris Leslie]

There is a large number of amendments in this group, that focus on consumer credit and the best interests of consumers. I want to concentrate on two in particular—Lords amendments 25 and 78.

Lords amendment 25 was extracted from the Government and we are glad that they gave way on it. The amendment will henceforth make it clear that the new Financial Conduct Authority will have a requirement to ensure basic access to financial services particularly in deprived areas and neighbourhoods where some of our banks and financial institutions do not necessarily think that they can make millions and millions of pounds. That is the hope placed on the shoulders of the FCA. The key question is whether the regulator will roll up its sleeves and use the full extent of the powers that the Bill should provide. I, for one, will be seeking a very early meeting with the new chief executive of the FCA to extract commitments on how it intends to use the new powers.

It should not have taken months of persuading and cajoling Treasury Ministers for them to accede to the changes. Perhaps it was the fresh air provided by the new broom, the Financial Secretary to the Treasury, sweeping clean with perhaps more of an open mind than his predecessor on some of these issues. If that is the case, I commend him for it. We need to begin to look at the detail, so I have a series of questions for him, starting with Lords amendment 25.

There are already what some people call lending deserts. In some communities, bank branches are not as readily available as they are in other, more affluent areas. In some deprived areas of the country, it is hard for consumers to access affordable credit. The key word—affordability—is of course now well known. If people want to be completely ripped off, they can pay for high-cost credit, often on a very short-term basis, with immense interest rate charges that can accumulate and get them into severe jeopardy. That will lead to further financial exclusion if they cannot keep up with the repayments, and to them being trapped in a spiral of poverty.

It is important to hold the big five banks to account. As large institutions, they are not just private companies with no obligations beyond and above those that rest on the shoulders of any other private company. In this day and age, they are a social utility and have a duty to the community to ensure that all parts of the country have access to basic banking facilities. The work of the financial inclusion taskforce, under the previous Administration, sought to ensure that basic bank account facilities were available. With the onset of universal credit in April 2014, it will be even more important for everybody to understand and have access to those facilities. However, I am increasingly worried about the fragile deal put together under the previous Administration to support and extend those basic services. There are signs of a creeping onset of charges. As banks come out from the era where the taxpayer was essentially keeping them going, they are now starting to look to the consumer to extract more charges. I do not want a situation where banks get together and think about introducing basic charges on current accounts, especially for those who are taking care to ensure that they are in credit. There are worrying signs that that might be in the air. Even the regulators have started to say, “Well, let’s start charging a little bit for in-credit current accounts. It might be a way of ensuring we don’t have to charge such high costs for unauthorised overdrafts.”

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[Andrea Leadsom (South Northamptonshire) (Con)]

I want to speak briefly on Lords amendments 25 and 36, both of which deal with the issue of competition in respect of the new regulators: the Prudential Regulation Authority that will supervise the banking sector and the Financial Conduct Authority that will supervise business conduct in the banking sector. I seek reassurance from the Minister that having regard to the quality and level of competition in the marketplace will be sufficient to drive a radical improvement in respect of the new challenger banks.

As the Minister knows, the five oligopoly banks in the UK currently have over 80% of all small and medium-sized enterprise bank accounts and personal current accounts. That means access to finance is very limited in respect of choice and types of finance, and as bank balance sheets are currently in a difficult position, it is extraordinarily hard for small businesses to get hold of the financing they need to grow, which in turn will help our economy to recover. So the Bill gives us a once-in-a-lifetime opportunity to ensure that the regulators are, in future, incentivised to ensure not only that banks do not fail, but that we encourage new entrants to the market. At the moment, many would-be bankers find that they are set enormous hurdles, such as having to set up a dealing room just to provide evidence of their ability to do so, yet at the end of an enormous obstacle course the FSA tells them that they cannot have a banking licence. What we cannot have in the future is the PRA and the FCA combining to make it as difficult or more difficult to encourage new entrants into the market. So I hope that the Minister will set out how the regulators of the future will not only tolerate, but encourage new competition.

[Greg Clark]

This excellent debate has covered a number of issues that colleagues from all parts of the House feel passionately about, and correctly so because they are of huge importance to all our constituents, especially the most vulnerable in our society.

In the short time available, I wish to address some of the points that have been made directly by hon. Members. The shadow spokesman, the hon. Member for Nottingham East (Chris Leslie), asked how the powers would be exercised by the Financial Conduct Authority. The powers come directly from the FCA’s remit, and he will be aware that the Bill establishes a far-reaching consumer protection objective. The overall objective is

“securing an appropriate degree of protection for consumers.”

The Bill goes into detail to require the FCA to consider the following: the different degree of risk to be tolerated by different types of consumers; the different needs of different types of consumers for the provision of information; and the general principle that those providing financial services should be expected to provide consumers with a level of care appropriate to their needs. I think that colleagues would recognise that this is a far-reaching objective which gives quite general powers to protect consumers, and it is right that that should be so.

The hon. Gentleman mentioned basic bank accounts, on which some progress continues to be made. There is no universal legal right to a basic bank account, but the industry guidance still stands. It states that if a consumer asks to open a basic bank account and meets the qualifying criteria, the firm should offer them an account and that banks can refuse to open an account for a customer only where the customer has a history of fraud or is an undischarged bankrupt. Those provisions continue.

[Sheila Gilmore]

The previous Government had proposed creating exactly such an obligation, but the Minister’s predecessor, in a debate I had with him in Westminster Hall, refused to contemplate any such provision. Has there been any change of mind on the part of the Government?

[Greg Clark]

I did not have the privilege of participating in that debate, but I can tell the hon. Lady our policy. I also wanted to talk about the very important matter that the hon. Member for Nottingham East and several others raised about the transparency of the information that should be provided, as is the case in the United States, on the actual practice rather than just the intentions of lenders. This is a particularly important point, and what we have said in public—I mentioned this to the Chairman of the Treasury Committee earlier—is that the Government are working with the industry to get a commitment from the banks that they will publish granular data on their lending, particularly in deprived communities. We are meeting the British Bankers Association shortly on that. We have been absolutely clear that if we are not satisfied with that information we will use the forthcoming banking reform Bill to legislate to that effect. That will concentrate minds and I think everyone will be aware of the importance of that question.

It is important to address the context in which we are operating. The Financial Conduct Authority must not regard itself simply as a regulator of incumbents, although it has important responsibilities in that regard. It also has the important objective that my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) mentioned, which is to promote competition. I regard the degree of competition in retail banking as unacceptable. I would like to see more new entrants and I would like them to concentrate, in particular, on reaching those parts of the market that existing incumbents find it difficult to reach. I have made it absolutely clear in the meetings I have had with the shadow Financial Conduct Authority that the competition objective is to be taken extremely seriously, and I and my colleagues in the Treasury will be looking for progress on that.

