Banking Reform

Mark Garnier Excerpts

Monday 4th February 2013 Commons Chamber

[Greg Clark]

As I am sure that the hon. Gentleman would acknowledge, the Government have promoted the sale of Northern Rock to Virgin, for example, to try to encourage new entrants, and he will see more of that in the future. On interest rates, those that are being paid on mortgages and small business loans at the moment are very much lower than they would have been had we not taken the necessary action on the economy to keep them competitive.

[Mark Garnier (Wyre Forest) (Con)]

The British Bankers Association has said this morning that the electrification of the ring fence might cause some uncertainty in the City. Does my right hon. Friend agree that the only banks that need to be worried about the future are those that game the ring fence and try to burrow underneath it?

[Greg Clark]

My hon. Friend is absolutely right. Any bank can have complete certainty that it will not be subject to being broken up if it respects the ring fence. Indeed, given the standing of the City of London, it is important that we all have confidence and trust in the British banking system, on which the credibility of that standing depends. The reforms recommended by Sir John Vickers and his commission will achieve precisely that.

Air Passenger Duty

Mark Garnier Excerpts

Thursday 1st November 2012 Commons Chamber

[Mark Garnier (Wyre Forest) (Con)]

I congratulate my hon. Friend on introducing the debate. Does she agree that APD can act as a barrier to expansion for some regional airports? Were it not for the high level of APD, they could attract other carriers, thereby rebalancing our economy.

[Priti Patel]

I completely agree with my hon. Friend. That is part of the challenge of our wider aviation policy and strategy.

Already in this Parliament, the Government have rightly recognised a number of counter-productive and damaging taxes, and scrapped a number of them, including the cider tax, the jobs tax and the broadband phone tax, and the planned increase to the small profits rate was replaced with a cut. On that basis, I urge the Minister to consider the economic impact of APD.

Banking Competition

Mark Garnier Excerpts

Thursday 12th July 2012 Westminster Hall

[Mark Garnier (Wyre Forest) (Con)]

Let me apologise to the Minister at the start, because I will miss his winding-up speech. Unfortunately, I have to rush back to Kidderminster for an important meeting about Kidderminster hospital. Members who remember the 2001 general election will know that any Member of Parliament who does not pay attention to Kidderminster hospital when called upon can suffer dire consequences.

I am grateful to my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) for securing this debate and for gathering such enthusiasm for it. It is an incredibly important issue in the regeneration of our economy.

I specifically want to turn the focus of attention to the problem that arises when a regulator is still reeling from the fall-out of the banking crisis. Here we are, nearly half a decade on from the crisis, and we have just started a new round of scandal as the results of the FSA investigation into LIBOR fixing hit the headlines. The story will no doubt run and run for some time as other banks are brought into the mire. The Government’s response—the so-called Tyrie commission—is as good a start at understanding the problems as I can imagine, and, I hope, a significant step in the direction of truth and reconciliation between the banks and the taxpaying consumers.

The FSA’s response to the banking crisis has been reactive, and it is in its reaction that significant barriers have been established that limit competition in banking. Over the past few months, my hon. Friend the Member for South Northamptonshire and I have been meeting a number of smaller, existing banks as well as potential challenger banks to the banking marketplace. In nearly every case, their experience of the FSA has been problematic. All parties concerned were either small banks—banks with balance sheets under £2.5 billion—or individuals representing organisations that had experienced the FSA’s application process. Those interested parties came forward with points about the FSA’s process of issuing banking licences, and the regulator’s attitude to, and regulation of, smaller banking institutions.

It is significant that just one of the organisations we met detailed a positive experience of the FSA and its practices. It is also worth noting that banking licences are very rare commodities. There has been just one ab initio banking licence granted in the past 100 years and that was to Metro Bank. All other new entrants to the market, such as Virgin Money and Tesco, have done so as a result of buying existing licences and transferring their use to the new operation, or from overseas banks passporting in their expertise. That in itself says a great deal about banking competition in this country.

I want to concentrate on two specific areas of concern: the FSA’s application process for banking licences, and the FSA’s regulation of smaller banks.

[Mr Thomas]

I share the hon. Gentleman’s concern about the regulators and his understanding of the potential for new players in the financial markets. The all-party group on building societies and financial mutuals held an inquiry into the work of the regulator in relation to building societies, friendly societies and credit unions. It was far from clear that regulators had any real experience of working for and in those organisations. Will he support a call to encourage the new regulatory bodies to ensure that among their senior staff they have people with real practical, hands-on experience of working for a financial mutual?

[Mark Garnier]

Yes, I will. One of the problems is that, with the potential move of the FSA into the new regulatory regime, there has been an exodus of staff. As the hon. Gentleman suggests, that is of course something to do with the employment process within the new regulators, but it is absolutely right that any regulator should draw on people’s extensive experience. As we look forward, it is important that we provide leadership and that mutuals and other models of banking should be encouraged. The regulator should accordingly take account of that when employing staff. I wholeheartedly agree with the hon. Gentleman on that point.

