Financial Services Bill

Peter Tapsell Excerpts

Monday 6th February 2012 Commons Chamber

[Mr Osborne]

The key issue in our regulatory system that we are seeking to restore is judgment by the regulator, and I will explain how the Bill will enable us to do that. I agree with my hon. Friend that the financial services are an incredibly important industry for this country. They employ more people than any other industry in Britain and, crucially, its proper regulation is not only good for the economy, but essential to prevent taxpayers from being exposed to what they have been exposed to in recent years.

[Sir Peter Tapsell (Louth and Horncastle) (Con)]

As we are in the mood for recollection, and I am one of those who strongly opposed the tripartite system of supervision when it was introduced, may I say that I very much welcome the Bill? However, the whole strategic object of what we should be doing now is to ensure that we get rid of the shibboleth of the bank that is too big to fail. I doubt whether this admirable Bill, even combined with the Vickers report, will go anywhere near to restoring Glass-Steagall. We will not get rid of banks that are too big to fail until we get back to Glass-Steagall.

[Mr Osborne]

My right hon. Friend has been entirely consistent in the views he has expressed, and he was right all along about the weaknesses of the tripartite system. On the explicit issue of whether to introduce the actual physical separation of retail and investment banking—in other words, to introduce Glass-Steagall- like legislation in Britain—I asked John Vickers, who everyone accepts was an independent and extremely expert person for the job, to look specifically at this issue with his commissioners. Some of them were probably inclined at the start to believe that physical separation was the right way to go, but when they examined the issues—and they took an enormous amount of evidence—they believed that the same objective of protecting retail customers from the collapse of an investment bank, and giving the authorities of the day greater powers to protect retail customers as they resolved problems in a retail bank, could be achieved through the ring-fencing proposal that the Vickers commission put forward. That would also maintain some of the benefits of one part of the bank being able to support another part in trouble.

The commission explicitly considered the Glass-Steagall issue, but decided that ring-fencing was a better approach. We will introduce legislation that I hope and intend will have pre-legislative scrutiny in the House during the coming Session. I hope that that will be an opportunity for Parliament to examine the issue that my right hon. Friend rightly raised. As a country, we must decide once and for all how to proceed with the structure of our banking industry.

--- Later in debate ---

[Mr Osborne]

There are examples of central banks, such as the Canadian and Spanish central banks, which were much more aggressive in counter-cyclical regulation, and which felt empowered to make the decisions. In the United States—I am sure that the right hon. Gentleman has had conversations about this with the United States Treasury Secretary and the Federal Reserve chairman—things have been taken to the opposite extreme. There is a plethora of regulators—too many different regulators. The single biggest problem in the United States probably occurred in the insurance industry, in the American International Group. There was an insurance regulator based in one particular state and it was not something for which the Federal Reserve had a responsibility. Ben Bernanke has talked about the role of central banks, and I shall say something about his view later.

I think it right for us to create a Financial Policy Committee that is on a statutory footing. I have talked about the importance of its having external independent members who are able to provide market expertise and challenge received opinion, but I believe—and this may be something that we can tease out in Committee—that we should think about how we can get the balance right, and avoid conflicts of interest while also bringing in people with real expertise.

What makes the Financial Policy Committee that the Bill will establish such a radical departure in terms of policy making is that we are not only asking it to assess the risks throughout the financial system, but proposing to give it powerful tools with which to do something about those risks. The Monetary Policy Committee assesses the risks of inflation and whether it will overshoot or undershoot the target, and then alters interest rates as appropriate. The Financial Policy Committee will be given macro-prudential tools with which to hit the financial stability objectives set out in the Bill, and to reduce and remove systemic risks to the stability and resilience of the UK financial system.

[Sir Peter Tapsell]

The shadow Chancellor raised the question of both Barings and BCCI, and it underlines the nature of the regulatory problem. The Barings failure was largely a failure of the Singapore regulatory authority. I was closely involved with Singapore as an adviser to the monetary authority at the time. The Government in Singapore were horrified by the fact that a British rogue trader had not been spotted, but it was the responsibility of Singapore to find him.

As for BCCI, which I also knew well in my stockbroking days, its regulator was in Luxembourg, which was the reason why the Bank of England did not spot the problem until too late. That problem will continue. There are considerable limits to what any regulator can ever achieve. In worldwide banking, there will always be people overseas who are up to mischief, and no regulator based in London can ever conceivably know what they are all up to.

[Mr Osborne]

My right hon. Friend makes a very good point about the international nature of this business. We must try to design a regulatory system that protects the British taxpayer from rogue traders and illegal activity in individual firms that might create broader systemic risks. We must also be alert to broader risks building up in the system—for example, when trying to moderate the impact of a credit boom. This is not just a question of dealing with individual risks and individual firms; it is also a question of dealing with risks across the financial system.

