House of Commons Hansard Debates for 15 Oct 1990

Column 947

we reorganised my Department's investigatory and prosecution functions by creating a new investigations division.

The Companies Act 1989 improved international co-operation with the establishment of memoranda of understanding with the USA and Japan in the securities area and the provision of new powers to assist overseas regulators. This is a real record of achievement and contrasts with that of the previous Government, who made no improvements whatever to the regulatory environment. We have strengthened the framework to tackle abuse and dishonesty in the City and other financial markets. The fact that a number of offences and alleged offences have been brought to light in recent years is not evidence that City standards have declined ; it is proof that higher standards are being more vigorously enforced. Moreover, some of the more disturbing events took place under the old regime, and would have been more easily detected and therefore deterred under present arrangements.

In creating the main part of the regulatory framework--the Financial Services Act--it was important to strike a balance between the needs to ensure effective investor protection and to avoid a system so onerous and rigid that it would damage businesses and stifle innovation. With the later fine tuning introduced in the Companies Act 1989, we are getting the balance right.

Our system is based firmly in statute, but it also incorporates a significant degree of practitioner involvement. This gives flexibility and the scope for regulation to be sensitive to market needs. It is no accident that much of the regulatory reform at present going on in other EC member states is based on a similar approach. Having put the structure in place, we now look to the regulators and practitioners to make it work. They must do that in as cost-effective and flexible a way as possible, consistent with providing real protection to investors.

Our first priority has been to ensure that our own domestic arrangements are soundly based, but in negotiating the directives that open up the single financial area--the SFA--we have had similar objectives. The keystone to creating an SFA in Europe was the capital liberalisation directive. It came into force on 1 July 1990, by which time exchange controls were abolished in all the main EC countries. An invaluable aspect of the capital liberalisation directive is that it requires member states to abolish restrictions on foreign exchange transactions not just between member states but erga omnes--that is, with the world as a whole.

Mr. Barry Porter (Wirral, South) : Very good.

Mr. Lilley : I had to look it up.

Following that, the second banking directive was adopted in December 1989. It will take effect on 1 January 1993. It incorporates the mutual recognition principle, and we hope that it will be the paradigm for all directives in this sector.

Essentially, banks and building societies will be given a passport to sell their services across borders and to establish branches, authorised and supervised by the monetary authorities in their home state.

Mr. Anthony Nelson (Chichester) : Everyone recognises the importance and the fast progress that has been made in negotiating and agreeing these directives. Does my right

Column 948

hon. Friend agree that, important as the directives are, it is equally important that they be observed in the same way in each country? It is one thing to have a single passport or a level playing field, but it is quite another to translate that into the same degree of observance in each member state. Although there is commonality in the trade in agricultural products, other countries frequently flout the rules.

Mr. Robin Maxwell-Hyslop (Tiverton) : Lamb in France.

Mr. Nelson : Lamb in France is an example. What guarantees or sureties are there that not only will the directives be enforced but that they will be interpreted in the same way in each country?

Mr. Lilley : My hon. Friend makes a good point. The United Kingdom is always in the forefront in implementing directives once they have been agreed, even though we may have difficulties with them when they are being negotiated. We are also in the forefront in enforcing them properly, objectively and effectively. We expect to see similar practices followed by our partners in the Community and, of course, they are subject to the European Court of Justice if they fail to do so.

As I have said, the second banking directive will give banks a passport to offer investment services as well as normal banking services, but specialist investment service companies that are not part of banking groups are not covered by that directive. The investment services directive is intended to entitle them, too, to a single passport. On the continent, most investment advisers are parts of large banking groups and only the United Kingdom has a sizeable number of specialist investment firms outside banking. Hence this directive is particularly important to the United Kingdom. One of our key objectives has been to ensure that the second banking directive and the investment services directives come into force simultaneously. Any delay in the investment services directive would put our independent investment services firms at a disadvantage to competitors that are part of big banking groups. Happily, negotiations on this directive are proceeding apace, and the United Kingdom welcomes the goal of the Italian presidency to reach a common position among member states by the end of this year.

However, the House will understand that agreeing this directive is a negotiating process and we still have some very important work to do to achieve the right provisions. Some of these provisions, such as those affecting the position of the professions and independent financial advisers, depend on the outcome of the capital adequacy directive. I should like to see them given a passport under the investment services directive.

