Parliamentary Commission on Banking Standards

Lord Beamish Excerpts

Monday 16th July 2012 Commons Chamber

[John Mann]

I thank you for your guidance, Mr Speaker. My initial remarks related to the remit of the Committee, rather than its composition, which is frankly an irrelevance compared with the problems of the moving feast of its remit.

The remit has been set so vaguely that it can incorporate anything and everything. We will face the economic consequences when the partially state-owned banks are hit in the same way. These issues are entirely out of our control—indeed, they are entirely out of British control. The American authorities are two years ahead of the British authorities, and have taken a lead, so they will dictate the time scale for what comes next. Whether the considerations are legal or political—there are elections coming up, so there may well be more of a political imperative to be seen to be doing things—they will have grave consequences for these financial institutions and the British taxpayer.

That is why although it may well come up with worthy and credible recommendations, the investigation cannot match the task that it has been set. Because of the course of events and the changes that will happen, arbitrary time limits are, by definition, self-defeating. There is another problem that goes alongside that, and it concerns the other options available to look at those matters. I am pleased that the Leader of the House appears to have given a commitment, and I urge him to clarify it, that no staffing resource will be removed from the Treasury Committee in that period of time. If that is the case, that is a significant step forward. If the Treasury Committee were mothballed at precisely this time, the ability of the House to respond to fast-moving events would worsen significantly.

The Treasury Committee has a heavy workload. Today, Commissioner Barnier was supposed to appear before the Committee in relation to the 17 EU directives and draft directives relating to financial services on the books at the moment. It is essential that this House properly scrutinises and takes a view on what happens with those directives, but that has not been happening—it is a key role that the Treasury Committee needs to fulfil.

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

Does my hon. Friend agree that there may well be some dispute about what the Treasury Committee should look at and what this new Commission should look at—if, for example, another scandal or something like it emerged in the next few weeks?

[John Mann]

My hon. Friend makes the point that I have been stressing—that we do not know and cannot predict them, but we know that there will be a lot more scandals emerging, as we are only seeing the tip of the iceberg at present. [Interruption.] I appreciate that this is not good listening for those hon. Members trying to work out how to respond to this, but if this House is to set up arbitrary ad hoc committees at random every time there is a problem, it will potentially undermine itself. Which Select Committee will be next to give away some of its powers to an ad hoc committee? Is this the appropriate way to determine such matters?

If some of the powers set out in the motion were reinforced not just in respect of the Treasury Select Committee but of other Select Committees, that would reinforce the scrutiny of this House over what goes on both in government and in the country, so there are some good proposals here. The good proposals, however, are bespoke to this particular Commission—for example, the ability to call in a QC and the ability to take evidence on oath. If they are good enough for this new Commission, they should be made available to any Select Committee looking at any issue. The House is ducking this problem.

--- Later in debate ---

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

Let me begin by reiterating the point made by my hon. Friend the Member for Wallasey (Ms Eagle), who said that we had voted for a judge-led inquiry. We are setting an onerous task for the Commission. I think it was my hon. Friend the Member for Bassetlaw (John Mann) who said that it would be looked at very closely by members of the public, who now have very little faith in our banking system, whether because of national scandals or because of their dealings with their own local banks.

The terms of reference are set out clearly in paragraph (1)(a), which mentions the

“professional standards and culture of the UK banking sector”.

I should be interested to know how “culture” is defined in the context of banking. Does it refer only to banks, or to building societies as well? We should bear it in mind that the banking industry consists of not only high-street chains but, for instance, mutual societies. Will they be included in the Commission’s investigation?

LIBOR was the catalyst for the establishment of the Commission. Paragraph (1)(b) refers to

“lessons to be learned about corporate governance, transparency and conflicts of interest, and their implications for regulation and for Government policy”.