The second problem is the FSA’s regulation of small banks, starting with the application process for banking licences and significant changes. That process has two tiers. It starts with an initial inquiry, and if an applicant is given the nod, the process continues with a formal application. The initial inquiry can be likened to a conversation on the doorstep of the FSA, with the aspirant bank seeking permission to come through the door simply to start the application process formally.

However, that initial inquiry—it should be remembered that it is not a formal inquiry but just an opening conversation—can cost the applicant more than £1 million to process. That is because the applicant requires a corporate body to make the application, which is not unreasonable, but also needs evidence of capital committed, advisors, auditors and, it seems, evidence of system design and building, which can be very expensive as there are no off-the-peg systems available.

So far we have found just two organisations that have proceeded past the initial stage from an ab initio enquiry. Trying to establish the reasons for that, we found that the cost and delay involved in the application process appear to be disproportionate. New applicants are effectively required to create a functioning, fully staffed banking operation before any type of licence is granted. We found that one applicant was forced to resubmit their application because the application process was stretched beyond the 12-month time limit and consequently a second application fee of £25,000 was demanded. One individual spent £1.3 million just to get to the formal stage of the application process. The application was then denied by the FSA.

The applicants we met had many complaints about the FSA process, and I will go through some of them. All applicants felt that the FSA had an arbitrary power to grant or refuse applications. They felt that the FSA should provide a publicly available checklist of criteria that, if satisfied, will result in the award of a licence. Such a change would lead to a more transparent application process. Apparently there is no requirement for the FSA to apply the same criteria to all applications in its internal processes or to explain its reasons for advising that applications should be withdrawn. Representatives of one small licensed bank said that they were given the “impression” that their application was progressing but “never a green light”. A representative of an individual who tried to buy a failing bank said that, although the FSA might appear to favour an applicant, they were capable of

“changing their opinion with no prior warning”.

One applicant was encouraged by an FSA official to proceed with an application for a change of control. However, a few months later, and after incurring considerable cost, they were advised by a different FSA official that their application would not succeed and should therefore be withdrawn. Worryingly, in one case the absence of objective criteria allowed the FSA to engineer the withdrawal of the application by putting the applicant in a cleft stick. The FSA imposed a very high tier 1 capital requirement, which had the effect of suppressing the profitability of the applicant’s business plan. The applicant was then told that the proposed venture was not sustainable because it was insufficiently profitable, and they were advised to withdraw.

In short, applicants felt that the individuals concerned within the FSA feared the prospect of having their name associated with any bank that might possibly fail in the future, and so they felt that the FSA staff regressed to having a bias of ultimate safety, and that bias meant that they favoured rejection of applications.

Let me turn to the regulation of existing smaller banks, of which there are 50 or so. Those banks are penalised for being small. It is quite interesting that the department within the FSA that looks after smaller banks is called “Smaller banks, smaller building societies and spread betters”. It seems curious that banks that are so important to this country can be regulated alongside spread betters, which are perhaps less important to the financial system.

The first and most basic problem that the smaller banks face comes in the form of the capital ratios that they must have. Small start-up banks are required to have a capital ratio that is potentially three times larger than that of a big, systemic bank. Although it can be argued that that is to ensure the bank is stable as it builds up its lending book, it restricts the opportunity to become a new entrant to the market to those who have very deep pockets indeed. Even if a new bank grows, its capital ratios are frequently twice that of the big banks’ capital ratios. Moreover, risk-weighted valuations of property lending, with regard to items such as a property lending book, are skewed against small banks, which may lack the database and breadth of client type available to the big banks to justify a similar risk-weighting. That means that a small bank will need a third more capital for its property books than its bigger competitors.

Small banks are also likely to have a more limited loan book. For example, a small bank’s loan book might be restricted to the UK. That incurs a 1% increase in capital ratios. That is quite an interesting proposition because it implies that big banks lending to Greece and Spain face a lower risk than those banks that are just lending in the UK. That so-called “concentration of risk” has further implications, as small banks are likely to seek niche markets. Doing so means that a bank incurs a further 2% increase in its capital ratio.

Meanwhile, liquidity reporting has resulted in small banks seeing the cost of their compliance increase tenfold. Representatives of a small private retail bank whom we met said the bank used to charge its customers £25 a month for the privilege of banking with it. Those customers are now being charged £65 a month, just to cover the increased cost of compliance. Another small bank that has only a £50 million balance sheet is required to submit 160 liquidity reports every year.

In addition, it has been suggested that for a small bank the staff to accountant ratio, which is obviously an overhead cost, is 17 members of staff for each accountant who is examining what is going on. In a recent survey, chief executives of small banks complained that 40% of their time was spent on compliance. And non-executive directors, far from contributing a wide range of skills to the bank’s board, must now demonstrate extensive banking experience and sign up to what amounts to a full-time job. Is it right that banks’ boards should be so monochrome?

There are many reasons why businesses might face problems in getting started, but in an environment in which we expect banks to lend more and to contribute to our economic recovery is it right that the regulator is apparently creating a blockade for new entrants and increased competition? Including me, there are three members of the Treasury Committee still in Westminster Hall—the other two are my hon. Friend the Member for South Northamptonshire and the hon. Member for Erith and Thamesmead (Teresa Pearce); and there was another member here earlier, the hon. Member for Edmonton (Mr Love). I hope that the Treasury Committee will proceed with a forensic investigation of banking competition and seek to separate myth from fact as regards this problem. However, as we progress with the Financial Services Bill and the soon-to-come banking reform Bill, it is crucial that we consider competition as part of the mandate of the regulators.

