Oral Answers to Questions
Peter Tapsell Excerpts(11 years ago)
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Sajid Javid
I agree with the hon. Gentleman: he is right to raise this important issue. I am sure that, like me, he will welcome the action we have already taken to transfer regulation from the Office of Fair Trading to the FCA and the consultation the FCA is holding on new rules, including on continuous payment authorities, roll-overs, advertising and strict affordability checks.
Sir Peter Tapsell (Louth and Horncastle) (Con)
What view should be taken of banks with a record of misbehaviour that are now promising their shareholders that they are considering moving their domicile away from Britain because they fear that the regulatory proposals by Vickers will limit their freedom to misbehave in the future?
Sajid Javid
The action we have taken on the back of the report issued by the Independent Commission on Banking is the right one, and I think it will be very hard indeed for the banks to try to avoid the new regulations and the new structure of banking that we are bringing in.
Oral Answers to Questions
Peter Tapsell Excerpts(11 years, 3 months ago)
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Mr Osborne
The Department for Business, Innovation and Skills is investigating zero-hours contracts. It is seeking to establish whether there is abuse, and, if there is abuse, what we should do about it.
The Labour party seems to have suddenly discovered this issue. I do not remember a single Minister ever raising it when Labour were in government. Moreover, a number of Labour councils use zero-hours contracts.
Sir Peter Tapsell (Louth and Horncastle) (Con)
Although the economy is improving, I am afraid that the same cannot be said of the deputy Chancellor—[Interruption.]
Sir Peter Tapsell
Yes—you! [Laughter.]
Given that Sir John Vickers has just warned us that British banks are still seriously under-capitalised, does my right hon. Friend now accept that ring fencing, whether electrified or not, cannot be relied on to provide adequate protection for depositors and businesses in the event of another banking crisis? Will he therefore give further thought to the proposal, supported by Mr Paul Volcker and Lord Lawson, for the total separation of the commercial and investment banking sectors?
Mr Speaker
I will grant the right hon. Gentleman an Adjournment debate on the matter if he judges it to be necessary after he has heard the reply to his question. We shall see—but I am grateful to him.
Financial Services (Banking Reform) Bill
Peter Tapsell Excerpts(11 years, 5 months ago)
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Mr Tyrie
There is a heap of regulation surrounding the wielding of those scalpels. The common feature of the two industries is not the professionalisation or non-professionalisation of the industry; it is that both owe a duty beyond bettering themselves. In the case of the banks, they owe a duty because of the implicit guarantee; in the surgeons’ case, they owe a duty to the patient. I will not prolong this discussion any further, but I think most people accept that we do not want banks constantly trying to find a way around or through the ring fence.
Sir Peter Tapsell
How can anyone read the evidence that Mr Paul Volcker gave to my hon. Friend’s commission and come away with any other conclusion than that ring-fencing, whether electrified or not, simply will not work when we get the next major banking crisis?
Mr Tyrie
There is considerable force in what my right hon. Friend says. We considered the issue in great depth and published a report—the third report—on exactly that. We discussed the case for full separation, but concluded that although the ring-fence proposals had merit, they should not be reconsidered until we have given the Vickers ring-fence approach a try. We also examined the merits of a closely related proposal for the separation of proprietary trading—exactly what is being suggested—from the rest of banking activity. We concluded that further statutory support was not needed for that approach now, because the Prudential Regulation Authority might already have the powers to implement an effective separation of prop trading. We asked the PRA to present a report to the Treasury and to Parliament on its use of a range of monitoring and corrective actions, which could serve as the subsequent basis for a full and independent review of the case for full separation of prop trading. Unfortunately, as far as I can tell—I have had very little time to absorb this publication, which came out only at 12.30 pm—the Government have rejected even examining the proposal for prop trading. That is a mistake. I regret that, but I hope it will be put right in the other place.
Returning to amendment (a), the Government accepted the case for ring-fencing, arguing that banks that test the ring fence should be strongly deterred and, if necessary, prevented from doing so. However, I am afraid that that will not be the effect of the Government’s amendments. On the contrary, the Government amendments almost guarantee that banks will not get a shock, and will not be discouraged from testing or gaming the ring fence. The regulator needs a useable and credible deterrent. This proposal creates too many obstacles and delays to the sanction of full separation.
