Financial Services Bill

Guy Opperman Excerpts

Monday 23rd April 2012 Commons Chamber

[Chris Leslie]

I accept that. It gets to the nub of the issue. There is no single variable that has an impact like pulling a lever and an economic outcome comes along down the track. A number of factors combine to create an economic outcome. That is why people say it is sometimes more of an art than a science, but in so far as there is an ability to make projections or to measure, that assessment is needed. I hope it could be as sophisticated an assessment as the hon. Gentleman suggests.

[Guy Opperman (Hexham) (Con)]

I endorse the points made by the Chair of the Treasury Committee. Is it the accepted view on the shadow Front Bench that the promotion of competition is the key objective?

[Chris Leslie]

We want to see more competition in the financial services sector. That is an important aspect of improving choice and reducing costs for consumers, but essentially the amendments that I have been discussing relate to prudential regulation. I do not think the competition argument necessarily supersedes that.

I agree, and there is cross-party support for this, that we need to improve prudential regulation within our financial regulatory system. There is a degree of consensus in that area, which is why we did not vote against the Bill on Second Reading, for example. The question is how that pans out. The Chair of the Select Committee began his comments by saying that the Bill is defective in a number of regards and needs significant improvement. Amen to that. I agree. That is the problem and that is why I have so many concerns about aspects of the Bill, particularly in clause 5, in respect of the way the Government are choosing to divide up the regulators.

I must move on. Another area about which I have concerns is the Government’s refusal to accept that the Bank of England should be under a duty to minimise the use of public funds—to minimise the recourse to taxpayers’ money—in order to support or rescue parts of the UK financial industry. If we were all to go back to our constituencies and explain what we were doing on Monday, we would say that we had been talking about the Financial Services Bill. Most of our constituents would say, “Good. Does that mean that the taxpayer is not going to be on the line to bail out all those banks again in the future?” and of course we would all want to say yes. That is the whole purpose of what we are supposed to be doing here.

One of the most important things we need in the Bill is a provision to ensure that the system is designed such that any changes or rescue arrangements will not burden the taxpayer in the future. It is important to specify that the Bank of England should take responsibility for minimising that likelihood. It is a pretty straightforward amendment. These should not be partisan issues. That aim should be at the heart of the Bank’s financial stability objective. We know about the costs of bailing out the banks and how those have hit public finances.

Having heard the Minister’s entreaties in Committee, the hon. Members for Wyre Forest (Mark Garnier) and for West Suffolk (Matthew Hancock) and others said that the our earlier amendment was deficient because it would have placed a duty on the Bank of England to minimise the use of public funds. I have thought about that carefully and come back with an amendment that simply requires the Bank to have regard to the need to minimise that. I hope that removes any worry about justiciability, which was one of the arguments upon which the Minister relied to rebut the suggestion in Committee. I do not think it is reasonable to say that it will blur or confuse the issue if we ask the Bank of England to keep in its mind’s eye the impact that any of its decisions will have on public funds. Ultimately, most of our constituents would expect us to legislate today to minimise the recourse to public funds. I hope the Minister will accept the amendment. If not, the other place will return to the issue.

The hon. Member for Chichester pointed to amendment 53 in my name and that of my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson) about parliamentary scrutiny. For this House, it is an incredibly important issue and I know that Members on the Government Benches feel strongly about it too. We are giving the Bank of England extensive new powers that will affect businesses, consumers and our constituents. We still do not know what these macro-prudential tools will be. We had a report from the Bank of England last December intimating that they may touch on certain aspects of loan-to-value ratios, although Paul Tucker, the deputy governor at the Bank of England, said the other day, “This looks like hot stuff. Maybe it’s too hot for us to handle at the Bank of England.” Maybe that is for the Treasury to decide. I think the Bank of England recognises that there is an accountability deficiency. That golden threat of accountability does not lead back to Parliament, as it should.

--- Later in debate ---

[Guy Opperman]

It is a pleasure to speak in this debate, albeit briefly. Like Mark Antony in “Julius Caesar”, I come to praise the Bill, not to criticise it. I accept that the Government are all honourable men and women, but so, it might be reasoned, are the members of the Treasury Committee, who are also honourable men and women, advancing a slightly contrary view.