This is a very difficult time for our financial services industry, including banking, and we must ensure that we strike the right balance between regulation that is effective and easy to apply and regulation that ensures international confidence in our financial system. Striking that balance is too important for us to get wrong, but we must ensure that in achieving it we allow, and indeed encourage, healthy competition within the banking community. That must be the approach taken by the regulator.

LIBOR (FSA Investigation)

Mark Garnier Excerpts

Thursday 28th June 2012 Commons Chamber

[Mr Osborne]

I agree with the hon. Gentleman. Of course the Financial Services Bill is before Parliament and there is still some time to go before it completes its passage, so it is a readily available vehicle, but we want to make sure that we get this right, given what went so badly wrong with the previous attempt to regulate the financial services industry.

[Mark Garnier (Wyre Forest) (Con)]

While £60 million may sound like a great deal of money to the average man in the street, when it is compared with the size of Barclays’ balance sheet and the potential claims for compensation, does my right hon. Friend not agree that it is a relatively small amount of money? When he is looking at compensation for those who have lost out, will he take care to ensure that Barclays is liable for its own liabilities—that they will not necessarily be shared with other banks and that each bank takes care of its own liabilities?

Interest Rate Swap Products

Mark Garnier Excerpts

Thursday 21st June 2012 Commons Chamber

[Mark Garnier (Wyre Forest) (Con)]

I, too, would like to add my name to the long list of people who will be congratulating my hon. Friend the Member for Aberconwy (Guto Bebb) on securing not only the debate, but a great deal of support from the outside world and a community that has been badly affected by these events.

I suspect that we are now at the beginning of what will amount to yet another large mis-selling scandal. I completely endorse the comment of my hon. Friend the Member for Aberconwy that the last thing we need is the spectacle of bus loads of ambulance-chasing lawyers charging across the countryside looking for businesses that have been mis-sold these products. It is incredibly important that we try to resolve the problem before members of the legal profession take advantage of it as an opportunity to feather their nests. These events come at a time when small businesses are struggling to make sales and win orders and contracts. It is a time when the banking system is adding yet another problem to small businesses. It is something we need to try to resolve.

These products, which really amount to caps and collars, should have been relatively straightforward products. They should not be dissimilar to a fixed rate mortgage. Rather than being like a fixed rate mortgage stating that the customer will pay 3% or 5% for five years, for example, they should have stated that the customer would pay between no less than 3% and no more than 8% over a five-year period or whatever. In that respect, such a product would have been a very straightforward cap and collar.

The problem is that the products were written before this period of super-low interest rates. Of course, interest rates have since fallen well below the collar, so the products are not actually cap and collar products; they are cap and noose products. Rather than holding the interest rate at the lower level, the noose has the effect of bouncing the interest rate up, thereby creating a higher rate than the customer would otherwise have expected and, in some cases, than they would have paid at the rate of interest in the first place.

The result is that these products are far more complex than they would normally have been. I declare a history of serving as a compliance officer for an FSA-regulated firm before being elected to this place. We used to spend a huge amount of time ensuring that we classified our clients properly to make sure that the products that were sold were aligned with the abilities. I fear that what is happening here is that we have a misalignment of customer classification. There are salesmen who are not experts in the products and do not know a huge amount about them, and they are selling them to customers who are clearly not experts in the products at all. Under these circumstances, a huge problem is brewing.

The Chair of the Treasury Committee mentioned the fact that in yesterday’s Sub-Committee meeting we met Adair Turner, who assured us that he would go to great lengths to investigate the whole process. Subsequently, I asked Martin Wheatley, the other witness and director of the FSA’s conduct business unit, whether the authority will be looking into the whole business of misclassifying clients as well as salesmen, and he said that without a shadow of doubt it will be specifically doing so, so I sincerely hope that we will reach a speedy resolution on that issue.

[Ian Swales]

The hon. Gentleman makes the powerful point that we do not expect small business owners to be experts, but that their accountants are not often experts, either. The people whom they deal with who will most often be experts are their bankers, so where does he feel that small business owners should get their independent financial advice from?

[Mark Garnier]

That is an incredibly important point. We live in an ever-increasingly complex world, and banks are competing against each other to come up with more and more sophisticated products that appear to be user-friendly, such as simple fixed rate mortgages. But as products become more complex there are more hidden elements in the contracts that people sign, such as in the one under discussion, whereby in a completely unforeseen period of super-low interest rates, business owners have to pay what amounts to a fee to buy themselves out of the contract’s residual value.

People then get into very complex calculations to try to understand what is going on, and the economic value of, and internal rate of return on, the contract. That is when things go way above the pay grade of most people, apart from those specialists sitting in dealing rooms in Canary Wharf who really understand such stuff. So, as part of the banking review and the Financial Services Bill that is passing through Parliament, we need to look very carefully at the classification of customers and of salespersons in order to get back to the fundamental point that we have to match products to a customer’s ability to deal with them.