Frankly, it is inadequate for three main reasons. First, it requires the regulator to issue—we have already heard a little about this—no fewer than three preliminary notices and a warning notice before it can act. Secondly, it then requires the regulator to obtain permission from the Treasury no fewer than three times while the process is in train. Putting that requirement on the statute book would transfer most of the effective regulatory decision-making power away from the PRA and the Bank of England to the Treasury. It cannot be appropriate for the Treasury to be the regulator. The commission argued for a Treasury override at the end of the process, not at the beginning or in the middle, but the Government’s amendment requires the regulator to secure the consent of the Treasury on three occasions prior to that point. Even so-called preliminary notices—in effect, expressions of concern by the regulator—will require Treasury consent. That is absurd and compromises the regulator’s independence.
The third objection has also been alluded to. The Government’s amendments allow at least five years for the completion of the separation after a decision has been made. That would create enormous scope—indeed, it would make it ideal—for lobbying for a change of heart in the interim. It would create far too much room for that and we can do without it. It also flies in the face of what the Minister said in Committee, where he alerted Parliament to the risk of what he described as an “inordinately long” delay in implementation. A tool that is so difficult and slow to use is likely to deter no one and that is why I have proposed a number of amendments that would remove some of the obstacles erected by the Government to taking action to separate banks.
Oral Answers to Questions
Peter Tapsell Excerpts(11 years, 5 months ago)
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Mr Osborne
The business bank, which was established last year, is now making loans to the funds that will lend to small businesses, creating non-bank lending channels. [Interruption.] There was no business bank under the Labour Government. I will tell the House what we had instead: we had a socking great banking crash under the Labour Government, and the person sitting opposite, the shadow Chancellor, was City Minister when it happened. We are cleaning up the mess from one of the biggest financial crises in the country’s history by ensuring that it never happens again.
Sir Peter Tapsell (Louth and Horncastle) (Con)
May I say to my right hon. Friend that after a lifetime as a stockbroker and fund manager, my instinct, as bond yields rise all over the world, is that we are heading for another banking crisis that will certainly choke off the already inadequate lending of banks to small businesses? May I put on the record my dismay that he has not yet committed himself to the total separation of investment from commercial banks, which I have been urging on him ever since he became Chancellor? I am absolutely convinced that if we do not go back to something approaching Glass-Steagall, it will be an absolute disaster when the next banking crisis hits us.
Mr Osborne
Of course, I respect my right hon. Friend’s experience. A powerful argument has been made that we should completely separate and split up retail banks from investment banks. We asked John Vickers to convene a commission to look at this specific subject, and he came forward with proposals to ring-fence retail banking, as he thought that that would be a better approach. We also set up a cross-party parliamentary commission to consider the ring fence, and it thinks that the ring fence is the best approach. It made a specific recommendation that we should give the regulator the power to split up a bank that had refused to comply with the ring fence, and we are giving the regulator—[Interruption.] The shadow Chancellor shakes his head, but again not one of these things was done when he was City Minister. Let me say to him again, because he obviously does not understand, that we are giving the regulator a specific power to split retail from investment banking in a bank that is ignoring the ring fence. I think that that is the right way forward.
Oral Answers to Questions
Peter Tapsell Excerpts(11 years, 7 months ago)
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Danny Alexander
In this matter, a wee bit of humility from the Labour party would not go amiss, on the basis that youth unemployment has been a persistent problem in this country for many years—youth unemployment has been rising since 2003 or 2004. I note that, in the hon. Gentleman’s constituency between December 2010 and December 2012, youth unemployment fell by 11.8%. Through measures such as the Youth Contract and the Work programme, we are deploying considerable support for the task that he and I agree on, which is getting more young people into work.
Sir Peter Tapsell (Louth and Horncastle) (Con)
Did the Chief Secretary to the Treasury note that, while Finance Ministers seemed remarkably cheerful in Aylesbury last weekend, the Archbishop of Toledo was warning that their fiscal policies were threatening to cause social breakdown and the overthrow of democracy in Spain and much of southern Europe?