My right hon. Friend is completely right to draw our attention to the need for regulators to work together better internationally. The least well-developed piece of the financial regulatory system, post-crash—the one lesson that has not yet been taken far enough—involves the way in which we can better protect the world from large international businesses that live internationally but die nationally, such as Lehman Brothers. Co-ordinating resolution regimes across the different jurisdictions will be the work of international bodies such as the G20 and the Financial Stability Board in the year ahead.

Jobs and Growth

Peter Tapsell Excerpts

Wednesday 12th October 2011 Commons Chamber

[Ed Balls]

Well, unemployment has fallen as a percentage—[Interruption.] As I said, that whipping operation knows no bounds. I was hoping that the hon. Gentleman was going to repeat what the hon. Member for West Suffolk (Matthew Hancock) said earlier this year. He said that

“manufacturing is expanding under this Government”.—[Official Report, 23 March 2011; Vol. 525, c. 1024.]

The trouble is that manufacturing output has fallen in every one of the past three—[Interruption.] I am going to agree with the hon. Member for Stratford-on-Avon (Nadhim Zahawi), who wrote on his blog that

“deficit reduction alone isn’t enough. If we are to smooth the waters of this choppy recovery we need to ensure that we also support sustainable growth in the private sector.”

Where is that growth? Will the Chancellor repeat his claim that—

[Sir Peter Tapsell (Louth and Horncastle) (Con)]

Will the right hon. Gentleman give way?

[Ed Balls]

Undoubtedly.

--- Later in debate ---

[Sir Peter Tapsell]

As a lifelong Keynesian, I fully understand that growth can be achieved only by increased demand. Every Finance Minister in the western world is grappling with that problem. What are the right hon. Gentleman’s proposals for increasing demand without causing damaging side-effects for the rest of the economy?

[Ed Balls]

At last, a perceptive intervention from the right hon. Gentleman. I will come to that very issue later in my speech after making a few more points. I will deal with ensuring that getting demand moving is done in a safe, sustainable and careful way.

Independent Banking Commission Report

Peter Tapsell Excerpts

Monday 12th September 2011 Commons Chamber

[Mr Osborne]

The right hon. Gentleman was the Minister responsible for the City when Northern Rock totally lost control of its wholesale funding; he was the Minister responsible for the City when RBS launched its takeover of ABN AMRO; he was the Minister responsible for the City when HBOS was making all those unsupportable loans. No one in this House knows more about how to get it wrong than the right hon. Gentleman. He talks about unseemly bickering on the Government Front Bench, yet we have just been reading the memoirs of a former Chancellor of the Exchequer, the right hon. Member for Edinburgh South West (Mr Darling), who is no doubt about to speak. What he reveals about the regime that the shadow Chancellor operated shows that this is the pot calling the kettle black, to put it mildly.

Let me come on to the specific points that the right hon. Gentleman made. First, on the legislation in this Parliament and the draft Financial Services Bill, he is trying to make hay by exploiting a completely false distinction between principle and practice. We support these measures in principle and will put them into practice through detailed legislation. One cannot support all of this in practice because it requires detailed legislation, which even John Vickers says is not for the commission. Let there be no doubt that we support the Banking Commission’s report and that we will legislate in this Parliament. The draft Financial Services Bill might well be a vehicle for implementing some of the changes, but we might also require a separate Bill. That is partly because we need to get the draft Financial Services Bill through the House so that the new regulatory regime, which we are also introducing, is up and running by the beginning of 2013. As I said, I think it is sensible to stick with the proposal put forward by John Vickers that we set ourselves the deadline of legislating in this Parliament.

Secondly, the right hon. Gentleman talked about the international environment. He knows, as many hon. Members do, that there has been a lot of movement on the international front to introduce the new Basel requirements, which are, of course, on the same timetable as the Vickers proposal that the changes should be completed by 2019. Those are sensible changes, but we will argue for other changes that we would like to see at international level, not least the implementation of some of the agreements made under both this Government and the previous one at G20 level, on such things as bankers’ pay and remuneration. We want to see those properly implemented in all regimes. Of course, we hope that other jurisdictions, the Financial Stability Board and others will look at the report, but John Vickers was not asked to produce a regime for the world; he was asked to produce a regime for the UK to reflect the fact that we have 500% banking assets as a proportion of our GDP.

Thirdly, I am afraid that I just do not agree with the right hon. Gentleman on competition, and nor does John Vickers. The right hon. Gentleman says that we should have a Competition Commission inquiry in 2013, but my office has contacted the secretariat of the Banking Commission today to ask it for its view. The commission said that the reason why it chose 2015 is that three vital things that it wants to be operational, including the new challenger bank and the new switching of bank accounts proposals, do not come into effect until 2013. By the way, the latter is a very significant proposal, and I hope that it will get some coverage in the media among all the discussion of investment banking—the proposal is that people can easily switch their current accounts, and their direct debits and so on will follow automatically. However, that does not come into effect until 2013, and the Financial Conduct Authority is not operational till 2013.