[George Freeman (Mid Norfolk) (Con)]

I am extremely grateful to the Minister for giving way, and I want to endorse his sentiments and those of my hon. Friend the Member for South Northamptonshire (Andrea Leadsom). Constituents in my area have come to wonder whether there is a danger of our regulating after the horse has bolted. They look to America, where there are more than 20,000 high street banks, and wonder whether we could be doing more to encourage an insurgency, as it were, of new banks to provide the high-street banking service that we need at a time when the old banks are locked up, dealing with the legacies of their mistakes. I echo the Minister’s remarks and wonder whether we can look to the Government to do anything—perhaps not in this Bill but in the coming years—to make that a reality.

[Greg Clark]

I completely agree with my hon. Friend. The Bill has a role to play, because it is very important that the authorities do not put insuperable barriers in the way of new banking bodies and entrants to the market that are seeking approval, because such prospective competitors could offer new services to consumers who are not well served at the moment.

The hon. Member for Nottingham East raised questions about the scope of the FCA’s rule making. That relates to a point made by my hon. Friend the Member for Chatham and Aylesford (Tracey Crouch) too, so let me confirm that the FCA will be able to make rules on the cost of credit from payday lenders, as well as pawnbrokers and any other provider of consumer credit. It is important that the FCA’s discretion allows it to protect the consumer and the consumer’s interest in all these matters.

The hon. Member for Bishop Auckland (Helen Goodman) is not in her place, but she was concerned about the branch network, as were certain others. It is not possible or right for the Government to require particular branches to be kept open and I am sure that no hon. Member would expect that. Lords amendment 25 will require the FCA to have regard to

“the ease with which consumers…including consumers in areas affected by social or economic deprivation, can access”

the services they wish to use. The FCA might wish to consider that.

The hon. Member for Harrow West (Mr Thomas) is also not in his place, but I think I have addressed his concern about whether the information provided by the banks on their practice in lending will be sufficient. I have commented on the remarks made by my hon. Friend the Member for Chatham and Aylesford, and Lords amendment 78 also applies to the lenders about whom she was concerned.

I join the tributes paid to the hon. Member for Walthamstow (Stella Creasy), who has been energetic in pursuing this issue. She was slightly unfair to refer to a damascene conversion, as some of us on the Government Benches have always regarded the powers that were going to be invested in the FCA as necessary. We have been pleased to clarify that. She will understand that the transition to the new regime will take some time during the next year. The Chairman of the Select Committee chided me earlier for introducing these provisions in a hurry. It is necessary to have a degree of pace. The hon. Lady is absolutely right that during its remaining supervision of these matters the OFT in particular will have the opportunity and the power, given the amendments, to suspend a credit licence if it thinks it is necessary. The discussions that we will have, and I am sure she will have with it, will cause it to be forward-looking rather than simply regulate what has been in place so far. My hon. Friend—

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Extension of scope of regulation

[Greg Clark]

I beg to move, That this House agrees with Lords amendment 59.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

With this it will be convenient to consider the following:

Lords amendment 60, and amendments (a), (b) and (c) thereto.

Lords amendment 61, 62, 79, 115 to 121, 139, 140, 142, 146, 182, and 203 to 205.

[Greg Clark]

I come now to the Government’s implementation of the independent review of LIBOR conducted by Mr Martin Wheatley. I announced the Government’s response to the Wheatley review in mid-October and three sets of amendments to the Bill have been made to implement those recommendations that require legislation. The first is to enable activities in relation to benchmarks, such as LIBOR and potentially others, to be brought within the scope of regulation under FSMA. The second is to create criminal offences designed to tackle misconduct in the financial sector, including a new criminal offence for making false or misleading submissions in connection with the determination of a benchmark. The third is to provide the FCA with a rule-making power to require banks to submit to LIBOR and other benchmarks. Those amendments complement the market-led reforms to LIBOR as recommended by the Wheatley review. Martin Wheatley recommended that submission to, and the administration of, LIBOR become regulated activities, and amendments 59 to 62 create a framework to enable activities in relation to benchmarks to be specified as regulated activities under FSMA.

Amendment 60 defines “ benchmark” as an “index, rate or price”, defined from time to time by reference to the state of the market and used in relation to investments. A benchmark is capable of being regulated only if it meets that definition. The precise benchmarks that are subject to regulation will be specified by way of statutory instrument. The Government recently published a consultation paper on this legislation. Initially, the activities to become regulated will be LIBOR submission and administration, as recommended by the Wheatley review. However, further benchmarks can be added and the Government are considering and consulting on whether additional benchmarks should be brought within the regulatory perimeter. The types of benchmarks that could be eligible include equity or bond indices, derivatives and commodity or energy benchmarks. The definition of benchmark, as drafted, requires that it be used for one or more purposes that relate to section 22 of, and schedule 2 to, FSMA.

The hon. Member for Nottingham East (Chris Leslie) has tabled an amendment that would extend that definition to include commodities. Let me say first that I totally understand the requirement that we should be able to address some of the alleged abuses that have taken place and have the powers in statute to include those benchmarks that are relevant to some of the concerns that have been expressed recently. We do not believe that there is any requirement to extend the legislation on that. In fact, the Bill was drafted to anticipate the Wheatley review and the work going on in other benchmarks. Benchmarks can represent many things, including commodities or energies, provided that they are traded financially in the way we often see. Under the definition, regulation by the FCA extends to benchmarks that involve financial matters consistent with FSMA and the objectives of the FCA as the financial services regulator.

The Wheatley review also recommended that banks should be encouraged to participate in LIBOR—participation is currently voluntary. In the absence of such submissions, LIBOR would cease to be a representative benchmark and, in an extreme scenario, would not be published at all. Therefore, Lords amendment 79 allows the FCA to require firms to participate in particular benchmarks, while making reference to a “code or other document”. That allows the detail of the requirement to be determined by the benchmark administrator, not by the FCA. It might not be necessary for the FCA to use that power immediately, if at all, and it has recently opened a discussion on how and when the use of that power could be considered.

The Wheatley review also recommended the creation of a new criminal offence in relation to the manipulation of benchmarks such as LIBOR and the re-examination of the criminal sanctions for market manipulation under FSMA. Although such conduct could already be a criminal offence under legislation, this is a helpful clarification of some of the powers. There will be three criminal offences: first, we are re-creating the offence of making a false or misleading statement; secondly, we are widening the offence in section 397(3) to include creating a false or misleading impression as to the market in, or the price or value of, an investment for the purposes of making a profit or avoiding a loss; and thirdly, we are creating a new criminal offence related to misleading statements and impressions in respect of specified benchmarks.

The amendments also replicate the penalties for existing offences: a person found guilty might face a prison sentence of up to seven years and an unlimited fine. The detail of the investments, agreements and benchmarks for which those criminal offences apply will be set out in secondary legislation. That is included in the public consultation currently under way.

