Financial Services Bill

Debate between Lord Flight and Lord Davies of Oldham

Wednesday 17th October 2012 Lords Chamber

[Lord Flight]

My Lords, I want briefly to support the Government’s position here. I am one of the few people still around who participated in the lifeboat back in 1974 in the wake of the secondary banking crisis then. Although I felt that the Bank of England had been less than perfect in allowing that crisis to develop, the way in which it handled it was first class. It did not cost the taxpayer a penny and the lifeboat got to grips and sorted out the various banks that were, in essence, bust.

The fears that I expressed in the other place at the time of the FiSMA about the tripartite agreement were exactly what transpired. The three parties failed to reach agreement, as I think is now widely recognised and known, and it is a miracle that the banking system did not actually collapse because it was dangerously close to doing so. In a banking crisis which is not about, if you like, conduct and how customers are treated, but for whatever reason is about the potential pack of cards implosion of the banking system, it is crucial that it is the banking regulator entity—in essence the Bank of England in consultation with the Chancellor of the Exchequer of the day—that has clear authority to get on and take the necessary measures promptly.

[Lord Davies of Oldham]

My Lords, I am not sure that we are disputing that last point. We are arguing that there may be a crisis in which the contribution of the FCA would be of considerable importance. Perhaps the Minister will answer this point for the clarification of the Committee and all those interested in this matter. We are not quite clear why the other regulator, the PRA, operates in a different fashion from the FCA with regard to the consultation on the memorandum. I should like the noble Lord at least to identify that factor.

Financial Transaction Tax: European Union Report

Debate between Lord Flight and Lord Davies of Oldham

Wednesday 11th July 2012 Grand Committee

[Lord Davies of Oldham]

I accept that entirely from the noble Baroness. I am grateful for her intervention—but let me respond, if I may. I am merely indicating that this is not just a British reaction but is Europe-wide, which is why we have to put these proposals into some kind of context. People are responding to the crisis that was visited on us four years ago, for which all our fellow citizens, both here and elsewhere in Europe, are paying the price today.

[Lord Flight]

Does the noble Lord not agree that the problems of the eurozone are down to the faulty design of the euro, that the problems of public finances are largely about Governments having been spending too much and not taking a circular view of public spending, and that the problems of the banks are largely the result of money having been too easy for too long in the UK and elsewhere? History shows that banks always start doing foolish things if there is too much money.

[Lord Davies of Oldham]

If the noble Lord is suggesting that the banks carry no responsibility for the economic and financial crisis that we have suffered since 2008, I am surprised at the proposition. Is he really saying that we do not understand that the massive increase in short-term transactions that rendered the banks so very vulnerable when some of the debts began to be called in—those developments in which bank balances far outweighed the whole resources of the British GDP—did not create a situation of colossal instability? When the financial crisis broke, it is clear that Governments were caught out too and some had somewhat overreached themselves, but as for the British position the problem was the massive drop in tax receipts after the crisis rather than extra spending before it.

[Lord Flight]

The noble Lord seems to be accepting my point that mistaken monetary policy led to bank balance sheets and lending being excessive. These things can happen only when monetary policy is wrong.

[Lord Davies of Oldham]

Well, my Lords, then the noble Lord has to say that of each and every Government, because each and every society has suffered from this financial crisis and each and every Government were equally guilty of pursuing exactly the wrong framework of monetary policy. I have no doubt that it was the case that from deregulation onwards, Governments lost the capacity for some kind of control of the financial sector. I have no doubt at all that Governments rode the good years with light regulation, which was wished upon them by every area of political opinion in the countries involved. Certainly, that was the case in the United Kingdom. If it is suggested that Labour in government was too enthusiastic about light regulation, we have only to look at what the Opposition were saying to us at that time—that regulation was too tight.

Of course, I accept the strictures of the committee on the limitations of the proposals from the Commission. In particular, I am very grateful to the noble Lord, Lord Kerr, for demolishing some of the myths around that mistaken proposition by the Commission. A passing reference to the fact that the resources would go to the European budget was certainly not the core of the proposal; it was much fairer than that towards the Governments who would collect the taxation.

It has not been mentioned in the debate that the tax would produce vastly greater resources to the taxpayers of each country and the Governments representing them than the existing structures of taxation. Taxpayers think that the financial sector owes them a great deal in terms of the direction of resources. Given that we have had to rob money from our taxpayers in order to sustain banks that are too big to fail, it is obvious that taxpayers expect the Government to take the kind of action which will help to restore those resources to the taxpayer.

The financial transaction tax is at this stage a distant objective. We all know that it cannot be introduced in one country and that it is not likely to succeed within a limited framework of countries—certainly if it were within only the eurozone countries and certainly if it was based upon the principles that the committee has so effectively criticised. The likelihood of it being effective—and looking anything other than being directed at the City of London—would be fairly remote. However, that does not alter the fact that the arguments may change. The United States may change its perspective on this issue. If it were to do so, and if Europe reflected on the concepts of which the committee is critical, the United Kingdom would look very odd indeed if we said that, because of the significance of the City of London and our financial institutions to our economy, we were staying outside any framework for the development of such a tax.

I congratulate the committee because it has identified a rather forlorn initiative which I cannot see making successful progress in Europe because of the faults that have been accurately identified. However, I would be dismayed if the work of the committee led to a position where the whole concept of a financial transaction tax was regarded as completely outwith any government interest or action. I hope the noble Lord replying on behalf of the Government will at least give some hope in that respect.