[George Eustice (Camborne and Redruth) (Con)]

I have seen cases in which, through a process of legal discovery, a very clear e-mail trail has shown banks wilfully deciding not to explain the disadvantages of such products and, sometimes, a complete mismatch between the length of their loans and the length of the product they were selling. Does my hon. Friend agree that this is not just about people not understanding the situation, but about an intention in many cases by people not to inform customers because they wanted the business for their own bank?

[Mark Garnier]

The hon. Member—

[Mr Geoffrey Cox (Torridge and West Devon) (Con)]

Hon. Friend.

[Mark Garnier]

My hon. Friend has almost been reading my speech, because I am about to finish on that point.

There are mismatches of terms and objectives, and on this issue I have a fundamental problem with the banks. A bank manager used to be a customer’s friend, whom they could turn to for financial advice, who would look after them and who, much more importantly, had their interests at heart. The problem is that banks are now simply salesmen looking for another product to sell, and it does not quite matter to them what holistic package is being sold as long as an individual product is.

I simply do not understand why the banks are failing to get the message that they are breathtakingly unpopular. They have really made a pig’s ear of our economy and financial system, so why do they continue to do so—in the face of the public opinion? It does not make any sense, so I make this appeal to the banks: please take a look at this issue. If you have created what should be a collar and cap arrangement, but it turns out to be a cap and noose arrangement, negotiate with your customer, help them out, stop feeding solicitors lots of money and try to resolve it in order to get back to a situation where bank managers are people we can trust.

Banking Reform

Mark Garnier Excerpts

Thursday 14th June 2012 Commons Chamber

[Mark Garnier (Wyre Forest) (Con)]

I am grateful to my hon. Friend for his statement today, and also for these measures, which go a long way in dealing with the “too big to fail” problem, and in some ways deal with the “too small to start” problem. He will be aware that in the last 100 years, only one ab initio banking licence has been granted. Part of the problem is a reluctance on the part of officials at the FSA to grant new banking licences. Will he look again at the issue of competition in the Prudential Regulatory Authority, in order to try to help challenger banks enter the marketplace?

[Mr Hoban]

My hon. Friend makes a good point. As I have said, the Bank and the FSA are looking at prudential and conduct requirements to ensure that they are proportionate. However, the other thing I would say is that the implicit guarantee enjoyed by our bigger banks distorts competition. Our reforms tackle that, helping to create a more level playing field for new entrants and enabling them to compete properly with established players.

Static Caravans (VAT)

Mark Garnier Excerpts

Thursday 26th April 2012 Commons Chamber

[Mr Stuart]

I will give way to my other colleagues shortly, but let me first respond to my hon. Friend the Member for Lancaster and Fleetwood (Eric Ollerenshaw).

The Finance Act 1972 introduced zero rating of certain caravans. The notes on clauses relating to what was then group 10 of schedule 4 referred to relief for

“houses and other domestic accommodation”,

and stated:

“The caravans in the Group are akin to houses; they are too large to be towed on the road, and are usually permanently attached to the land.”

The deliberate intention of the law, which was debated in the House—with no anomaly, no forgotten section, and no category of products that had been missed—was to treat caravans, other than those towed by cars, as “other domestic accommodation” in the same way as houses.

[Mark Garnier (Wyre Forest) (Con)]

In my constituency, many people view static caravans as second homes. Is there not a case for the Treasury to treat them as second homes, subject to stamp duty, rather than making them subject to VAT like mobile caravans?

[Mr Stuart]

That would be consistent, because the qualities of a mobile caravan are completely different from those of a static caravan or a house. What are static caravans used for? They are second homes. Someone who buys a £240,000 cottage in one of the rural areas represented by my colleagues, which often means pricing out local workers, will pay tax of 1%, whereas it is proposed that someone who buys a static caravan for £24,000, a tenth of that amount, should pay 20%— 20 times as much—on a home that is used for precisely the same purposes. That is not getting rid of an anomaly, as Treasury civil servants originally suggested; it is creating an anomaly.

Financial Services Bill

Mark Garnier Excerpts

Monday 23rd April 2012 Commons Chamber

[Chris Leslie]

There might well be a case for that, but we are talking about people’s homes and the roofs over their heads. Repossessions can seriously hurt people, especially if they were unable to anticipate the situation because of a shock or unpredicted changes to their interest rates. As I have said, this point in the cycle is the right time to make this sort of change. It is about preparedness and information for home owners, and I feel strongly that we ought to have that in statute. If the Minister does not agree, this is certainly one of the issues on which we want to test the will of the House.

[Mark Garnier (Wyre Forest) (Con)]

Will the hon. Gentleman give way?

[Chris Leslie]

I will give way, but there are a number of other amendments I have to talk about.