Under the current arrangements, where enforcement action results in a firm paying a financial penalty, that is applied as a discount to fees paid by other firms the following year. Without reform, unprecedented fines, such as those relating to the attempted manipulation of LIBOR, would have represented a significant windfall to regulated firms. In future, regulatory fines revenue in excess of enforcement case costs will go to the Consolidated Fund. The hon. Member for Nottingham East and I had an exchange about that earlier. The regulators will be able to net off enforcement case costs before handing over the penalties to the public purse. The new arrangements will apply to FSA fines received from 1 April 2012, so the measure will include the penalty imposed on Barclays in relation to the attempted manipulation of LIBOR.

The Government have announced that £35 million of fines imposed from attempted LIBOR manipulation and other unacceptable behaviour received this year will be used to support Britain’s armed forces community. In addition, £5 million will go to the creation of new, groundbreaking first world war galleries at the Imperial War museum. I hope that the House will agree to these amendments but, of course, I stand ready to respond to any points Members make.

[Chris Leslie]

We have moved on to another series of amendments that have arisen largely as a result of the scandal that was discovered this summer, when it was found that some of the largest banks—obviously, we have heard about the concerns in relation to Barclays—had been manipulating LIBOR, the benchmark from which flows billions, if not trillions, in financial services products and investments worldwide.

The scandal had massive ramifications across the banking sector. It was as though having gone through three or four years of attempted reform following the global financial crisis, after which it was clear that the risks that many in the banking sector had been taking were not properly understood or accounted for, the sector was again knocked sideways. It turns out that it was not just about exuberant risk-taking; it was, in fact, about corrupt manipulation of what people had thought was a trustworthy index. What is worse, it hit the reputation of the City of London in particular. It was all in the name: the London interbank offered rate. This was taken by many other international financial centres to be a moment of weakness for the UK financial services sector, and we saw several examples of other jurisdictions taking action swiftly to capitalise on the disarray in which many in the financial services sector found themselves. It was therefore important that the Government took urgent action and commissioned a review of what happened in the LIBOR scandal.

At the time, we felt that the matter was of such significance that we called for an independent judicial inquiry into the whole question of banking standards and ethics. As I am sure you will recall, Mr Deputy Speaker, we had a very heated debate in which the Government said, “We’ll have a parliamentary banking commission,” while we said, “Go for an independent judicial variant.” Of course, the Government won the day, and hence the Chairman of the Treasury Committee is now demonstrating his stewardship of that commission, which is due to report shortly. I hope that it has an opportunity to look into the wider issue of ethics and standards in banking. The Government have been keen that it starts to focus, almost in pre-legislative mode ahead of the banking reform Bill, on the Vickers reforms, but these questions of standards, ethics and culture also matter tremendously.

The Government made several amendments to the Bill in the House of Lords. In amendment 79, it is envisaged that there will be new provisions for a benchmark administrator, but it is not certain that a private sector organisation, even if it has a certain amount of experience, will be totally immune from conflicts of interest. Did the Government give any consideration to establishing a more independent body or entity for that administrative process? It is vital that the process of finding a new benchmark administrator is open and transparent. Will the Minister give more details about the process that he is undertaking and how the tender process is happening?

On amendment 115, it is important to ensure that the new criminal offences have a strong effect in respect of misleading statements on benchmarking and in general. In terms of its jurisdiction, is the amendment limited to British banking and financial services activities, or does it cover activities undertaken by UK organisations or UK-approved persons in operations in countries beyond our shores? Clearly, in a globalised world, that is relevant to how we see the behaviour of those in the sector.

The Government’s proposals to regulate benchmarking currently apply only to investments. We want to ensure that the regulatory net is also cast around commodities, including oil trading, gas market trading, silver, gold, foodstuffs, and so on. I am sure, Mr Deputy Speaker, that you can think of a range of potential commodities. Therefore, in the marvellous parliamentary way in which we do these things, we are seeking to amend a Lords amendment to ensure that the definition is focused not only on investment but, for clarity’s sake, puts commodities into the Bill. The Government say that they are consulting on this arrangement and might have the power to include those things later down the line but do not believe that there is a requirement to do so at this stage. However, it is time that we got ahead of these issues early on.

In the Public Bill Committee in March, after several hours of debate—it had been a bit of a long day—I asked the Minister’s predecessor, in relation to LIBOR and the benchmarking of these arrangements, “Do the Government have a view about whether there is manipulation and whether changes need to be made to the regulatory arrangements?” He stood up and answered with the single word, no. Of course, he came to regret that stance and several months later—I think it was in June—we learned that a tremendous scandal had taken place. If we have these legislative vehicles, it is important that we take the opportunity to deal with any potential issues.

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[Alison McGovern]

I thank the hon. Gentleman for his intervention, which was characteristically well made. I share his fear, and his point about the G8 is absolutely correct. It will be great to have the G8 summit in Northern Ireland. I am sure that the Minister has heard the hon. Gentleman’s point and will duly feed it back to the Prime Minister, because there is no doubt that it is important.

In conclusion, underlying what we are trying to achieve is a financial system that has appropriate oversight. Given the importance—we now know this—to our everyday well-being and comfort of what appear to be financial technicalities and bits of information that people do not necessarily connect with the realities of life, I hope that the Government will pay the most careful attention to the results of the consultation on commodities, because we might have a genuine opportunity to set in train rules that will help us to spot the awful crashes and difficult phenomena of the future.

[Greg Clark]

It is a pleasure to respond to this short but important debate.

The hon. Member for Nottingham East (Chris Leslie) referred to the heated exchanges before the summer. They were necessarily heated because they concerned a major scandal that did great damage to the country’s reputation. The whole House feels strongly about this matter because the industry is vital to the country’s economic future. About 2 million people are employed in the financial services and related industries, most of them in capacities far removed from the ability—and still more the inclination—to engage in the kind of behaviour that came to light in the LIBOR scandal. It is a particular source of outrage that many ordinary working people across the UK with careers in the banking industry have been besmirched by the behaviour of people far from them. As a result, in their ordinary working lives and in conducting their activities, they found themselves bracketed with people who were shaming an industry that they were proud to work in—an industry associated with high standards of sobriety and propriety—and it is particularly important that we act decisively and firmly against the perpetrators of the manipulation that came to light in the summer.

The amendments do precisely that. All Members will recognise the pace with which we have responded, given that the allegations came to light in late June. We immediately asked an independent reviewer, Martin Wheatley, to look into the allegation. He conducted his work over the summer and reported in September. The Government considered all his recommendations and have adopted every one of them. The fact that we are here, in early December, reaching the final stages of legislation to act on those recommendations shows that the Government and the House have taken the allegations very seriously and are acting to restore the reputation not only of the City of London, but of the financial services industry in this country. I hope that the world will see that, when something comes to light that objectively is scandalous, we will not stand by and watch it happen, but will take legislative action immediately.