I support the fundamental ethos of clause 1 and welcome the review of the performance of the Bank of England. I certainly do not support Opposition amendment 28, which would remove clause 5; that would be entirely wrong in the present circumstances. I speak as a critical friend of the present system and as the secretary of the all-party group on the Arch Cru Investment Scheme, which is seeking to recover compensation for the thousands of men and women in this country who have lost their lifetime savings. What happened to them is manifestly wrong, and anything that this House can do to strengthen the regulatory system to prevent such disasters, I welcome wholeheartedly.

I speak also as an MP who, almost every week, has a constituent come to me saying that they are unable to obtain bank lending and finance. That is because of the lack of competition in the present banking structure—an issue that is raised regularly. I urge the House to embrace greater competition and to open up the market to competitors to the existing large banks, which will be in a position to provide the bank finance sought by businesses up and down the country.

The other end of the telescope must also be addressed. At present, we have the large banks, but there are no small banks. Germany and America have local banking structures that work tremendously positively: individuals can set up local banks, which provide for a community purpose above all else, which is manifestly a good thing. That is why I support wholeheartedly the competition objectives set out in new section 1E of the Financial Services and Markets Act 2000, inserted by clause 5, which states that there should be an emphasis on

“the ease with which new entrants can enter the market, and…how far competition is encouraging innovation.”

I have met the chairman of Metro bank, which is that remarkable thing: a bank set up to exist at the weekend. It opens on weekends and at 8 o’clock in the morning. Imagine what could be done if we had that at the local level.

I am grateful for what Hector Sants, the present chief executive of the FSA, told me in a letter dated 12 March:

“We are conscious of the balance to be struck between ensuring high standards at the gateway, and the importance of allowing innovation and appropriate levels of access for new firms.”

The letter continues:

“there has been public debate about the potential advantages of new entrants in the area of small, regional banks focused on servicing the SME sector. In such cases we will be proportionate in our approach and would invite all firms with a viable business model and appropriate levels of resources to a pre-application meeting to help guide them through the application process”.

The Bill will, I suggest and sincerely hope, make it easer to establish local banks, which can only be a good thing.

[Kelvin Hopkins]

I rise to express my strong support for the amendments in the name of my hon. Friend the Member for Hayes and Harlington (John McDonnell).

There are two components of the argument: the first is the relationship between the Governor of the Bank of England and the Government, but the second is the relationship between this House of Parliament and the Government. On both, I strongly believe my hon. Friend has a point. Like him, I was unhappy about the decision to hand power over monetary policy to the Bank of England and give it independence. All aspects of macro-economic management ought to be matters for Ministers accountable to Parliament. I maintain that view and, in a sense, recent events have proved that my hon. Friend and I were right. I thought at the time that if the Governor of the Bank of England or the Monetary Policy Committee chose to be hawkish on interest rates when we had a recession on our hands, there could be a serious conflict between the Bank and Government. Fortunately, the Bank has been sensible in managing monetary policy and that clash did not occur, but it could have happened in 2008. Had the Bank been governed by a hawkish Governor, we could have seen a serious clash and those powers no doubt taken away. I was comforted by the thought that if the Bank of England got out of control, we could easily take back powers. It is not the same with the European Central Bank, where powers have been given away and cannot be taken back.

In relations between Parliament and Government, pre-appointment hearings have been shown to be a success. I have been involved in not just the two most recent pre-appointment hearings, but in developing the arguments in favour of pre-appointment hearings as a member of the Public Administration Committee for the past 10 years. Brilliant work was done by Tony Wright, who made a real impact on our constitution. Pre-appointment hearings are first class. They are not just an experiment; they are here to stay. I would like the Governor of the Bank of England to be subject to a rigorous pre-appointment hearing so that we know that they will serve the economy and relate to the House, and not just be a law unto themselves. I have probably run out of time. I know the Minister needs to speak, but I have made my point.