[Mark Garnier]

I am incredibly grateful to the hon. Gentleman. He talks about an incredibly significant problem in this country: the £1.2 trillion-worth of mortgage debt for all the people of this land. What he is describing is a steepening in the yield curve, but that could also be the result of an increase in deposit rates, so what could be taken away with one hand could be a result of giving with the other hand. What I am really struggling with in the new clause is how he envisages mortgage lenders being able to deliver the warning, given the fact that he defines a shock in interest rates as something that cannot be predicted. Moreover, how does he envisage this working in practice?

[Chris Leslie]

The hon. Gentleman might know that in annual pension statements, for example, in the key facts documents a number of scenarios are put forward for what the pension might be worth under a range of growth options, such as annual growth of 3%, 5% or 9%. All I am seeking to do is ask the Financial Conduct Authority to consider a way of giving a range of scenarios and helping to provide information for customers, which would not be impossible. That is why I think that that is necessary for mortgages. I hope that hon. Members on both sides of the House will support what is a pretty modest change. It is something that I know we are all concerned about. The Government definitely need to go away and look at the issue again.

Amendment 37, which also stands in my name, relates to the Consumer Financial Education Body, which we now call the Money Advice Service. We are seeking to amend the Bill so that it specifically targets

“proactive and easily accessible advice to those encountering economic disadvantage, financial exclusion or financial exploitation.”

In our view, it is vital that the Money Advice Service focuses as much effort as possible on the vulnerable and those susceptible to problems, whether as a result of misinformation or choices made in financial investments. We know already, from examples in our surgeries, that those on the lowest incomes—the most vulnerable in society—need to be better protected in legislation, and that is why the new clause has been tabled.

--- Later in debate ---

[Mr Mudie]

One can see many scenarios. I have seen many political philanthropists since I have been a Member of Parliament. I worry because they come to the House as politicians, but seem not to want to do anything or take any responsibility. They have offloaded power to quangos and agencies, and gave independence to the Bank. The real question is why are the Chancellor and the Treasury sitting back and watching their ground—sensitive economic ground—being given away to a quango, an unelected bunch of people? Under the Bill, those people can take the remit and the guidance on it, which the Treasury sets, and say to the Treasury, “We don’t agree with you,” and that is that. That is the situation we are reaching on accountability and responsibility despite the worry about giving away powers.

On amendment 23, some hon. Members were hard on my hon. Friend the Member for Nottingham East, although it is not as if he cannot defend himself. The Government’s original proposition, which was put out for consultation, included macro-prudential tools, which, as hon. Members have said, are highly sensitive and powerful. One aspect of the proposal they have given up because of its sensitivity—I am going by what has been in the papers in the past few days—is the ability to interfere in the mortgage market on loan-to-value and similar matters. What happens if the unelected Financial Policy Committee starts leaning against the wind in a way that affects large numbers of people, and there is no way of talking to it or affecting its position?

The Government’s original proposal was that decisions on macro-prudential tools would go upstairs to the Committee Corridor as statutory instruments—secondary legislation—for a 90-minute debate on a measure that would not be amendable. All hon. Members know what happens upstairs. The Minister talks for an hour, the shadow Minister talks for 25 minutes and we all go home, with the measure voted through by the Government majority. That happens with Governments of all parties. The way secondary legislation is dealt with in Parliament is an absolute disgrace. We can excuse a lot of it, but matters as important as the ones we are discussing, it is scandalous.

To be fair to the Chancellor, I raised the proposal with him when he first introduced it and asked him to look at it again because of its undemocratic nature. I am pleased that the line has softened, but there is more talking and work to be done. If hon. Members are asked to give away powers that affect our constituents so directly, it is important for us to be absolutely sure that we have had the opportunity to at least have our say in the strongest possible terms and ones that might allow the regulator to think about what has been said, although it is not for us to take its take its job.

A Government Member attacked my hon. Friend the Member for Nottingham East and asked him whether he would interfere with a regulator. We had that situation when the Treasury Committee discussed the retail distribution review with the chief executive of the FSA. We said to him, “This Committee feels strongly about this matter. We’ve had a lot of press about it and a lot of pressure, and we’d like you to think again.” He replied, “No, we won’t think again, unless you give me evidence.” The Treasury Select Committee giving evidence to the chief executive of the FSA—what arrogance! My hon. Friend the Member for Nottingham East is doing the Government a favour. They might not agree with the detail of the amendment, but the spirit is that we give the House every opportunity to comment on, think about and be aware of the powers we give to individuals that might affect our constituents.

[Mark Garnier]

It is a great pleasure to follow the hon. Member for Leeds East (Mr Mudie), with whom I serve on the Treasury Committee. It is interesting that I am the fourth consecutive Committee member to speak.

The House will not be surprised to hear that I rise to speak to new clause 1, tabled in the name of my hon. Friend the Committee Chairman, under whom it has been a great pleasure to serve. He is a very forensic Chairman of a Committee doing some extraordinarily good work at a time when it could not be more important—when we are facing some of the most fundamental problems in the economic world and when it is incredibly important that we do something significant about financial regulation. There is no doubt that something needs to be done. We have had a problem with a system of financial regulation that failed to address the problems with the banks, and the Bill travels a huge distance in trying to resolve those problems and come up with a robust new regulatory framework.