You pulled up my hon. Friend the Member for Bassetlaw on the issue of corporate governance, Mr Speaker, and I accept your ruling. However, many of the matters that the Commission will consider will not relate purely to banking. As my hon. Friend said, they will relate to lending and takeover bids for companies. Will the Commission look into the culture of, for example, the Kraft takeover, which my hon. Friend mentioned? If it restricts its consideration to the banking sector, will not the inquiry be of limited use, not just in view of the vehicles involved in events such as the Kraft takeover but—I hasten to add—in view of some of the things that have been going on in local government? I have raised the issue of the refinancing of Newcastle airport, for example, which was a huge scandal in the north-east two years ago. That was driven by the idea that we could get a better deal for the local council tax payer by refinancing. In fact, it got them a worse deal. Will the Commission look at such situations?

Turning to transparency and governance, Government Members had strong opinions about private finance initiative deals when they were in opposition, and they still hold to those views now. Will such financing arrangements fall within the remit of paragraph (1)(a) and (b), as they are clearly part of a new culture that has emerged, and they are a new mechanism for funding Government policy? Paragraph (1)(b) refers to

“implications for regulation and for Government policy.”

Would today’s announcements on the investment in the railways fall within the remit? That is being financed in part through Network Rail, which is a completely separate organisation and is off the Government balance sheet. The Commission’s remit could lead to such areas being investigated. There are some wider implications here, therefore, and it will be interesting to see if the Commission resists going down certain paths. If we do not have a full inquiry that looks at all these areas, the public may well think we are just concentrating on a small part of the banking and finance industry, when there are many other concerns that directly affect them, too.

I have great respect for the Chair of the Treasury Committee, the hon. Member for Chichester (Mr Tyrie), who will chair this Commission, but the hon. Member for Wellingborough (Mr Bone) mentioned the absence of any women on the nomination list from this House. Are we saying that there are no able hon. Ladies from either side of the House who could sit on this Committee? We have in the past tried to ensure that all Committees in this House included women Members. This is an omission, therefore. It may be possible that all the members from the House of Lords will be men, too. We would therefore have a Committee made up entirely of males, which would be very wrong. It would be right to include a certain—female—member of the Treasury Committee on the Commission. Obviously that hon. Lady did not fit the loyalty criteria set by the usual channels, however. Her inclusion could have been useful, especially in the light of her previous life in the banking industry.

We are going to agree this motion tonight when we do not know who the Lords members of the Commission will be. I agree with the position of my hon. Friend the Member for Bassetlaw: this is a slippery slope as we are agreeing to have a Joint Committee to scrutinise and make recommendations with some members who have never been elected—and some of whom are, perhaps, unelectable.

Another interesting question is what the powers of this Commission will be. Paragraph (7)(a) states that it will have the power to

“send for persons, papers and records”.

What will happen if an individual says, “No”? Will the Commission have the full powers of Parliament to enforce its will in this regard?

It is also stated that witnesses will be under oath, and also that the Commission will be able to appoint special advisers. That is very important in respect of the expertise it will bring to the Commission. There is a question to be asked about a possible declaration of interests by those individuals, however. Many of the people who have expertise in this field will have had direct involvement in the culture that this Commission will be examining. So what will be the restrictions on the appointment of those advisers in respect of either their past lives or any future involvement they may have? That needs to be spelt out from the beginning. We need to make sure that they have not got their fingers in any of the pies that this Commission is investigating.

I do not wish to cast aspersions on any members of the Commission from this House, but we do not know who its members will be from the other House. How are we to define declarations of interest? Are these interests that those individuals hold now or in previous lives? If they are commercial interests, that will raise questions about the impartiality of those individuals, and anything that does that will damage the Commission from the outset.

Paragraph (7)(d) has already been mentioned. It states:

“to invite specialist advisers (including Counsel appointed as specialist advisers) to examine witnesses”.

I am not sure what that means. The normal procedure that Select Committees follow is that the members ask the questions, and questions and briefing notes are clearly written in advance by advisers. This arrangement, however, is very different. This is about having special advisers being able to cross-examine witnesses. So what is the status of those individuals? As the hon. Member for Wellingborough has said, that is a huge change from the way in which Select Committees have operated in this House. When I served on the Select Committee on Defence we had some very able advisers, but the idea that they would cross-examine witnesses is a strange one. We need clarification on that matter.