The Banking Commission considered that timetable, and it thinks that 2015 is the right year in which to consider whether the changes are working in practice. I agree very much with that—[Interruption.] The shadow Chancellor says “12 months”, but he had 13 years to get these changes right. At the last general election, I remember having a debate with my colleague the Business Secretary and others in this House. The only party arguing against structural change of the banking system was the Labour party, so it is simply ludicrous of the shadow Chancellor to suggest that we are dragging our feet. We are getting on with it. We have produced this report within a year and a half of being in government, and now we are getting on and putting it into practice, so that we do not make the mistakes he made when he was in office.

[Sir Peter Tapsell (Louth and Horncastle) (Con)]

After that uncharacteristically guilt-racked contribution by the shadow Chancellor, may I, by contrast, applaud the Chancellor for appointing this Banking Commission and for withstanding the intensive lobbying against it by the very same universal banks that very nearly destroyed the world economy? May I thank him also for accepting the recommendations of the Vickers commission? Finally, may I put it to him that I very much hope that we will proceed as he has promised, not only with legislation in this Parliament, but in implementing it as soon as possible, and well before 2019, when the long grass may have grown into a forest?

[Mr Osborne]

I thank my right hon. Friend for his support for the Banking Commission, and for his kind words. He has many decades of experience—

Oral Answers to Questions

Peter Tapsell Excerpts

Tuesday 6th September 2011 Commons Chamber

[Mr Osborne]

That is why we introduced the bank levy, which Labour had 13 years to introduce but did not. It raises £2.5 billion. We are also taking action to clamp down on tax avoidance. We recently proposed a measure to tackle something called disguised remuneration, whereby high earners, often in the financial services sector, disguise their income to avoid tax, but the Labour party voted against the measure.

[Sir Peter Tapsell (Louth and Horncastle) (Con)]

As we are discussing banking, may I again put it to the Chancellor that further delay in ring-fencing retail banking from investment banking can only perpetuate the appalling shibboleth that big banks cannot fail? Until we debunk that shibboleth, the capitalist system will remain at risk.

[Mr Osborne]

My right hon. Friend makes a powerful point. We must learn the lessons of what went wrong in the regulation of our banking system and ask deep questions about how, as an economy, we underwrite that system. That is why the Government asked John Vickers and his fellow commissioners to look at the structure of the banking system and at how we can ensure that Britain can be home to global banks but, at the same time, the British taxpayer can be protected should those banks fail. Of course, John Vickers will publish his final report next week and I am sure that there will be plenty of discussion about it.

Eurozone (Contingency Plans)

Peter Tapsell Excerpts

Monday 20th June 2011 Commons Chamber

[Mr Hoban]

The hon. Gentleman continues to amaze me with his remarks. He seems to forget the role that his Government played in setting up the EFSM. The Conservative party has delivered a commitment to ensure that it is replaced with a permanent mechanism—one matter that will be discussed at the European Council later this week.

It is clear that we do not want to be part of a bail-out of the Greek economy and that we do not want the EFSM to be used. The fact that we are outside the Eurogroup sends a clear signal that it does not expect us to participate in that bail-out. Of course, Madame Lagarde, the French Finance Minister, made it clear last month when she appeared on “Newsnight” that she thought that the resolution for Greece was a matter for the eurozone only.

The hon. Gentleman mentioned the increase in the IMF commitment. Of course, the former Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), committed to doubling the resources available for the IMF at the April 2009 G20 summit in this country. I am surprised that hon. Members have such short memories of those matters.

[Sir Peter Tapsell (Louth and Horncastle) (Con)]

As several EU members have said that the only long-term solution to the crisis in the eurozone is establishing a fiscal union, has the Chancellor made it clear to them that there is no possibility of Britain joining that? As a member of the IMF, we are already playing a role in trying to bail out the European Union from its folly with its single currency.

[Mr Hoban]

As ever, my hon. Friend, whom I congratulate on becoming a member of the Privy Council in the birthday honours list, speaks wise words. The Chancellor has been very clear that we do not wish to be part of a fiscal government for the European Union. That is why we have fought for the right package for economic governance, which safeguards the independence and sovereignty of this House when it comes to making fiscal decisions. My hon. Friend rightly reminds us why it was right never to join the euro.

Oral Answers to Questions

Peter Tapsell Excerpts

Tuesday 10th May 2011 Commons Chamber

[Mr Osborne]

The hon. Lady is right that those countries do not have a flexible exchange rate. That is because they are in the euro, which I campaigned to keep Britain out of. I do not know how she has campaigned in recent years, but the last time I checked I think it was still official Labour party policy to join the euro in principle. Perhaps the shadow Chancellor will clear that up when he gets to his feet. The comparison I make is a good one: a year ago almost to the day, people were looking at the British budget deficit, which was larger than those of Portugal and Ireland, and asking whether Britain could pay its way in the world. Our credit rating had been put on negative watch. Now, however, thanks to the policies of this coalition Government, Britain has economic stability again.

