Financial Services

Lord Davies of Oldham Excerpts

Thursday 20th June 2013 Grand Committee

[Lord Davies of Oldham]

My Lords, it may well be one of the jewels in the Crown, but it is somewhat tarnished. I congratulate the noble Lord, Lord Dykes, on raising this issue at this time, which is of the most profound significance for the nation—wider, I think, than the agenda that he addressed. I agree with him about aspects of looking at the financial transaction tax. I have great reservations about that being proposed in Europe. If there is a possibility of such a tax, endorsed by the Americans, which would help to ensure that the finance capital, the City of London, and other centres across the world repaid the colossal debt they owe to wider society as a result of their mismanagement of the financial sector, that is only right and proper.

It is inconceivable that we return to the age of light regulation. Light regulation brought this country to its knees. We have more than 2 million people unemployed; we have 1 million young people unable to obtain jobs. We have a colossal problem with the cutbacks in public services, which are felt as a massive cost for all but particularly those who are very dependent on them for benefits and support. What is more, what does it amount to that each and every man, woman and child in this country has paid out £19,000 to the financial sector to create the bailouts to get out of the colossal mess that we are in?

Of course, I have no doubt that comments will be made about “the Government of light regulation”. The Conservative Party points the finger and says that Labour was in power at the time, as indeed we were, and was guilty of not having taken sufficient note of the impending crisis, but the Conservative Party was carrying down exactly the norms of light regulation that have been expressed today. What the country is demanding, however, is answerability. Of course we must create a base on which the financial services flourish, but it is demanding that they flourish within a framework where we never again see a crisis like the one we have had these past four years. Why not? Because we may well be in the greatest depression for a century and it may take us more than a decade to recover from it.

Already, current living standards are considerably below what they were in 2007. That is the price which the nation is paying and it ill behoves those who argue that the financial services need to be respected—of course they do. How could you do anything else with a sector of the economy which, as noble Lords have identified, amounts to such importance in it? The noble Lords, Lord Bilimoria, Lord Dykes and Lord Flight, all identified the importance of the City to the economy. Nobody is underestimating how significant that is, because we all know the figures.

However, the Prime Minister said that we must rebalance the economy. What does he mean by that? He must, at the very least, mean two things: first, that overdependence on the financial services industry makes the economy vulnerable, as it certainly did in 2007; secondly, that the vast majority of employment in the financial sector is within 20 miles of this Building. It is in London or the south-eastern counties, and if you talk about rebalancing the economy you have to look at areas where people are grossly underemployed at present and where capital is at low levels, such as the north of England, the north-west and elsewhere. A balanced economy will require those issues to be addressed. That is why it is necessary for the Government to spell out the position that they are going to adopt. They will have that opportunity on numerous imminent occasions.

It is important that the Government address themselves to the fundamental problems of our economy at present. I give them all credit for the way in which they have addressed the banking issue. I am not enamoured of the stance on banking but I congratulate the Government on recognising that we had to have banking legislation to clear up the mess of the past. Where I and my party have our reservations, which will be voiced as we consider the banking Bill, is that the question of sanctions seems to be rather marginal. For instance, the Government do not seem to think that there is much more to do than the Vickers fencing-off of the position of the banks, rather than the direct separation that may be necessary. After all, we have one instance before us at present in the Royal Bank of Scotland. What are the Government going to do about that? Should they not, at the very least, consider whether there should be a separation between the retail and investment arms of RBS as a solution to that position? Would that not also indicate that the legislation ought to consider that dimension?

I come briefly to the question of the financial transaction tax, which the noble Lord, Lord Dykes, raised. I agreed with his sentiments that there is much merit in it. The merit in it is quite straightforward: it potentially raises vastly more than stamp duty raises at present. It is also necessary that the financial services sector meets the obligations in terms of proper payment, particularly against a background where the country is scandalised that at the peak of the crisis, absolutely unjustifiable bonuses were being paid out to leading figures, and where not just incompetence but the depth to which finance had descended in terms of morality was being revealed. You cannot look at the LIBOR issue and the immorality of the terrible risk-taking with other people’s money without recognising the old adage of, “My word is my bond”. The morality of the City needs to be restored because what has been going on is untenable.

The financial transaction tax is an important concept. I recognise that Britain certainly could not go forward with it if the United States remained hostile to the position. We could not have New York not being a part of it. However, if the American Administration began to see the merits of the tax, and the European countries—11 at the moment and more to be added to the list—lend their support to the concept, it would be appalling if the British Government did not recognise those merits as well. That is not to endorse what is before the Government at present, and I acknowledge entirely their resistance to what is now on the table. However, I would argue that it is the concept that ought to be worked on, thought through and improved.

The Committee will be aware of the fact that I am grateful for this opportunity. It has come a little prematurely because I had expected it to be in response to a Statement in the House, which unfortunately we did not get yesterday. After all, the Commission on Banking Standards has pointed to a significant way forward. We are all desperately eager to get the Government’s definitive response to the crucial issues raised by the commission. We did not have a chance to consider a Statement yesterday, and I do not think that we will get to the banking Bill in real terms for some time. I am therefore grateful to the noble Lord, Lord Dykes, for giving us a chance at least to make some contribution today.