Financial Services Bill

Lord Barnett Excerpts

Wednesday 24th October 2012 Lords Chamber

[Lord Peston]

My Lords, I hope that I have heard the gist of what the noble Baroness was trying to say. She ended by asking the fundamental question, which is not only what Clause 64 is here for but what this whole section of the Bill is here for. That is not very clear. If these powers had been enshrined in statute, are we to believe that the catastrophes of the recent past would not have occurred? Is that the purpose? I cannot believe that you do investigations to prevent a catastrophe occurring; what you do is intervene and stop it. This section must therefore be there simply to say, “Look, we made a mess of things, including ourselves as policymakers and regulators, so we’re setting up this inquiry to discover what we can learn from the mess that we’ve got ourselves involved with”. I take it that that is probably the answer to the noble Baroness’s question but, like her, I look forward to hearing what the Minister has to say.

[Lord Barnett]

As I originally put down the first “may” or “must” group of amendments, together with my noble friend Lord Peston, I have some sympathy with the noble Baroness. We were told by the Minister—I forget whether it was on the sixth, seventh or eighth day—that he had asked his officials to go through the whole Bill for the mays and musts to see which were appropriate. Knowing Treasury officials, I am sure that they will have come back with something to say whether they thought a “may” should be changed to a “must”. Was this group included in that? Perhaps the Minister could tell us. It looks as though the noble Baroness is quite right and that this is one of those occasions where the word should be “must”. I would welcome the Minister’s reply. My own experience of the thinking of Treasury officials goes back too far for me to be sure, as I last took advice from Treasury officials more than 30 years ago and I may have forgotten a bit about how they operate. However, I am sure that they are still as good today as they were then, and I would welcome the Minister telling us what they came back with to his request.

[Lord Davies of Oldham]

My Lords, I hope that the noble Baroness, Lady Noakes, can stand the accolades that are coming from this side of the House after her speech. I think that she has posed the Minister some very appropriate questions, while my noble friend Lord Peston goes a little further by saying, “What’s the clause here for at all?”. So the Minister has quite a lot on his plate in responding to this debate already, and all this puts the official opposition amendments very much into the minor case. Our amendments in this group, Amendments 192ZZA, 192ZZB and 192C, call for the directions to be laid before Parliament. These are directions in respect of a direction to the FCA from the Treasury to carry out an investigation into possible regulatory failure. Of course, I am at one with my noble friend Lord Peston when he indicates that investigations are about what has gone wrong, and the lessons which can be learnt in order to prevent any reoccurrence. Intervention in time is what is needed if one wants to prevent things going badly wrong. Therefore, with these amendments, we are merely seeking for the issues to be open and transparent. Nothing could make them more transparent than that they should be laid before Parliament.

In passing, on other amendments in this group, those in the name of my noble friend Lord McFall also have some merit. He calls for the person appointed to chair any inquiry set up under these provisions to be “suitably qualified and experienced”; I hope that the Minister can give a positive response to that. He also calls for an exemption for information in respect of which a claim to legal professional privilege could be made; I am sure that the Minister will look sympathetically on that. Of course, his Amendment 193 says that any investigator appointed must be “suitably qualified and experienced”. Now, the Minister and I understand that he only has to reply to the amendment that has been moved in this group but, as we are in Committee, it might be useful if the Minister gives us as comprehensive a reply as possible to the whole group.

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[Lord Sassoon]

I will get there eventually. If the Committee will permit me, I will address the point. I will not necessarily give complete satisfaction but we will get there.

The Bill makes a number of provisions that are intended to deliver greater accountability and carries forward the power of the Treasury to arrange independent inquiries into regulatory failures. It also provides for new duties on the two authorities to carry out investigations of their own—if necessary, at the instigation of the Treasury—and report their findings to the Treasury where there has been regulatory failure and certain other criteria are met.

I turn first to Amendments 190B and 192ZA, which probe why, if the public interest test is met, the Bill provides that the Treasury “may” require an inquiry. By changing “may” to “must”, their intended effect—as we have heard—is that in all cases where the test is met, the Treasury should have to require an inquiry. Amendment 190AA achieves the same end by a different means, specifying that the Treasury must arrange an inquiry where the two conditions in Clause 64 are met unless there is a public interest in not doing so. I agree with my noble friend that, if there is an overwhelming public interest in having an independent inquiry or in the regulator carrying out an investigation, the Treasury should step in to ensure that that happens. As it stands, the Bill gives the Treasury a little bit of discretion here. This is not about wriggling out of the need to call for an inquiry; it simply acknowledges that in reality, circumstances may dictate that even though the test is met, an inquiry or an investigation under this Bill is not necessarily the best course of action.