I shall refer to some of the points made by the hon. Members for Nottingham East and for Wirral South (Alison McGovern). Let me deal first with the independence of benchmark providers. There are, of course, lots of different benchmark providers, not all of which—it is important to say—were associated with the problems that LIBOR and the British Bankers Association had. The Wheatley review recommended that the BBA step aside from setting LIBOR. Future administrators, which may be private, commercial or otherwise—there is no restriction—will be subject to the type of regulation powers contained in these amendments. On LIBOR specifically, the tender committee chaired by Baroness Hogg is in its early stages. We will of course update the House on the progress it makes when it considers who will operate the LIBOR benchmark in future.

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[Chris Leslie]

I would have thought the Minister wanted to speak, as Lords amendment 98 is the lead amendment of a group relating to the extension of resolution schemes from banks and building societies to investment firms and in particular UK clearing houses. There is a wider set of issues, therefore.

UK clearing houses stand between two parties in a trade, ensuring that a deal goes through in the event of one party defaulting. Once a deal is agreed, the transaction is honoured even if one party goes bust.

The Government’s decision to extend a set of resolution arrangements to clearing houses is incredibly important, as the debates in the other place set out. Clearing houses are highly significant entities nowadays. After the 2009 G20 summit, it was clear that several hundred trillion dollars of market transactions, especially in over-the-counter derivative arrangements, were part of the clearing house ambit. Therefore, a failure in a clearing house could clearly mean a big problem—a series of problems—for the financial services sector more broadly.

I have a series of questions for the Minister, as I would be grateful for his help in respect of the provisions of this amendment and others in this group. First, I want to ask him about today’s Financial Times, the front page of which talks interestingly about the extension of resolution plan arrangements from covering just companies within the UK to an agreement between the United States and the UK that the Bank of England seems to have struck which will mean, for the first time, that there is a template for larger, serious, significant international financial institutions to have resolution arrangements that span borders. Clearly that is relevant to these amendments on clearing houses. [Interruption.] I can tell that hon. Members are very familiar with these arrangements. Clearing houses have a great deal of cross-border interoperability, they cut across jurisdictions and there is a need to co-ordinate their work. Will the Minister assure the House that steps will be taken to ensure that international efforts are made to promulgate resolution arrangements that also cut across borders for clearing houses?

Central counterparty clearing arrangements these days contain a requirement also to hold Government bonds as collateral. As we know, Government bonds are not what they once were; there have been some questions about their safety. The Minister needs to explain: are we guarding against the deterioration of standards in central counterparty collateral arrangements? If we are increasingly reliant on gilt-edged securities of an international variety, are we actually ensuring that there is sufficient strength behind our central counterparty clearing arrangements?

Finally, may I ask the Minister a further question? Basel III arrangements will be ensuring that banks that are members of clearing houses need to capitalise their exposure to central counterparty contingent liabilities. Can he just give us a sense of the impact on the UK banking system, particularly on its capital adequacy, of processes that will see a rapid change on central counterparty arrangements from an over-the-counter arrangement to an exchange-based arrangement? If the regulators are insisting more and more on exchange-traded arrangements in those clearing houses, there will be an imperative for those clearing houses to become more and more price sensitive and they will be more desirable for the market more generally. That is why we are seeing so many mergers and acquisitions of clearing houses. Are these costs eventually going to be finding their way on to customers and our constituents? I would be grateful if the Minister replied.

[Greg Clark]

Let me give a bit of context to amendments 98 and 225. Taken together, they make provision with regard to the Bank of England’s role in insolvency proceedings relating to a UK clearing house. The amendments will ensure that the Bank of England is put on notice of any application for administration in respect of a UK clearing house, of any petition for a winding-up order in respect of a UK clearing house, of any resolution for the voluntary winding up of a UK clearing house and of the proposed appointment of an administrator of a UK clearing house. That will give the Bank the opportunity to consider whether to exercise a stabilisation power provided for in part 1 of the Banking Act 2009 in order to minimise the impact of the clearing house’s failure on financial stability. Amendment 225 gives the Bank of England the power to direct insolvency practitioners appointed in relation to a company that is or has been a UK clearing house. The direction would operate without prejudice to the existing statutory requirements relating to company insolvency.

The financial crisis of 2008-09 highlighted many deficiencies in the regulation of the global financial system. Most importantly, we found that the disorderly failure of systemically important banks could have catastrophic effects on the stability of the UK and international financial markets.

The hon. Member for Nottingham East (Chris Leslie) mentioned the piece that featured in the Financial Times today, which was a joint paper, in effect, between the Bank of England and the Federal Deposit Insurance Corporation on plans for resolving global systemically important financial institutions. The Bank of England and FDIC paper is a perfectly proper collaboration between brother regulators across the world and is exactly the sort of approach we would expect regulators to take to make the financial system safer. It should be seen as part of the wider international and European work to deliver a credible resolution regime for the biggest banks and for—

ECOFIN

Greg Clark Excerpts

Monday 3rd December 2012 Written Statements

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

A meeting of the Economic and Financial Affairs Council will be held in Brussels on 4 December 2012. We expect the following items to be on the agenda and discussed.

Banking Supervision Mechanism

Council will seek to agree a general approach for the Commission’s proposal for a single supervisory mechanism (SSM).

Revised capital requirements rules (CRD IV)

Council will receive a progress report on the proposals for revised capital requirements rules (CRD IV).

Economic governance—Two pack

Ministers will seek to agree a general approach on two regulations, which are intended to strengthen fiscal discipline and financial stability in the euro area.

Credit Rating Agencies

The presidency will update Ministers on the political agreement reached on the credit rating agencies 3 (CRA3) dossier.

Macroeconomic Imbalance Procedure—Commission annual report

Ministers will hold an initial exchange of views on the alert mechanism report, the first stage in the macroeconomic imbalance procedure.

Annual Growth Survey 2013

Council will hold an initial exchange of views on the annual growth survey 2013.

Issues related to the Economic and Monetary Union

Council will hold an exchange of views on issues related to the economic and monetary union.

Implementation of the Stability and Growth Pact

ECOFIN will seek to adopt Council decisions relating to Greece’s excessive deficit procedure.

Financial Transaction Tax (FTT)

The presidency will brief Ministers on the state of play as regards a proposal for a Council decision authorising enhanced co-operation in the area of FTT by some member states. The UK will not participate in an enhanced co-operation FTT.

VAT Quick Reaction Mechanism

Ministers will hold an orientation debate on a proposal for amending a directive on the common system of value added tax as regards a quick reaction mechanism against VAT fraud.

Annual Report of the Court of Auditors on the implementation of the budget for the financial year 2011

The President of the European Court of Auditors, Mr Vitor Caldeira, will present to Ministers the annual report of the Court of Auditors on the implementation of the budget for the financial year 2011.