Having been a compliance officer under not one but three regulatory regimes—the Securities and Futures Authority, the Financial Services Authority and the Securities and Investment Board—and, prior to that, a regulated dealer on the floor of the stock exchange under the old stock exchange rules, I have had a fair degree of practical experience of financial regulation. Furthermore, in the past 18 months or so, I have, with the rest of the Committee, spent a huge amount of time scrutinising and studying the draft recommendations for the Bill. I also spent some 50 hours, in the Bill Committee, with the hon. Member for Nottingham East (Chris Leslie), who waxed lyrical and at great length—and with great intelligence, I might add; and here we are on the Floor of the House talking about the matter yet again.

A number of things in the Bill are not ideal, but the one surgical cut that would have the most effect would be new clause 1. The Bill contains perhaps the single most fundamental change that we will see in financial regulation—the creation of the Financial Policy Committee. We have heard a lot about the FPC. One of the criticisms is that it could make profound changes to our financial system in trying to deal with financial instabilities, with bubbles that seem to be growing and all the rest of it. We can speculate ad nauseam about the type of interventions that could be made, but the one that people talk about a great deal is where the FPC may, with one of its tools of direction or recommendation, direct banks to change the loan-to-value ratios on mortgages. That could have far-reaching effects for our constituents.

[Mr Hoban]

May I make it clear that the FPC has ruled out intervening on loan-to-value ratios? It is important that we do not let this hare continue to run much longer.

[Mark Garnier]

I am grateful to my hon. Friend for that clarification. Interestingly enough, though, it is perhaps one of the powers that the FPC should have kept. Although it could have profound effects for people moving and so on, it is incredibly important not to lose sight of what others issues the FPC is there to address. In the past, as bubbles have grown, Members have sometimes been reluctant to take away the punch bowl before the party is over. Sometimes, when we allow bubbles to get bigger than they should be, the result is a financial crisis of the kind that we have seen. There are many things, on an analysis of the financial crisis, that could have happened, but one of them was allowing a colossal asset bubble to grow against uncontrolled lending. If a Member of Parliament or the Chancellor of the Exchequer had turned around in 2007 and said, “We’re going to stop that,” there would have been an absolute outcry. However, if the FPC had done that, it would have been acting without the worry about what would happen at the next general election, and perhaps we would have avoided the problem. It is for that sort of intervention that the FPC is being created.

[Bob Stewart (Beckenham) (Con)]

What happens when the FPC gets things wrong? How will it be held responsible for the decisions it makes?

[Mark Garnier]

I am grateful for my hon. Friend’s intervention, because that is exactly the point I am coming to. What is the accountability of the FPC? Ultimately, it has to come down, in some way, to the court of the Bank of England making an intervention to assess what is going on.

As we have discussed, the FPC will have far-reaching powers to intervene, some of which we may never know about. Some might be restricted to a 30-year rule, so we might hear about them in the future, although an awful lot may well be published. However, it is incredibly important that we look at what the Bank of England does to supervise. Currently, the court of the Bank of England is responsible for administrative matters, as we have heard—it is responsible for pay and rations. What we on the Treasury Committee want is the Bank to have a proper board—probably with a new name that reflects its updated role, although I do not think that will happen. We recommended that it should have a majority of external members who must have the relevant skills and experience, and the Treasury Committee wants the court of the Bank to be able to conduct—this is an important point—retrospective internal reviews of policy decisions of the Bank. The Bank’s response envisages limiting that to commissioning external reviews or conducting internal reviews only of the decision-making process of the Bank.

The creation of the FPC—on which my hon. Friend the Member for Beckenham (Bob Stewart) intervened on me—makes this governance issue incredibly important. As we have heard, the Monetary Policy Committee has just two tools: quantitative easing and interest rates, which it uses openly and publicly. We see detailed minutes of the meetings, followed up by evidence sessions by the Treasury Committee, which is also part of an incredibly important scrutiny process, which is fully transparent and very simple. However, as we have heard, the FPC has a large range of tools at its disposal, which means that it might not be able to give a full and open account to the Treasury Committee or publish entirely transparent minutes. Moreover, as I have said, it might be years before we know what intervention has been made. That is why we need an organisation that can intervene to look at what the FPC is doing and take on a strong governance responsibility.

That is why the court of the Bank of England needs to be able to look at the merits of the FPC’s policies and not just the method. The Bank’s board must not be restricted to finding out whether the wrong decisions were made but in the right way. That is why I would be incredibly grateful if the Minister gave serious consideration to new clause 1.

[John McDonnell]

I am not part of the charmed circle of the Treasury Committee, but I wish to add my congratulations to the hon. Member for Chichester (Mr Tyrie) and the members of the Committee on the work they have undertaken in examining the Bill as it has gone through the House.

I have tabled amendments 46, 47, 49 and 50, which seek to enhance the Treasury Committee’s role in the appointments of the Governor and deputy Governors of the Bank of England, and the chair and chief executive of the Financial Conduct Authority. I have done so because the background to this legislation is perhaps the most catastrophic failure of the Bank of England and the financial regulatory authorities that we have seen in 70 years. Their failure to predict or intervene effectively to ensure that the financial crisis was averted or dealt with adequately, speedily and effectively is there for all to behold. It has brought this country to its financial knees and into a recession that is turning into a depression, which is something we have not seen since the 1930s. The reasons for that have been evidenced today. New clause 1 would address part of the issue—namely, the lack of transparency of the old regime—but another element was the lack of accountability.