What about specialist advisers and conflicts of interest? If they are going to be counsel, we need to ask whether they have ever acted for banks or financial institutions. Would that debar them from being appointed as an adviser to the Commission? It is important that we have those things laid out clearly right at the beginning. I do not think it is right to leave them up to the Committee or the Chair to determine. [Interruption.] Government Members may well think that this is frivolous, but to many of our constituents it will be very important, in terms not only of how their money is looked after, but of trying to get credibility back into a sector that is vital to this country’s economy. This is very important in terms of making sure we get it right and of the reputation of the Members of this House who are going to be serving on the Commission.

The other thing I wish to discuss is how the Commission is going to be financed. Paragraph (13) says that

“the costs of the Commission shall be assessed by the House of Commons Commission from time to time and shall be paid by Her Majesty’s Government for the credit of the House of Commons (Administration) Estimate.”

We all know that, if someone wants to control the activities of a committee or any organisation, they can starve it of money. Are we saying that this Commission has a blank cheque? Unless it has, the Government will be able to starve it of money and limit the scope of its activities.

Paragraph (7)(e) states that the Commission can

“adjourn from place to place”.

If a lot of foreign travel is involved, as may well be the case, that will create an expense. Who makes the determination on that in terms of the work the Commission does? Will the Treasury at some point try to limit it by saying, “I am sorry, but you have spent too much and so you cannot undertake that foreign travel or employ that expert witness to interrogate and produce the report”?

There are a lot of—[Interruption.] The hon. Member for Ealing Central and Acton (Angie Bray) is chuntering from a sedentary position, but she has only just come into the Chamber. I know that she did not have a very good week last week, but I wish her all the best for the future.

The financing of the Commission will be very important, so we need some assurance that we will not have interference by Government in the Commission’s work by stealth—that is, by starving it of the resources it needs.

[Mr Bone]

The hon. Gentleman is making serious points about parliamentary scrutiny, and it is great that so many Government Members are present to support him. Does he welcome this new initiative? If there is unlimited funding, if there can be counsel and if the Commission can cross-examine in the same way as congressional committees, is that not a good thing?

[Mr Jones]

It is—[Hon. Members: “Ah!] Hon. Members have not heard what I am going to say yet. I agree with the hon. Gentleman, but we have seen this problem with Select Committees, whose travel was limited in the previous Parliament, hampering their work. As the Commission will be subject to the Government’s decision on whether they can fund it or not, that is a very important point. If the situation will be that suggested by the hon. Gentleman, we should have the same arrangements for Select Committees. That would ensure that Select Committees could not only employ the proper advisers—and perhaps more of them—and see expert witnesses but undertake the detailed travel that is sometimes required.

My other concern is paragraph (12)(b), which concerns the setting up of sub-committees. There is no detail about how sub-committees will be set up or about their composition. Paragraph (12)(b) states that a sub-committee will have a quorum of one, but how big will the committees be?

I am very uncomfortable with the idea of a sub-committee of one person making decisions or taking evidence. It should include at least one person from each House: a Member from this House and one from the other House. Likewise, on the question of political balance, it could include a Government Member and an Opposition Member. If we are going to have sub-committees, surely it would be right to increase the quorum to at least two, one from each House, and, potentially, to try to get political balance.

There are many provisions in the motion that prompt many questions. The hon. Member for Wellingborough made a very good point, in that it sets a lot of precedents and, I hope, sets a way forward that Select Committees can follow to draw down more resources and increase their powers.

I also want to raise the issue of the Commission’s reports. The motion states that it will

“report from time to time.”

Who will decide? If the Commission as a whole decides to produce interim reports or short reports throughout its life, some of them will be very market sensitive. Will not the Commission have to be very cautious in what it releases? I am sure that many finance houses, banks and other parts of the financial sector will be looking very closely at what the Commission recommends, and it could affect the share prices of those organisations. There is no guidance in the motion about how those reports should be produced, according to what time scale and for what reasons.