Income Tax

Greg Clark Excerpts

Wednesday 28th November 2012 Commons Chamber

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

It is a pleasure to respond to this debate, not least because of the maiden speech made with such distinction by the hon. Member for Cardiff South and Penarth (Stephen Doughty), whom I warmly welcome to the House. He spoke in a way that was assured and fluent and with a degree of geniality that I think will make him many friends throughout the House. I have one issue of contention with him. He outed himself as a fan of Cardiff City and, since they are locked in a promotion battle with my hometown club of Middlesbrough, that will be a point of disagreement between us during the weeks and months ahead.

Call me naive, but I had hoped that, during an Opposition day debate, we might have heard something—anything—about the Opposition’s policy, but sadly it was not to be. At the end of this debate, their economic policy is, if possible, even more obscure than it was at the beginning. There are four fundamental matters crucial to this debate that both shadow Ministers—the hon. Members for Leeds West (Rachel Reeves) and for Newcastle upon Tyne North (Catherine McKinnell)—failed to address.

The first could not be more basic. What do the Opposition believe to be the purpose of the 50p rate of income tax? Is it to raise revenue, to punish the rich, as the right hon. Member for Oldham West and Royton (Mr Meacher) has said, or to serve as a piece of rhetoric? We need to know, because if the Opposition are clear that its purpose is to raise money, will the hon. Member for Newcastle upon Tyne North say—she is welcome to intervene—whether they will drop their support for the 50p rate if the evidence continues to support our assessment and those of HMRC and the OBR that it raised very little indeed and would be likely to cost the public purse even more? Will she be clear—is the argument that the rate raises money the criterion for the Opposition’s support for it, or is it a price worth paying just to send a message that they want to soak the rich?

Secondly, do the Opposition accept, in the words of HMRC, that

“high tax rates in the UK make its tax system less competitive and make it a less attractive place to start, finance and grow a business”?

Do they accept HMRC’s assessment that high taxes are bad for the international standing of the country? I would be pleased to take an intervention from the hon. Lady. My hon. Friend the Member for The Wrekin (Mark Pritchard) asked the shadow Chief Secretary whether she subscribed to that view, and she could not answer. Is tax competitiveness important to the Opposition? We do not know. In their view, does it matter if the UK has the highest tax rate in the G20? Is that a concern or not? Does it make a difference to British competitiveness? The last time the hon. Member for Pontypridd (Owen Smith) was asked he said, “I don’t know.”

The third issue is whether the Opposition agree with the former Chancellor, the right hon. Member for Edinburgh South West (Mr Darling), who said that this measure should be only temporary. We have had no clarity on that from Opposition Front Benchers.

The fourth matter that the Opposition need to consider, given that they regard this tax as being so crucial—so totemic—that they wanted to call this debate about it, is whether they will send a clear message that they would restore it if they came to power. Again, we have silence. Let us bear in mind that we are now in the second half of the Parliament, and the time for posturing and procrastination is over. The time has come for the Opposition to tell the country what they would do in government—or do they simply not have the courage to face up to the need to be straight with the British people? I strongly suspect that this will be one of the last occasions when we debate the 50p tax rate as it gets shuffled off to the retirement home of meaningless gestures that the Opposition no longer have time and use for.

Labour is, to its core, the party of tax and spend, and, to be fair, it takes a very consistent view of both sides of the equation. With regard to spending, it is always a matter of “How much?” and not “To what end?”—of inputs, not outcomes; of the number in the headline on the press release, not what is achieved with the money. On taxation, too, for Labour it is all about the price tag—the headline rate, not the revenue actually raised, nor, indeed, the amount of tax that the wealthy actually pay. The top rate of tax paid by the rich in all but the last month of the previous Government was lower than what they pay now. The top 1% of earners now contribute over 27% of income tax revenue—far more than they did under Labour—and the effect of this year’s Budget is to take from the richest five times what they gave through the reduction of the 50% rate.

Of course, the tax system that we inherited from the previous Government was a mess—a typically socialist tangle of tripwires and loopholes which, as my hon. Friend the Exchequer Secretary made clear, we are taking action to close. Too much of the money made under the previous Government was in keeping with the ethos of the previous Government—short term, reckless and unsustainable; the boom before the bust. In future, if there is money to be made it will be done in the responsible way, through real enterprise and real innovation. As we seek to rebuild a productive economy on the ruins of Labour’s cardboard economy, this is the worst time to punish the producers, innovators and entrepreneurs on whom our future depends.

[Rachel Reeves]

If the Government are doing so well on the economy, why has it shrunk over the past year, and why is Government borrowing now rising, not falling?

[Greg Clark]

The hon. Lady will be aware that the record structural deficit in the G7 bequeathed by the previous Government has been paid down by a quarter.

As we seek to rebuild our productive economy, Labour Members know all about the power of the headline figure—that is why they have made such big play of the top rate of income tax. It is interesting that the shadow Minister was more familiar with the opinion polls than with the cost of this measure to the economy. If they think that it plays well to the gallery, then how do they think it plays to those who might or might not want to invest in this country, and who might create the new private sector jobs that a financially exhausted public sector can no longer pay for?

For our part, we want to create an economy in which those who prosper most are those who are best at creating wealth for all. That will require moderate tax rates, properly enforced, and the long, hard slog of tax reform and simplification. As in so much else, we have chosen the difficult path but the right one. Today’s debate provides further proof that Labour has made the opposite choice. As always, the politics are cheap but the consequences would cost our country dear.

Question put (Standing Order No. 31(2)), That the original words stand part of the Question.

Banking Act 2009

Greg Clark Excerpts

Thursday 22nd November 2012 Written Statements

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

The Treasury has laid before the House of Commons a report required under section 231 of the Banking Act 2009 covering the period from 1 April 2012 to 30 September 2012. Copies of the document are available in the Vote Office and the Printed Paper Office.

ECOFIN (Budget)

Greg Clark Excerpts

Tuesday 20th November 2012 Written Statements

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

The Economic and Financial Affairs Council—Budget, was reconvened in Brussels on 13 November, following the suspension of talks on 9 November.

In the Council’s Session, Member states were asked to agree to fund Draft Amending Budget 5, an application to the EU solidarity fund to provide €670 million in post-earthquake assistance to Italy, with fresh payments from member states. For the UK, I made clear that the bill should not be met by increasing contributions from member states, but by finding redeployments in the budget. However, the Draft Amending Budget 5 was formally approved with a qualified majority, despite the UK, Sweden and the Netherlands voting against.

At the Conciliation Committee, the European Parliament refused to enter into further negotiations with the Council on Draft Amending Budget 6 or the 2013 budget. The European Parliament walked away from the negotiation arguing that the Council had not made enough progress on Draft Amending Budget 6.