[Sir Peter Tapsell (Louth and Horncastle) (Con)]

I also wish to pay tribute to the memory of David Cairns. May I ask the Chancellor how the co-ordination is organised to achieve a synthesis between our tight fiscal policy and our lax monetary policy?

[Mr Osborne]

Obviously, monetary policy is independent—the MPC sets it in the way we all know—so there is no co-ordination in that sense. I do not have a direct influence on monetary policy, but it is clear that by setting a credible fiscal policy, we give the MPC maximum room for manoeuvre and the freedom to keep interest rates lower for longer. The Governor of the Bank of England made that clear when he gave his Mansion House speech last year, and it is an observation also made by many independent observers of the British economy. Interest rates would be higher if we had a less credible fiscal policy.

Oral Answers to Questions

Peter Tapsell Excerpts

Tuesday 22nd March 2011 Commons Chamber

[Mr Osborne]

I think that I pointed out in an earlier exchange that an ex-Lehman Brothers and RBS banker contributed to the leadership campaign of the shadow Chancellor, so if the hon. Member for Sefton Central (Bill Esterson) wants to make that point again, and if you would allow, Mr Speaker, perhaps he could intervene.

[Sir Peter Tapsell (Louth and Horncastle) (Con)]

Does the Chancellor agree, as I do, with the Governor of the Bank of England in asserting that if we are to avoid another banking crisis in this country, we must have a complete separation between commercial and investment banks, which of course create these collateralised debt obligations?

Oral Answers to Questions

Peter Tapsell Excerpts

Tuesday 8th February 2011 Commons Chamber

[Mr Hoban]

I will take no lessons from the Labour party on bank bonuses. The shadow Chancellor presided at the Treasury when big bonuses were being paid out in cash, with no clawback and no lock-up. He backed that light-touch regime in government. We have taken the tough decisions on tackling bonuses. The Opposition should be apologising, not criticising.

[Sir Peter Tapsell (Louth and Horncastle) (Con)]

Do Treasury Ministers agree that the real problem with bankers’ bonuses is that they are paid not out of profits, but out of revenues? Taxing banks after the bonuses have been paid merely depresses dividends, particularly for pension funds. Why are bankers’ bonuses not paid out of profits, as they always were by my very efficient stockbroking firm?

[Mr Hoban]

My hon. Friend makes an important point. Of course, under the old regime, there was no clawback when bonuses were paid out in cash, and no lock-up. The new code on remuneration introduced by the Financial Services Authority, which is ahead of international practice, has clear rules on deferral, requires that bonuses be clawed back for poor performance, and requires that bonuses for significantly highly paid members of staff—those who take risks—be paid out principally in shares, not in cash. That will ensure that the interests of bankers are aligned with those of shareholders.

Oral Answers to Questions

Peter Tapsell Excerpts

Tuesday 12th October 2010 Commons Chamber

[Mr Hoban]

I welcome the hon. Gentleman to his new position. He has been out of Parliament for the past five years and he should perhaps take this opportunity to reflect on the record of his predecessors and the deficit that they racked up in Government. Is he departing from the practice that the previous Chancellor of the Exchequer followed when it came to quantitative easing?

[Sir Peter Tapsell (Louth and Horncastle) (Con)]

I am a strong supporter of quantitative easing as a form of management of the economy, but are Treasury Ministers aware that some hedge funds are making large profits by arbitraging between short and long interest rates when central banks give advance notice of their intention to intervene in foreign markets?

[Mr Hoban]

As my hon. Friend will be aware, the implementation of any policy on quantitative easing is the responsibility of the Bank of England, and it will take into account those factors.

Oral Answers to Questions

Peter Tapsell Excerpts

Tuesday 13th July 2010 Commons Chamber

[Danny Alexander]

No, that is not true. The plain fact is that, as I said earlier, we have the fastest growing debt and the largest deficit in the European Union apart from Ireland. In the Budget we have taken action to ensure that we prevent the key risk facing growth in this country, which is a failure to take action and a failure to restore confidence in the economy, potentially causing us the sort of problems that we have seen in other European countries. That is the problem that we need to avoid.

[Sir Peter Tapsell (Louth and Horncastle) (Con)]

Does the Chief Secretary agree that it is the refinancing capability of the national debt as redemption dates are reached that really matters?

[Danny Alexander]

Of course that matters, but what matters more than anything is the risks that this economy would have faced if we had stuck with the plans of the previous Government, which would have risked higher interest rates, lower growth and fewer jobs, and there would have been very big risks in the future.