This legislation will create, in the Governor of the Bank of England, one of the most important roles in the country. The Financial Times editorial of Thursday 19 April stated:

“The central bank governor is not just some technocrat, but the most powerful unelected official in the country. His role has become more political since the crisis, not less, and will be even more sensitive when the BoE acquires new powers to avert financial crises. The next governor must win public acceptance and possess sharply honed political antennas. This might be harder for a foreigner.”

That last comment refers to the speculation about some of the candidates that the Government are considering.

In today’s Financial Times, the shadow Chancellor sets out his concerns about the range of powers and responsibilities that the new Governor will have, stating that only a superman or superwoman need apply, because the job will be so influential and will have such a wide range of roles and responsibilities. The Treasury Committee appreciated that fact very early on in the game, in its consideration of the new legislation. That is why, way back in November, it recommended that it should have a role in the appointment of this significant post. The Chancellor of the Exchequer argued against that proposition. I find it extraordinary that the Treasury Committee won the right to have a veto over the appointment of the chair of the Office for Budget Responsibility, yet failed to win a role in the appointment of the much more significant post of the Governor of the Bank of England. Indeed, it has no role in the appointment of the deputy governors, and no effective role in the appointment of the Financial Conduct Authority proposed in the Bill.

I genuinely thought that the Government were about to shift their stance on this matter, because, back in November 2011, the Treasury Committee stated strongly that it was not persuaded by the Chancellor’s refusal to grant it a role in the appointment. It went on:

“The power of veto with respect to the OBR was given to ensure the independence and accountability of that body. The Governor of the Bank’s independence from Government is crucial for his or her credibility. Given the vast responsibilities of the Governor, the case for this Committee to have a power of veto over the appointment or dismissal of the Governor is even stronger than it is with respect to the OBR. We therefore recommend that, in order to safeguard his or her independence, the Treasury Committee is given a statutory power of veto over the appointment and dismissal of the Governor of the Bank of England.”

I wholeheartedly supported that view. The Chancellor’s argument was that the Treasury Committee could not have such a role because the Governor was exercising an Executive function and should therefore be a Government appointee. That is an absolutely specious argument.

The legislation to give independence to the Bank of England went through the House, although I never supported it. That means that the Governor has more than an Executive function. The Bank is not an Executive arm of the Government. The Chancellor of the Exchequer and the Government cannot have it both ways. If they support the independence of the Bank of England from the Government, they must establish some other form of accountability to Parliament. If they do not believe that it is independent, and that it is simply an Executive arm of the Government, the Governor will be appointed directly by the Chancellor of the Exchequer. Even if that is the Government’s argument, the Chancellor of the Exchequer is still accountable to the House, so there must be some role that the House can play in advising him on the appointment of this important post.

My amendments would simply reassert the role of the Treasury Committee and thus Parliament itself in this vital range of decisions about appointments to key elements of the new structure proposed by the Government. Let me be frank. I agree with everything said about the role of the Treasury Committee Chairman and I agree that he needs to be called “right honourable” and the all the rest of it, but sometimes people are born great and sometimes people avoid greatness being thrust upon them. I do not know what negotiations went on, and it might well be that the negotiations were along the lines of, “We will not push for a veto on appointment as long as we can get some transparency and thus at least some element of accountability for that post to the Committee itself.” If that was the tenor of the negotiations with the Government—I happily allow the Treasury Committee Chairman to intervene to clarify it—I am afraid that the deal is not good enough.

What needs to be said very clearly by this House is that these are such significant appointments—particularly the Governor of the Bank of England but also the head of the Financial Services Authority in view of its key role in seeking to avoid further crises and in regulating this country’s financial services—that this House must have at least some say over the calibre of these persons.

Finance (No. 4) Bill

Mark Garnier Excerpts

Thursday 19th April 2012 Commons Chamber

[Graham Evans (Weaver Vale) (Con)]

I pay tribute to my hon. Friends the Members for Stourbridge (Margot James) and for Ipswich (Ben Gummer), who have eloquently made many of the points that I intended to make. I do not want to repeat them.

First and foremost, the Bill makes it clear that the Government are sticking to the plan to deal with the mess left by Labour and eliminate the structural deficit. That is essential for market confidence in the future of our economy and wealth creation.

Secondly, the Bill is clearly on the side of working people and pensioners. It is pro-business and helps people who want to do better for themselves and their families. It cuts tax for 24 million ordinary families across the country, including 2.5 million in the north-west. Thanks to the Budget, most basic rate taxpayers will keep an extra £220 of their salary every year. That represents the largest real personal tax cut for people on average earnings in more than a decade. I appreciate that £220 might not seem like that much to the Labour leader, sat in his multi-million pound home in Primrose Hill, but for people struggling to get by in Cheshire, £220 is a real help. The Bill therefore helps working people.