For example, there may already be an alternative independent inquiry going on—perhaps a parliamentary commission or other parliamentary inquiry—or an inquiry under the Inquiries Act. In the case of the provisions relating to investigations carried on by the regulator, the regulator itself may already be carrying on an investigation under Clauses 69 or 70. However, as my noble friend is aware, and as the noble Lord, Lord Barnett, has reminded us, I have already confirmed that I am giving careful thought to the wider use of “may” and “must” throughout the Bill. This is a huge exercise, taking up some mighty brains. All I would say at this stage is that although there are certainly not many cases that deserve intense scrutiny, this is certainly one of the instances that merit serious consideration. I will leave it at that. We will come back if we find any suitable candidates for changing.

Amendment 193 to Clause 79 seeks to place an explicit duty on the regulators to ensure that when a complaint against a regulator needs to be investigated, they appoint an investigator who is suitably qualified and experienced. This amendment is not necessary; it has also not been spoken to by the noble Lord, Lord McFall of Alcluith, so I will leave it at that. I shall turn to Amendments 192ZZA, 192ZZB and 192C.

[Lord Barnett]

Perhaps I misheard the Minister on the must/may argument, which he did not seem fully to explain. He must have had a major reply from officials to his request on a Bill as huge as this, with so many musts and mays throughout. What exactly did they recommend? Did they recommend, as always, that there must be agreement with the noble Lord or was there a point at which they said that it is possible that must might be better than may? Is this one of them?

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[Lord Barnett]

My Lords, this is a big enough Bill without two more new clauses being put in it. I hope the noble Lord will forgive me but the amendment refers of course to the Banking Act 2009. Why have we got these amendments here? We have got a banking Bill wending its way through the House of Commons which will no doubt arrive here soon, so why do these new clauses not go into the banking Bill and we could consider them then?

The likelihood is—certainly I want to see it—that the present situation will be substantially changed so that investment firms, which are referred to in both these new clauses, are no longer part of the main bank. There will be a separate bank looking at investment firms so these amendments, it seems to me, are certainly very relevant to the new banking Bill. Why are they here? Perhaps the noble Lord could first tell us the answer to that one?

Are we now to understand that the Government are absolutely set on accepting the Vickers report? I have not yet seen the details of what they are accepting, but I hope the noble Lord will forgive me since there are enough papers to look at on this huge Bill without looking yet at the banking Bill. I am sorry if I am straying into areas I should not be entering—except that these two major amendments are related to banking. I wonder why they are here.

[Lord Flight]

My Lords, in relation to these proposed new clauses, can the Minister tell me where lender-of-last-resort doctrine stands with regard to this legislation? A brief piece of history I observed in the course of my career was that at the time of the collapse of Johnson Matthey and Barings, there was a change in lender-of-last-resort doctrine. Since the 1870s it had operated on the basis that, in the event of a run, the central bank stood behind any bank that was properly managed. It was changed to stand behind any banks which were too big to fail. That led on to moral hazard and cartel, and a lot of smaller banks like Hambros closed, resulting in much less competition. At the time I had conversations and correspondence with Eddie George when he was Governor of the Bank of England, who virtually said he agreed with me but it was the way the then Conservative Chancellor of the Exchequer, Ken Clarke, had cast things.

Some of what the Minister just talked about touched slightly on the issue, but I would very much hope that the intent is to go back to lender-of-last-resort arrangements as originally intended, and as operated amazingly well for more than 100 years. I am not at all clear where we are.

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[Lord Sassoon]

I shall probably get into trouble if I say anything that is terribly helpful. However, the Government want to get on with it as quickly as we reasonably can. I would like to think that it will not be very many months before the Bill gets here. But, whenever it arrives, it is no excuse for not getting on with these clauses.

[Lord Barnett]

My Lords, perhaps I may make it clear that I do not disagree with the two new clauses. I was saying that we will have a banking Bill in this House shortly. This Bill relates to banks and investment firms. However, if the banking Bill is amended to allow two separate companies, as I hope it will be, so that investment firms are handled quite separately from the way they are handled in the present situation, it would change the whole process. The Minister says that we must get on with it. But this Bill will not be an Act until approximately the end of the year. The new Bill will be before us a few months later. Does the Minister know of some crisis that we do not know about?