Danny Alexander
I am afraid that I had not noted the comments of the Archbishop of Toledo, but I did notice the successful G7 Finance Ministers meeting.
Financial Services (Banking Reform) Bill
Peter Tapsell Excerpts(11 years, 9 months ago)
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Chris Leslie
The Conservative party, I think, voted in favour of the creation of the FSA. I think even the Conservative party recognised at the time that moving from self-regulation—[Interruption.] I apologise if I have got that wrong. It may well have been that it opposed the legislation because it introduced statutory regulation. The state of affairs that existed before was self-regulation—the regulatory environment was not there.
Sir Peter Tapsell (Louth and Horncastle) (Con)
In the 1997 debate, I strongly opposed the establishment of the FSA, with its tripartite regulatory structure. I predicted it would be an absolute disaster, and it has been.
Chris Leslie
Without in any way casting aspersions on the motives of the Father of the House in voting against setting up the FSA, I wonder whether he voted against it because its regulatory stance was too weak, or whether he was anxious at the time that its regulatory approach would be overbearing. I suspect that Conservative Members know, in their heart of hearts. Were they really opposing the creation of the FSA because they thought that the strength of the regulatory arrangement would not be sufficient? Is that what they are really saying?
Sir Peter Tapsell
I opposed it, if I remember correctly, because I said that if the Treasury, the Bank of England and the FSA were all involved in regulation, they would all be quarrelling with each other and passing responsibility on to the other two when things went wrong. Those, I think, were almost the exact words I used, and that is exactly what happened.
Chris Leslie
Hindsight is a wonderful thing. All I say to the Father of the House is that we are now in a situation where we have a new Financial Conduct Authority, the Prudential Regulation Authority, the Financial Policy Committee and the Monetary Policy Committee. The Bank of England is of course still involved, and the Chancellor of the Exchequer will still have a number of powers. He may not have realised it, but the Government’s changes have not exactly simplified the regulatory environment. I digress. That was the Financial Services Act 2012, but we are addressing the Financial Services (Banking Reform) Bill in 2013.
Sir Peter Tapsell (Louth and Horncastle) (Con)
I asked Harold Macmillan what the secret was of making a good speech in the House of Commons and he said, “I once asked David Lloyd George that very question and the answer I got was, ‘Don’t say anything interesting or important in the first five minutes of your speech—just wait for the Chamber to fill.” I am not sure that that will happen this afternoon, which is a pity because I believe that if this Bill finishes up as the Act I hope it will be, it will be the most important Bill of the whole of this Parliament. It may stop the second shoe falling, as it did in 1931, to use the phrase of the time. After the stock market crash of 1929 came the slump and the 1931 crisis.
In 2007-08—but in 2008 in particular—we saw the greatest financial crisis since the 1930s, which resulted in almost a decade of slump that was only solved by Adolf Hitler. If we can get this Bill right and make sure that 2008 is not repeated, it will be an enormous achievement.
Hank Paulson is the former head of Goldman Sachs and was US Treasury Secretary at the time of the 2008 crisis. If hon. Members read his book, they will see that the critical day was 15 September 2008. He says that everybody who mattered in finance was in his room and that, although he is a big man who was a famous university footballer in his youth, the stress and strain was so great that during the course of the conference he had to leave the room twice to vomit. He writes that on that day capitalism was on the verge of total collapse. I think that people have forgotten the seriousness of that crisis.
I believe that crisis was more important than 9/11. As it happens, I woke up in my club in New York on the morning of 9/11, so taking part in this Second Reading debate means that, during the course of my life, I have been present at two very important events. The fact is that the 2008 crisis ruined the lives of millions of people all over the country. Many of my constituents are suffering real hardship as a result of the measures that had to be taken to deal with the effects of the crisis, and the same is true right across the world. We really must prevent it from ever happening again, but I fear that there is a real danger that it could happen again.