The 21-day conciliation period for agreeing the budget has now expired and the scope for negotiations on the basis of the current Commission proposal on the 2013 Budget has ended. The next step is for the Commission to come forward with a new proposal for the 2013 annual budget.

In the Council, the UK has made it very clear that the Commission and the European Parliament should not be asking taxpayers for extra funds when spending in member states is being reduced. We will continue to work with like-minded countries to press for budget discipline and fairness for taxpayers in the UK and Europe.

Financial Restrictions (Iran) Order

Greg Clark Excerpts

Tuesday 20th November 2012 Written Statements

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

My noble Friend the Commercial Secretary to the Treasury (Lord Sassoon) has today made the following written ministerial statement:

The Government have today laid before Parliament an order under the Counter-Terrorism Act 2008 containing a direction requiring UK credit and financial institutions to cease all business with banks incorporated in Iran and their branches and subsidiaries, wherever located, including the Central Bank of Iran.

The direction is in the same terms as that given by the Treasury on 21 November 2011, which ceases to have effect after one year. UK credit and financial institutions continue to be prohibited from entering into transactions or business relationships with banks incorporated in Iran and their branches and subsidiaries unless they are licensed to do so by the Treasury.

The Treasury is satisfied, as required by the Act, that activity in Iran that facilitates the development or production of nuclear weapons poses a significant risk to the national interests of the United Kingdom.

Reports by the director general of the International Atomic Energy Agency (the UN body charged with monitoring Iran’s activities and ensuring that no nuclear material is being diverted to non-civilian applications) highlight the reasons for the Government’s serious and ongoing concerns about Iran’s nuclear activities.

The IAEA report of 30 August 2012 sets out the agency’s concerns about,

“the possible existence in Iran of undisclosed nuclear related activities involving military related organisations, including activities related to the development of a nuclear payload for a missile.”

In particular, the information available to the agency indicates that Iran has carried out activities that are relevant to the development of a nuclear explosive device. The Government view these developments with the utmost concern.

The case for action is underlined by the recent calls from the Financial Action Task Force (FATF) for countries to apply effective counter-measures to protect their financial sectors from money laundering and financing of terrorism risks emanating from Iran. The FATF (the global standard-setting body for anti-money laundering and combating the financing of terrorism) reaffirmed these calls on 19 October 2012 and stated that it remained,

“particularly and exceptionally concerned about Iran’s failure to address the risk of terrorist financing and the serious threat this poses to the integrity of the international financial system.”

In light of these risks to the UK’s national interests, I consider it a proportionate response to require the UK financial sector to cease all business relationships and transactions with Iranian banks and their branches and subsidiaries, including the Central Bank of Iran.

Iranian banks play a crucial role in providing financial services to individuals and entities within Iran’s nuclear and ballistic missile programmes as companies carrying out proliferation activities will typically require banking services. Any Iranian bank is exposed to the risk of being used by proliferators in Iran’s nuclear and ballistic missile programmes. Experience under existing UN and EU financial sanctions against Iran demonstrates that targeting individual Iranian banks is not sufficient. Once one bank is targeted, a new one can step into its place.

As they relate to an important global financial centre, UK restrictions have an impact on the options available to Iranian banks. This will continue to make it difficult for Iranian banks to utilise the international financial system in support of proliferation-sensitive activities. It will protect the UK financial sector from the risk of unwittingly being used to facilitate activities which support Iran’s nuclear and ballistic missile programmes. UK action of this nature signals to Iran and the international community that we consider this risk to be significant.

ECOFIN (Budget)

Greg Clark Excerpts

Monday 12th November 2012 Written Statements

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

The Economic and Financial Affairs Council—(Budget), was held in Brussels on 9 November 2012.

In the Council, the UK and a number of other member states were very clear that the Commission and the European Parliament should not be asking taxpayers for extra funds when spending in member states is being reduced.

The discussion covered Draft Amending Budget No. 6 for 2012 and Draft Amending Budget No. 5 for 2012, which would amend the 2012 EU budget to cover additional funding needs for structural and cohesion funds, rural development, research programmes and an application to the EU solidarity fund. The UK made clear that the Commission’s request for an extra €9.7 billion of spending to cover bills for 2012 should be met by redeployments of existing funds.

The Conciliation Committee with the European Parliament was suspended on Friday 9 November, after nine hours of discussions between the Council, Parliament and the Commission. It is anticipated that the Conciliation Committee will reconvene on 13 November at 19:00.

The UK will continue to work with like-minded countries to press for budget discipline and fairness for taxpayers in the UK and Europe.

ECOFIN (Budget)

Greg Clark Excerpts

Thursday 8th November 2012 Written Statements

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

The Economic and Financial Affairs Council—Budget will be held in Brussels on 9 November 2012. The following items are on the agenda to be discussed (as of 7 November 2012):

Preparation of the meeting of the Conciliation Committee with the European Parliament

The Council will aim to agree a final position on the draft budget for 2013, as part of negotiations with the European Parliament via a concurrent Conciliation Committee meeting. The Government will seek a final budget that delivers real budgetary restraint at EU level, supporting ongoing efforts to consolidate public finances across many member states, and that respects the principles of sound financial management.

As part of this process, the Government expect Ministers to be invited to discuss the Letter of Amendment No. 1 to the Preliminary Draft Budget for 2013, which concerns an overall reduction for the estimated funding needs for agricultural expenditure and international fisheries agreements. The Government are supportive of these technical amendments.

Ministers are also expected to be invited to discuss the Draft Amending Budget No. 5 for 2012, which would amend the 2012 budget to reflect the mobilisation of the EU solidarity fund, relating to a series of earthquakes in Italy in May 2012. The Government believe that any extra funding needs should be met fully via re-deployments within existing budgets.

Finally, Ministers may be invited to discuss this Preliminary Draft Amending Budget No. 6 for 2012, which would amend the 2012 EU budget to cover additional funding needs for structural and cohesion funds, rural development and research programmes. In addition, Draft Amending Budget No. 6 includes changes to the estimates of own resources and documents increased revenues from fines. The Government believe that any extra funding needs should be met fully via re-deployments within existing budgets.

Results of the meeting of the Conciliation Committee with the European Parliament

The Council will seek to agree to the outcome of the Conciliation Committee conciliation.

Any other business

At this time, the Government do not expect any issues to be raised under this agenda item.

Banking Union and Economic and Monetary Union

Greg Clark Excerpts

Tuesday 6th November 2012 Commons Chamber

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

I beg to move,

That this House takes note of European Union Documents No. 13682/12, a draft Regulation amending Regulation (EC) No. 1093/2010 establishing a European Supervisory Authority (European Banking Authority) as regards its interaction with Council Regulation (EU) No…/… conferring specific tasks on the European Central 5 Bank concerning policies relating to the prudential supervision of credit institutions, No. 13683/12, a draft Regulation conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions, No. 13854/12, Commission Communication: A roadmap towards a Banking Union, and an unnumbered Explanatory Memorandum: Towards a Genuine Economic and 10 Monetary Union: Interim report; and welcomes the Government’s decision to remain outside the new supervisory arrangements while protecting the single market in financial services.