[Mark Garnier (Wyre Forest) (Con)]

Does my hon. Friend agree that over the period of the changes to the tax-free allowance, the total contribution will be more than £500 for the average individual?

[Graham Evans]

I am most grateful to my hon. Friend for making that good point, with which I agree. It is a good Budget for working people on basic rate tax.

--- Later in debate ---

[Katy Clark]

Government Members keep trying to return to that point. As I have said, the freeze applied to all allowances, and it is not comparable to what we are debating. This is a specific debate about long-term Government policy towards pensioners and the long-term cumulative effect that this change will have.

As I say, this is the wrong time to come forward with changes of this nature. We heard a well-informed contribution from the hon. Member for Banff and Buchan (Dr Whiteford) on the situation faced by pensioners who rely on private savings. I suspect that many of us as constituency MPs have had a considerable number of representations from individuals who have planned their pension and retirement savings over many years on the assumption that higher rates of interest would apply, enabling them to live off the savings they had made over a long period. I very much hope that in 2013, when these changes come into force, the economic situation will be different, but I suspect that those pensioners will be in a similar position. That is another powerful reason why now is an incredibly bad time to make changes of this kind. In my view, they should have been introduced with far greater notice.

The Government should know that pensioners are being disproportionately affected by the policies they are pursuing. We hear a great deal from Government Members about their ambitious deficit reduction plan—so far, of course, we have only seen the deficit increase. What we are seeing locally, and I suspect they will be seeing it, too—[Interruption.] Government Members are well aware that they are borrowing more and that the deficit is going up. In their constituencies as well as mine, however, local people will be experiencing the start of draconian cuts in public services, which will have and are already having a disproportionate effect on those in retirement. Even before the current economic difficulties, we were all aware of the struggle councils were having in trying to provide the social services required for our changing demographic and our ageing population.

[Mark Garnier]

The hon. Lady really must get the point about the deficit right. The deficit has been reduced from more than £150 billion when this Government first came to power to, I think, £132 billion this year. She may be getting confused between deficit and debt, and Government debt is going up, but it is going up because we have such catastrophic public finances as a result of the previous Government.

[Katy Clark]

The hon. Gentleman is well aware that borrowing is going up. As I was saying, despite the fact that the Government are failing and have consistently failed to meet their own targets, the reality is that the cuts in public spending they have already made—and they propose more for the coming years—are having a disproportionate effect on the pensioner community.

--- Later in debate ---

[Cathy Jamieson]

My hon. Friend makes a significant point and that is part of the fairness test, which I do not think has been met. The Centre for Social Justice has been very critical of this aspect of the Government’s plans, which it argues could

“threaten a new wave of family instability and breakdown…which flies in the face of their commitment to ‘shared parenting’.”

[Mark Garnier]

I am not entirely unsympathetic to a great many of the hon. Lady’s points, but what she is describing has a great deal to do with the complexity of the tax system as a whole. That tax system doubled in complexity under her Government.

[Cathy Jamieson]

With respect to the hon. Gentleman—he said he had some sympathy with my points, so I do not want to be entirely negative in response—we will not solve the complexities of the taxation system by adding even more complexities that are unfair to families and will affect children negatively.

Let me put one final issue on the record. People who are not in work and who receive child benefit for a child under 12 receive national insurance credits to enable them to build up entitlement to state pensions. The Government’s original announcement led to concerns about the impact on future pension entitlements of women, in particular, if families stopped claiming child benefit. The Government said from the outset that no one would miss out on national insurance credits as a result of the child benefit changes, but it is unclear how they proposed to ensure that. Under the latest proposals, people who are entitled to child benefit and families affected by this charge may elect not to receive it, but a claim for child benefit will still need to be made in order to receive national insurance credits. Information published by HMRC confirms that.

I am extremely conscious of the time so I will not say anything more, other than that I think that everybody should listen carefully to the debate and to the points that have been made. When Members consider how to vote, they should consider both the principles involved of support for families with children as well as the layers of complexity and confusion there will be if the proposal goes through.

Finance (No. 4) Bill

Mark Garnier Excerpts

Wednesday 18th April 2012 Commons Chamber

How will the proposed regulation be monitored? Are we going to see hordes of VAT inspectors armed with thermometers swooping down on bakers’ customers as they leave the shop and sticking their thermometers in their pies to see whether they are hotter than the ambient temperature?

[Mark Garnier (Wyre Forest) (Con)]

My hon. Friend may be interested to hear that the written evidence given to the Treasury Committee by the Institute of Chartered Accountants in England and Wales states that these VAT changes are broadly sensible reforms

“but will still leave plenty of anomalies”.

[Gordon Henderson]

I can only agree with that:

I accept that there is an argument for trying to address the current situation whereby some shops sell hot pies without charging VAT but others, such as my local chippy, have to charge VAT on the hot pies that they sell. However, the Government’s proposal is not an answer. Nor, sadly, is the Opposition’s new clause 1, which is why I cannot support it. I very much hope that the hon. Member for Pontypridd (Owen Smith) will withdraw it, and that he and his colleagues will support new clause 5, which I believe would achieve the Government’s objectives while protecting businesses such as that run by my friend.