The high spirits—to put it at its most polite—of investment bankers do not seem to be unabated. Many banks are in a weak state, including, as we heard only three or four days ago, Goldman Sachs itself. Some major European banks are close to bankruptcy. This Bill is a belated but welcome attempt to prevent the banking crisis of 2008 from happening again.
The Opposition spokesman is the hon. Member for Nottingham East (Chris Leslie) and in far-off days I was the hon. Member for Nottingham West, so we have a certain amount in common. Our views on regulation also have a great deal more in common than he has indicated. There is no reason why he should know what my views are on anything—nobody really does and I only do on a day-to-day basis. He should look up a speech that I made on 16 July 1984. I spoke for 40 minutes—in those days, Back Benchers were allowed to make proper speeches—and strongly opposed the deregulation of that time, which, in those days, was called big bang. Deregulation had suddenly became tremendously fashionable. Lady Thatcher, Keith Joseph and all the monetarists were terribly keen on it, but one of the reasons why I resigned from the Opposition Front Bench on which the hon. Gentleman now sits and why I refused to serve in Margaret Thatcher’s Government is that I disagreed with it.
I reread my speech last night and if the hon. Gentleman reads it, he will see that I predicted, very clearly and unbelievably presciently—I was much younger and more alert then, and knew how to put points so much better than I do now—exactly what would happen and the reasons why. I also predicted the tremendous decline in the moral standards of the financial world that would result from the internationalisation and Americanisation of the City of London. That, of course, is what, unfortunately, happened.
In that speech against big bang, I opposed the absorption of high street banks, merchant banks and stockbroker firms—I was a partner in one—into universal banks, free to speculate, on their own account, with the money of depositors and large sums of borrowed money in what is now called leverage, which we and America pronounce differently. I will not go into the arguments about ratios, except to point out that, even as respectable a hedge fund as Carlyle was dealing on a ratio of 30:1. The leverage situation was one of the causes of this disaster.
At the beginning of this Parliament I described the banks as today’s over-mighty subjects and that is what they are. They have been strongly lobbying the Vickers commission and the Treasury not to deal effectively with the bank that is too big to fail. I take the view that if a bank is too big to fail because of the systemic effect that would have, it is too big to exist at all and should be broken up now. As a start, I strongly support the recent recommendation of the Governor of the Bank of England to break up the Royal Bank of Scotland.
Glass-Steagall imposed an absolute separation between commercial banking and investment banking. It also banned proprietary trading in commercial banking. The essence of Glass-Steagall in 1933, by which Roosevelt managed to save the American banking system, was to root out conflicts of interest, which are the evil at the heart of universal banking. Banks were told that they had to choose between servicing a client and promoting their own short-term interests. Combining the two inevitably creates conflicts of interest that lead to many other problems. That is what Mr Paul Volcker, unquestionably the most distinguished and experienced banker in the world, urged on America in what became known as the Volcker rule and on our Parliamentary Commission on Banking Standards, which has been chaired so ably and brilliantly by my hon. Friend the Member for Chichester (Mr Tyrie).
I read the accounts of what is being said and the questions that are being put at the parliamentary commission with great jealousy, although I do not want to be co-opted on to it. Its second report reached me just before lunch, and I chose lunch. However, I will read the report and all the subsequent reports with the greatest possible interest. I find it difficult to understand how anyone who has read the complete account of Mr Volcker’s evidence to my hon. Friend’s commission, as I did at the time that it was published, could fail to be persuaded that we need, in effect, a complete return to Glass-Steagall.
What I mean by a complete return to Glass-Steagall is that we should have none of this nonsense of ring-fencing, which used to be called Chinese walls. It never works. Chinese walls turned out to be papier-mâché. I worked in the City for 40 years and I promise Members that it is impossible to make that work.
Andrew Bridgen
Does the Father of the House remember that it was President Bill Clinton who relaxed the Glass-Steagall rules in return for the American banks lending to sub-prime borrowers? Were not the seeds of the financial crisis sown at that point?
Sir Peter Tapsell
Yes, they were. The American banks turned mortgages for people who could not afford to pay the interest into derivatives disguised as bonds and then sold packets of them—500 or so—all over the world. They could not have done that under Glass-Steagall. That really makes the point, so perhaps I ought to sit down now.