I welcome these debates. The subject matter of today’s debate is, if anything, even more important than what we discussed last week. It is essential that proposed developments in the EU are robustly scrutinised by this Parliament. I am grateful for all the work done by the European Scrutiny Committee and its equivalent Committee in the House of Lords, as they applied their attention to the 1,100 European documents that were referred to them last year.

One theme we will come on to is how we can strengthen the scrutiny of sovereign national Parliaments over the institutions and policies of the EU. I believe that that is essential. It is principally Members of this House and our colleagues in the other place who will search for assurance that our national interest is not being blown away by a zeitgeist that is capable of carrying people along in the wrong direction.

This week is a particularly appropriate one in which to recall the value of that questioning voice. It was 15 years ago on 10 November 1997 when the then Leader of the Opposition first stood out against all fashionable opinion at the time and, in a speech to the Confederation of British Industry conference, committed my party to oppose joining the proposed euro. I had a hand in preparing that speech, and I recall one of the lines that I was proud made the cut. It said that

“if the nightmare of our experience in the ERM teaches us anything, it is not to steer by the siren voices of a supposed consensus, but to exercise the independent judgement of a cool head.”

Of course, the two people responsible for that decision and that speech are now our Foreign Secretary and our Chancellor of the Exchequer. They were excoriated at the time for declaring on that day that they intended

“to campaign against British membership of the single currency at the next general election”.

I believe that this caused the brand-new Labour Government of the day to hesitate, and by missing the moment, they spared Britain from a disastrous fate.

Fifteen years on, the documents that we are considering today are a direct consequence of the creation of the euro and, in particular, of the failure to address from the outset some of the inevitable factors. Now, as then, it is imperative that the United Kingdom exercises the independent judgment of a cool head to determine whether the new policies being proposed are consistent with the interests of our own economy.

Let me deal first with the proposals on banking union. The first thing to say is that we and the EU need to tread particularly carefully on matters that affect financial services. The financial services industry, including banking, is not evenly distributed across all member states of the EU. The United Kingdom has a vastly greater strength in the conduct of, and international trade in, financial services than any other member state. Financial services and related areas employ more than 2 million people in this country—two thirds of them outside London—and contribute £1 out of every £8 of Government revenue. That is about £1,000 for every man, woman and child in this country.

We have a £37 billion trade surplus in financial services and Britain accounts for 61% of the whole of the EU’s exports of financial services. Commissioner Barnier said last month:

“It is in our general interest in Europe to have the biggest financial centre in the world. A strong City is good not only for Britain but for Europe.”

That is a welcome recognition. We will never jeopardise an industry of such particular importance to the United Kingdom.

In scrutinising these proposals, we need to have a clear fact in mind. People do not need banking union because they are part of a single market. The appetite for banking union arises solely because of the problems of the single currency. However, although banking union is primarily a matter for members of the eurozone, it strongly engages Britain’s interests in two ways.

[Wayne David (Caerphilly) (Lab)]

Does the Minister honestly believe that the Prime Minister throwing a tantrum, walking out of a Council meeting and claiming that he exercised a veto when he did not is helpful to Britain’s national interests?

[Greg Clark]

I and, I think, the country are pleased that the Prime Minister was prepared to stand up for British interests, and I know that he will always do so. It is certainly not a matter of regret.

I think it is desirable from the point of view of the British economy that, since the eurozone exists, it should be successful, rather than a source of economic weakness. Indeed, as the Governor of the Bank of England has said:

“The biggest risk to the recovery”

in this country

“stems from the difficulties facing the euro area, our main trading partner.”

Secondly, we need to be vigilant to ensure that our access to the single market in banking, now and in the future, is not undermined and jeopardised by the creation of a banking union. That means putting in place safeguards to ensure that the UK cannot be discriminated against in the future in single market decision-making processes.

The Commission’s current proposals are not yet acceptable in that respect. For example, the European Banking Authority—which, as Members know, is the organisation that currently ensures that there is a level playing field for banking within the single market—operates on the basis not of unanimity but of majority voting. The European Central Bank regulation specifies that that the ECB would

“coordinate and express a common position of representatives from competent authorities of the participating Member States in… the EBA”.

That effectively requires participating member states in the euro to caucus in adopting positions and voting in the European Banking Authority.

[Mr James Clappison (Hertsmere) (Con)]

I warmly welcome the approach that my right hon. Friend is taking to the whole issue, and to voting rights in particular. Are not the voting arrangements for the European Banking Authority completely unacceptable to our national interests, as he has described them, in that they will result in a banking authority that is determined by a caucus that has been arranged in advance and in which this country is deprived of its say? The Labour party may think that that is somehow in accordance with our national interests, but it most certainly is not.

[Greg Clark]

My hon. Friend is entirely right. I do not think that we should be shy about insisting on protecting something that is very important to us. The single market in financial services is essential, and the current proposals would compromise it.

[Mr Bernard Jenkin (Harwich and North Essex) (Con)]

I, too, welcome my right hon. Friend’s approach, but may I caution him about the double-edged invocation of the single market? We are threatened not just by the voting rights in the European Banking Authority, but by those in the Council of Ministers. It is equally possible that the member states of the eurozone that are in the banking union will caucus in the Council and use a single-market measure to create a single market in banking services to reflect the policy already adopted by the banking union. How are we to be protected from that?

[Greg Clark]

My hon. Friend is right to be alert to those dangers and risks. One of the clear principles on which we have insisted throughout all our negotiations on all the different dossiers is that we will accept nothing that would compromise our ability to participate in the single market.

Let me say a bit more about our stance on the EBA. What is currently proposed would not just require but enable members of the eurozone to caucus and adopt positions, which poses the clear risk that the ECB could dominate EBA decision-making. Given that 17 of the 27 EBA members are in the eurozone, that would constitute a blocking minority on all issues decided by qualified majority voting, and indeed a qualified majority under the new Lisbon rules.

Moreover, such action by the Commission would create an asymmetry of treatment between supervisory bodies. The proposal reflects the legal position that, as an EU institution, the ECB cannot be legally bound by EBA decisions on binding mediation, whereas the Bank of England could be. We have argued since the start of the negotiations that it would be inequitable and unacceptable if the Bank of England could be directed in that way but the ECB could not. We are pleased that our concerns are finally being acknowledged, but the asymmetry must be resolved if there is to be any final agreement.

