Financial Services Bill

Lord Archbishop of Canterbury Excerpts

Monday 11th June 2012 Lords Chamber

[The Lord Bishop of Durham]

My Lords, the Bill emerged from the financial crisis of 2008. Therefore, a lot of the attention of the debate is likely to focus on the prudential issues that have already been mentioned at some length. We look forward to the speech of the noble Lord, Lord O’Donnell, whose great expertise and extraordinary experience over the past few years give us much to hope for.

However, in looking at the macroprudential issues, we should remember that the complexity of the Bill grew through an extensive period of consultation and debate so that it now covers the whole range of financial services, from things that happen on the streets of Sunderland in my diocese to international loans and bond issues, and the use of derivative instruments that have been behind much of the exacerbation of risk in the system since I first traded them 25 years ago, to the point today where their volume is many scores of times that of the underlying cash transactions. It is no wonder the Bill has become something of a complex monster.

Given the Bill’s complexity it is easy to overlook its impact on the consumer, and particularly the role of the FCA, which is warmly to be welcomed in many ways. At the retail level we are all aware that we have the most concentrated financial services sector in Europe, with decisions taken far from local communities, and that the lack of penetration of mutuals, credit unions and friendly societies—I was very glad to hear the noble Baroness, Lady Kramer, mention this—is unrivalled in the rest of Europe, where there is far greater and more extensive mutual work at local level than in this country. Our societies have diminished very significantly since the 1980s and the period of catastrophic demutualisation that we should all regret so much. The result is that access to financial services in many of the more deprived areas of our society is now very limited, and we come back to the old problem of loan sharking and payday loans. Payday loans, of course, are legal and proper. It is a great relief that they will move from being watched over by the OFT to being supervised by the FCA, with its responsibilities for integrity, consumer affairs and competition under its three main objectives. However, as has already been alluded to, the danger is that these regulatory organisations essentially operate in a negative and protective manner rather than having, as the FCA has, an obligation to introduce more competition.

The Bill does not seem to provide for accountability and for a measure of what more competition would look like. This must be a serious concern. Contrary to much of what has been said, for example, in Scotland recently by the General Assembly of the Church of Scotland, the answer to the payday lenders is not to limit interest rates as this will simply drive matters back into the hands of the illegal loan sharks. At the moment, if you go outside the Darlington Building Society when the benefit payments come in, you will find a queue of people who will withdraw from their accounts everything but one penny in order to pay it straight into the hands of the loan sharks who are standing by their doors threatening to break up their furniture. Payday lenders do not, of course, operate in this way, but I have numerous examples in my diocese of the serious impact that their high costs have had on people who find themselves caught up in an ever growing cycle of higher interest rates.

The answer to this is not in limiting interest rates but in providing effective competition from local savings at a mutual level and recreating the system that worked so well from the early 19th century until the 1980s. I fail to see this in the Bill and that gives me great concern. I hope the Minister will explain how the competition obligation will not only reduce the problems of access for banks and for other large organisations—as we have already seen with the co-operatives’ problems in taking on the branches of Lloyds Bank—but increase the opportunity for much smaller and more locally based organisations to contribute to their local communities. This will affect a large number of people on the most marginal points of society.

The other point I wish to raise concerns the governance of the Bank of England, which has already been mentioned. It is an old rule of organisations that robust checks and balances within them are much more effective than external legal constraint. A severe challenge to management from the court will be much quicker in enabling group-think to be destroyed and a creative approach to the problems to be seen than any kind of legalistic approach from a regulator subsequent to the event. I shall not waste the time of the House in expanding on this, save to say that I agree with the views that have been expressed already. I look forward to the Minister’s response in explaining how the governance can be strengthened and widened.