Bank of England
Peter Tapsell Excerpts(12 years ago)
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Mr Osborne
Canada had the advantage of going into the crisis with properly managed public finances, and it avoided the large bank bail-outs that we had in this country—RBS was the biggest bank bail-out in the world—because its banks were better regulated. Hopefully, Mr Carney will bring some of that experience.
The right hon. Gentleman makes a serious point about lending in the economy. The Bank of England has created the funding for lending scheme, and we see the impact of that in new products that banks such as Santander and Lloyds have launched. He is right to say that that is one of the things we have to be on in terms of economic management. The de-leveraging in our economy is still one of the real headwinds to recovery.
Sir Peter Tapsell (Louth and Horncastle) (Con)
My right hon. Friend, if I understood him aright, has just said that Dr Carney supports the ring-fencing arrangements recommended in the Vickers report. May I ask him to bear in mind that Sir Mervyn King made it clear last week that he does not support them and nor do Mr Paul Volcker and the Archbishop of Canterbury-select? And nor do I.
Mr Osborne
My right hon. Friend has read out an extremely distinguished group of individuals. What he did not say was that, as I understand his position, he would like the banks split entirely in a Glass-Steagall-like separation. Over the past couple of years we have constructed a consensus on ring-fencing. We appointed John Vickers and his very experienced commission to do the job, and they looked explicitly at ring-fencing and came forward with their proposal. That proposal has now been discussed in this Chamber and commands consensus across the system. If we were suddenly to back away from it now and say that we wanted to start all over again with some other approach, that would delay everything. That would not be the right approach, and it would destroy the consensus that exists on ring-fencing.
LIBOR (FSA Investigation)
Peter Tapsell Excerpts(12 years, 5 months ago)
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Mr Osborne
There was one question that dared not speak its name: who was the City Minister when the LIBOR scandal happened? Who? Put your hand up if you were the City Minister when the LIBOR scandal happened.
The shadow Chancellor was not here on Thursday, so he has had days to think about it, but there was not one word of apology for what happened when he was in charge of regulating the City. He blamed central bankers around the world and he blamed the Opposition of the day, but he did not take personal responsibility for the time he was regulating the City when the LIBOR scandal started, and that is why he will not be listened to seriously until he does. Indeed, we need to know whether he knew anything of what was going on. Did he express any concern about the LIBOR rate? When he was in the Cabinet and Gordon Brown, the right hon. Member for wherever it is, was Prime Minister, was he concerned about the LIBOR rate and Barclays? We shall find out in due course.
Let me now deal with the specific questions asked by the shadow Chancellor. He said that the criminal penalties exist in legislation. As I said, the Serious Fraud Office—which is totally independent of politicians, and rightly so—is looking at the law and seeing what it can do, but Lord Turner himself has said that the Financial Services Authority does not have adequate criminal powers. [Interruption.] Opposition Members are shouting, but let me read to them something a member of their own Front-Bench team has said. Lord Tunnicliffe said this:
“Criminal sanctions are extraordinarily difficult to bring about because of the burden of criminal law. It is fair to say though that you can’t find them in the current legislation. And, yes, OK, it’s our fault. I hope my leaders don’t hear me say that.”
That is a member of the Labour Front-Bench team clearly placing the blame on the late Labour Government, of which the shadow Chancellor was the principal economic adviser. That is the problem with the current law, and we are seeking an urgent review in order to amend it and make sure we can deal with the problem.
The shadow Chancellor talks about our acting belatedly in respect of regulation. He had 13 years in which to regulate properly, yet in the space of two years we are changing the entire system of regulation by getting rid of the FSA and introducing a change to the structure of banking. That is happening because of the recommendations from the committee that we set up under John Vickers, and we have still not heard from the shadow Chancellor whether he supports John Vickers’ proposals. He often gets up and says what is wrong with them—[Interruption.] Well, if he has just welcomed them for the first time, that is very welcome, but he goes out of his way not to do so on other occasions.
