Financial Services Bill

Jacob Rees-Mogg Excerpts

Monday 6th February 2012 Commons Chamber

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

I thank my hon. Friend the Member for Wycombe (Steve Baker) for being so brief. I refer Members to my entry in the Register of Members’ Financial Interests.

We should welcome the great reform that is restoring the Governor of the Bank of England’s eyebrow to its rightful place in bank regulation. It is, quite seriously, an important thing to be doing, as banks will see by the supercilious movements of Sir Mervyn King’s brows when they are doing things wrong. That has been a useful test in the past. More important is the FPC, which will have a very wide-ranging role in ensuring stability, and I wonder to what extent the Government have considered how that role will interact with that of the Monetary Policy Committee. One of the risks through the early years of this century was interest rates remaining very low because of an apparently low inflation background, and that was probably a mistake because of the growth in China and its import effects, with very high domestic and asset price inflation. Could the FPC have overruled the MPC on interest rates if it had viewed that as a serious risk? I wonder whether Her Majesty’s Government might consider giving a broader set of instructions to the MPC to allow it to co-operate with the FPC’s wider role.

The other important aspect of the FPC’s role will be its working with international regulators and having proper flexibility, particularly with bank capitalisation rates. Europe is going for very high rates as the economy is turning down and that is quite wrong. We probably need low bank capitalisation rates now and high ones in a boom. It is important that the FPC should have that flexibility to adjust bank capitalisation rates for this economy. Just as we set our own monetary policy because we have our own currency, so we should set our own regulatory framework, suited both to our monetary policy and to the risks we are taking, and what is happening in Europe might cause problems for the FPC in dealing with that.

Overall, the FPC of course has an impossible task, because the credit cycle will wax and wane over the next century, whatever we set up. We can go back to the tulip mania and the South Sea bubble and so on; these things always happen and people always warn of them. Dr Peter Warburton warned in 1999 of the coming credit crisis, saying that central banks of the world had

“inadvertently created the potential for widespread debt defaults and economic disintegration on an epic scale.”

Economists were warning of the crisis, but people did not take any notice. The FPC will have to be very robust and Cassandra-like to be able to say, “There is a bubble; we must prick it.” When the FPC is set up, one of the first bubbles it might have to deal with will be in the gilt market, because a 2% gilt yield, without a gold standard, is an historic low for yield since the 1890s and is something that many would consider a bubble. We must bear in mind that indexed gilt links were producing a negative return about a fortnight ago. Will the FPC have the courage to say to the Government, “We think your own Government stock is in a bubble”?

I want to speak briefly about the Financial Services Authority, which regulates me, and to say a very little about it, which is that it is very expensive. I encourage the Treasury to take its fees into the Treasury and fund the new body from the Treasury. The FSA is asking for a 15% increase in its budget this year in order, among other things, to increase pay by 3.5%. No other arm of government is doing that and it is why hypothecated taxation and fees are fundamentally bad. It would be better to go through the Treasury. I also happen to think that the FSA is rather arbitrary in its rules—but you have been kind in calling me, Mr Speaker, and I know that we must have the wind-ups.