As is required by both the motion and the amendment tabled by the Chairman of the European Scrutiny Committee, my hon. Friend the Member for Stone (Mr Cash), we will certainly use what the amendment describes as our

“best endeavours to ensure that the proposed changes…in the European Banking Authority are not adopted”.

In fact, that is an uncharacteristically mild form of words from my hon. Friend. We will insist that those changes are not adopted, and we will require full protection for the position of the United Kingdom and the other non-eurozone members in the EBA.

[Mr John Baron (Basildon and Billericay) (Con)]

I am very pleased to hear what the Minister is saying, but what concrete guarantees would exist if the Government’s proposals were adopted to ensure that the City of London’s interests could not be adversely affected by qualified majority voting by eurozone members, the ECB or anyone else on the continent? That is the key question that concerns us today.

[Greg Clark]

A number of mechanisms could require that, for example, the requirement for a dual majority. A number of possibilities are being discussed at the moment. What I have set out clearly is a very firm principle that we will not find ourselves in a position where we will be dominated by the ECB. That is what we are taking into the negotiations. We take a firmer view even than we are urged to do by the amendment.

[Mr William Cash (Stone) (Con)]

Does my right hon. Friend not accept that because this is governed by qualified majority voting, even with our best endeavours the reality is that it is not merely likely but it is as certain as we could imagine, given what we hear from the other side of the European Union, that we will be outvoted? To follow on from the remarks made by my hon. Friend the Member for Basildon and Billericay (Mr Baron), what guarantee can the Minister give, in the light of the fact that this is so important for the City of London?

[Greg Clark]

As my hon. Friend knows, the ECB aspect of the regulation requires unanimity, and we regard both aspects of this as reinforcing each other. We have made it plain, as I am doing from the Dispatch Box today, that it is an absolute requirement that we will not be dominated by the ECB. After the Prime Minister goes to the Council he will come back to this House. If he has been able to establish agreement, he will set out what that is, and if not, he will set out why it was not possible.

Let me deal with the second part of my hon. Friend’s amendment, where he draws attention to the need to ensure that the powers of the ECB’s governing council are not delegated to the single supervisory function in a way that is unlawful in terms of the treaties. That is a serious matter. It is vital that the weighty responsibilities that the single supervisory mechanism will discharge are vested in a way that is accepted to be legal. His observation in his amendment that it would ultimately be a matter for the European Court of Justice if there were doubts about the legality of the final arrangements is very constructive and accurate, and I hope that he will accept my assurance that our criteria in evaluating the SSM will be as in his amendment. In other words, they will be: first, that it is lawful—we reserve the right to establish that; secondly, that the integrity of the single market is respected, as I said; and, thirdly, that the UK cannot be discriminated against in the way that is proposed.

[Mr Cash]

Does my right hon. Friend recall that in relation to the fiscal compact our representative at UKRep, Sir Jon Cunliffe, wrote a letter to the Secretary-General of the European Council specifically stating that the UK Government wanted a legal reserve in respect of the illegality of that matter? On this issue, where there is clear evidence from the Council of Ministers’ legal adviser that the matter is regarded as unlawful, will my right hon. Friend guarantee that not only have we received a legal reserve, but, unlike on the previous occasion, we have followed it through with a reference to the European Court? So far, we have got a promise but no completion of it.

[Greg Clark]

I am grateful to my hon. Friend for that. I am not as familiar as he is with what went on in the previous exchange of correspondence, but I can say that it is essential that the arrangements need to be legal. There is no point marching up a hill of banking union if the whole thing falls apart—I mix my metaphors, but he understands what I mean. There are also other matters on which we will need to be satisfied before any of the proposed measures can be adopted.

[Mr Jenkin]

My right hon. Friend made an important point when he said that the British Government would reserve their position on the legality of this new instrument and how it might be used. Will he just expand on that? Would it not be sensible for UKRep to write a letter similar to the one written in the case of the fiscal union treaty, at the very least, in order to make that clear?

[Greg Clark]

I do not think that there is any difference between us on this. It is essential that this arrangement is legally sound. At the moment, the negotiations are continuing and the shape of the regulation is evolving, but the sensible commitment I have given is to make sure not to proceed unless we are satisfied that it is legally robust.

Let me talk about some of the other measures we need to bear in mind. We must make it absolutely clear that both now and in the future there should be no requirement, for example, for clearing houses that handle significant amounts of euro-denominated business to be located geographically in the eurozone, as proposed by the ECB—a proposal against which we have launched legal proceedings. That blatantly undermines the single market and the United Kingdom’s financial services industry. It is a poor indication of the ECB’s attitude if it intends to proceed in such a way. We need to be clear, too, that London is home to more clearing houses than any other EU capital and such proposals are unacceptable.

As the House will see, there is some way to go before the banking union proposals are acceptable to the Government. They will not be agreed by the United Kingdom unless and until we are satisfied that the UK’s position in the single market has been secured.

Let me turn briefly to the document known as the four presidents’ report, which was published on 12 October. It is an interim report that gives a general overview of the measures that the euro area member states might want to consider taking to improve the functioning of the euro. At this stage, there is little detail in the report apart from in the area of banking union and a great deal more discussion will be needed before there is agreement even on which issues should be explored further. The House will have a particular interest, however, in the discussion about democratic legitimacy and accountability.

I emphasise again that although the UK will not be part of the arrangements, it seems to me to be important that when significant decisions are being taken at the eurozone level about national matters, national Parliaments should be able to scrutinise those decisions, just as the Bank of England, the UK regulatory authorities and not least Ministers are accountable to this House and the House of Lords.

[Wayne David]

I welcome what the Minister has just said, but does he accept that in much of the documentation we are discussing, as the European Scrutiny Committee has pointed out, preference is given to the European Parliament rather than national Parliaments as regards accountability?

[Greg Clark]

Indeed it is. The point I am making very clearly—perhaps not clearly enough—is that I think there should be a greater role for national Parliaments.

The Chairman of the European Scrutiny Committee, my hon. Friend the Member for Stone, was characteristically eagle-eyed and meticulous in his regard for independence when he baulked at the line in my explanatory memorandum that stated that

“there should be further consideration of how we can use national parliaments to enhance legitimacy and oversight.”

He is absolutely right that “use” is not the mot juste and instead I should have said that the authority of national Parliaments should be respected. It was the very independence and rigour of his and the Committee’s scrutiny that I was commending, and anyone who labours under the misapprehension that his Committee can be used does not know him or his colleagues. I will be more exact in future.

When the document was considered in the October Council, the Prime Minister secured an explicit commitment that the final report and road map in December must include concrete proposals to ensure that the single market’s integrity is respected. I look forward to this afternoon’s debate and tell all hon. Members who will participate that their guidance and advice will be taken seriously by the Government as the detailed negotiations on all these matters proceed in Brussels and across capitals in Europe over the weeks and months ahead.

[Several hon. Members]

rose—