The shadow Chancellor then said that, somehow, a parliamentary inquiry would be wrong and that I was complacent to say we knew what had gone wrong. This is what my predecessor, the right hon. Member for Edinburgh South West (Mr Darling), said at the weekend, however:
“We know what went wrong and we don’t need a costly inquiry to tell us”,
so that is not just the view of the current Chancellor.
I hope the shadow Chancellor reconsiders his position. We will have good people from both sides of this House and the House of Lords to consider the matter. We will put the motion to the House. Let us have a serious inquiry, but let us have an inquiry that comes to a conclusion within a measurably short period so that we can amend the law that will be going before the House next year. That is the sensible step to take. In the meantime, the shadow Chancellor should reflect on his role and his responsibility, as the City Minister who let Northern Rock sell those dodgy mortgages, as the City Minister who let RBS explode, and as the City Minister who presided when the LIBOR scandal began.
Sir Peter Tapsell (Louth and Horncastle) (Con)
Unlike the shadow Chancellor, I strongly opposed the tripartite regulation of the banks when that was brought forward by the then Labour Chancellor, as I said in a speech I made in the House in 1997. May I now revert to questions that I put to both the Prime Minister and the Attorney-General—who is still with us in the Chamber—suggesting we should urgently consider introducing the concept of the directing mind as defined in the Dodd-Frank Act in the United States, which would enable English commercial law to be strengthened so that the heads of banks can be held answerable for the actions of rogue subordinates?
Mr Osborne
My right hon. Friend reminds us that he was absolutely right about the problems that would emerge with the creation of the tripartite regime, and, sadly, his predictions have been borne out by events. He also makes a specific proposal about legal changes and the introduction of the directing mind. We are aware of that idea, and we will look into it. The House can look at it, too, in the inquiry over the next few months.
Business and the Economy
Peter Tapsell Excerpts(12 years, 7 months ago)
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Vince Cable
My right hon. Friend is right that, in addition to the structural reforms, competition is essential. He will know that the Government are endeavouring to carry through as ambitiously as possible the divestment of branches from Lloyds, and a potential solution to that is in sight. There are also some excellent new banks coming up—Handelsbanken and Metro bank are good examples—and we must ensure that the regulatory process is as efficient as possible in order to get those up and running. I thank him for his continued pressure on that important point.
Sir Peter Tapsell (Louth and Horncastle) (Con)
My right hon. Friend the Member for Wokingham (Mr Redwood) mentioned the Vickers report. I very much welcome the announcement in the Queen’s Speech that its proposals will be implemented, but in the light of the recent massive losses in the derivatives market by no less a firm than J.P. Morgan, is not it clear that Vickers does not go far enough and that we really must go back to the basic principles of the Volcker rule and the Glass-Steagall Act by having a total separation of the retail banking system and the speculative banking system, which will otherwise destroy our business in this country and throughout the world?
Vince Cable
My right hon. Friend is quite right that the J.P. Morgan experience underlines the wisdom of separating the so-called casinos from traditional banking, but we take the view that in this country—J.P. Morgan, of course, is not a British bank—the solution we have advocated achieves that result at considerably lower cost than would the more extreme measures that I think he is advocating.
As with many other important industrial transformations, the Government’s role in the green investment bank’s infancy is key. By setting up the bank, which is the first of its kind in the world, we can provide capital and funding to nurture these nascent markets and secure a global competitive advantage for the UK.
IMF
Peter Tapsell Excerpts(12 years, 7 months ago)
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Sir Peter Tapsell (Louth and Horncastle) (Con)
I had rather changed my mind about asking a question because of the extremely unappealing way in which the shadow Chancellor put his case; but in order to be consistent with everything that I said in October and November, I am bound to say now that I regard it as the prime duty of Germany to solve the European problem, and that I hope that this further support from the IMF will not weaken the pressure on the German Government to do exactly that.
Mr Osborne
Germany made a $55 billion dollar contribution to the IMF this weekend, which is a much greater contribution than the $15 billion that we are putting in, and it is the principal contributor to the various eurozone bail-out funds of which we are no longer part. However, I agree with the spirit of what my right hon. Friend is saying, which is that Germany needs to stand behind its currency. That is indeed a very important part of solving this problem.