The other question that was mentioned earlier is whether we are happy now that we have basically set up a new type of Select Committee. Personally, I am not. I think that this inquiry would have been far better done by the Treasury Committee. Obviously, those on the Front Bench from my own party argued strongly for a judicial-led inquiry, which was the right approach to get confidence in the banking system. In the absence of such an inquiry, the Treasury Committee would perhaps have been a better vehicle. I worry about the precedent that this sets and whether it will allow the Government of the day to dictate to Select Committees or hybrid Committees. That goes to the heart of the independence of those Committees and their accountability to Parliament. The Commission will have a huge job to do and I wish it well in its deliberations, but we should undertake a serious examination of the new system and the precedent that that sets for our Select Committees.

Question put and agreed to.

Ordered,

(1) That a Committee of this House be established, to be called the Parliamentary Commission on Banking Standards, to consider and report on—

(a) professional standards and culture of the UK banking sector, taking account of regulatory and competition investigations into the LIBOR ratesetting process;

(b) lessons to be learned about corporate governance, transparency and conflicts of interest, and their implications for regulation and for Government policy;

and to make recommendations for legislative and other action.

(2) That Mr Andrew Tyrie be Chair of the Commission.

(3) That Mark Garnier, Mr Andrew Love, Mr Pat McFadden and John Thurso be members of the Commission.

(4) That the Commission have leave to join with any committee appointed by the Lords to consider the said matters.

(5) That the Commission may hold meetings under the provisions of paragraph (4) of this order at any time after the Lords has agreed to appoint a committee.

(6) That the Commission shall, except as provided for in this order, follow the procedure of a select committee of this House.

(7) That the Commission shall have power—

(a) to send for persons, papers and records;

(b) to examine witnesses on oath;

(c) to appoint specialist advisers;

(d) to invite specialist advisers (including Counsel appointed as specialist advisers) to examine witnesses;

(e) to adjourn from place to place;

(f) to sit notwithstanding any adjournment of the House; and

(g) to report from time to time.

(8) That the Commission shall have power to appoint sub-committees to consider matters specified by the Commission within the terms of this order and a subcommittee shall have—

(a) the powers in paragraph (7)(a), (b), (e) and (f); and

(b) the power to invite specialist advisers appointed by the Commission (including Counsel appointed as specialist advisers) to examine witnesses;

and the quorum of a sub-committee shall, subject to paragraph (12)(b), be one member of this House.

(9) That the Chair may report to the House an order, resolution or Special Report as an order, resolution or Special Report of the Commission which has not been agreed at a meeting of the Commission if he is satisfied that he has consulted all members of the Commission about the terms of the order, resolution or Special Report and that it represents a decision of the majority of the Commission.

(10) That the quorum of the Commission shall be two members of this House.

(11) That, whenever this House shall stand adjourned other than to the next day, any report, Special Report, order or resolution agreed to by, or evidence taken or received by, the Commission, including any under paragraph (9) of this order, may be published or printed under the authority of this House, shall be deemed to have been reported and shall be reported when this House next sits.

(12) That, when the Commission operates under the provisions of paragraph (4) of this order, the following provisions shall apply—

(a) the quorum of the Commission shall be two members of this House and two members of the House of Lords;

(b) the quorum of any sub-committee shall be one member from either House;

and

(c) the power of the Chair to report under paragraph (9) may also be exercised with the Chair’s agreement by a member of the Commission who is a member of the House of Lords.

(13) That the costs of the Commission shall be assessed by the House of Commons Commission from time to time and shall be paid by Her Majesty’s Government for the credit of the House of Commons (Administration) Estimate.

(14) That the Commission shall report on legislative action no later than 18 December 2012 and on other matters as soon as possible thereafter.

(15) That a message be sent to the House of Lords to desire their concurrence.—(Sir George Young.)