The position of appointed representatives is another area where we have not yet reached agreement. Under United Kingdom law, appointed representatives of investment firms do not need to be separately authorised. The directive, as currently drafted, would require them to be authorised and I know that this is causing the industry some concern. However, I hope that we shall be able to resolve that point satisfactorily.

The concomitant of the second banking directive and the investment services directive is the capital adequacy directive, which ensures that all financial services supervisors enforce certain minimum standards of capital

Column 949

adequacy to prevent regulatory arbitrage. However, it is important that the final capital adequacy directive should relate capital requirements for each type of business to the risks that firms actually accept. That means not overburdening existing firms or closing the market to new firms. Equally, I do not want such a level of reserves that business is lost from the whole Community. The third measure- -the proposed regulation on guarantees--is also a market-opening measure, but it is not yet one that we can support. It would oblige public bodies to accept guarantees offered by any credit institution or insurance company authorised in the European Community. The Government appreciate the intention behind the draft regulation--which I understand to be to prohibit discrimination on the ground of nationality--but we believe that it is unnecessary, because discrimination on the ground of nationality is already prohibited by the treaty of Rome.

As drafted, the regulation is seriously flawed and unworkable. It would require a public body to accept any guarantee offered, irrespective of the financial standing of the institution offering the guarantee. It would have to be accepted, regardless of whether the guarantee was unreasonably large in relation to the size of the institution offering it ; regardless of its terms ; and regardless of the merits of competing prospective offers, which would have to be ignored. Those concerns have been put to the Commission, which, we believe, recognises some force in them. It is reconsidering the terms of the regulation and we await further proposals.

The Select Committee expressed particular concern about the lack of progress in the liberalisation of insurance. While some progress has been made, the Government fully share the Committee's concern. There has been freedom since the 1970s for establishments to set up branches and subsidiaries in the Community, but that freedom has been subject to regulation by the host state. Some host states have used that supervisory role to control tariffs and the terms of the policies that may be sold. The result has been to protect home markets from price competition and from the innovation in which the United Kingdom industry excels.

The Cecchini report noted a wide disparity of prices for insurance throughout the Community which could not be explained by differing risks. Freedom of services is especially important for the British insurance industry. Last year, the insurance sector contributed almost £3 billion in invisible earnings--about half of the total of all financial institutions. It employs 340,000 people in the United Kingdom, a quarter of them in Scotland and the north of England. The second non-life insurance directive, which came into force this year, provided genuine liberalisation of the market for large commercial and industrial risks, but outside that area the picture is not bright, at least in the short term. We are far from a position in which every European consumer has a free choice in purchasing any insurance policy that he wants from an authorised insurance company. That denial of freedom of choice is said to be justified on consumer protection grounds, but sometimes it appears to be more like producer protection.

However, at the end of last year, Sir Leon Brittan announced that the Commission intended to adopt for the

Column 950

insurance market the principle of the single licence, or single European passport, which has already been introduced for other financial service sectors. That approach is embodied in the Commission's proposal for the non-life insurance framework directive. It was formally presented to the Council by Sir Leon Brittan on 17 September, and it will shortly be undergoing the usual scrutiny procedures of the House.

The single licence will enable insurers to provide all types of non-life insurance throughout the EC. They will be able to establish local branches in other member states and transact business across frontiers, subject to the authorisation of and prudential supervision by the authorities of their home state alone. Control of British insurers' prices, tariffs and policies by other member states will end and there will be genuine freedom of choice. That is good news for European consumers and also for British industry.

Mr. Stan Crowther (Rotherham) : Does the Secretary of State agree that that happy state of affairs will not happen by 1993?

Mr. Lilley : I agree that it is unlikely to be implemented by then, but I hope that agreement can be reached on the directives.

Mr. Spencer Batiste (Elmet) : My right hon. Friend rightly stressed the importance of all the directives to the financial services industry, but even more important is the impact on the wider Community--the investors and the businesses that want to take advantage of the single market. One of the great problems in Britain is the considerable delay in clearing payments between one country and another. I understand that a discussion paper published by the Commission, that was recently given to my right hon. Friend, dealt with possible methods of speeding up payments. That would be of great benefit to small businesses and investors in this country. What is my right hon. Friend's attitude to that discussion paper?

Mr. Lilley : My hon. Friend has made a good point about an important aspect of business across frontiers. We shall consider the discussion paper, but it would be wrong to give an off-the-cuff response.

British industry has welcomed our approach to liberalisation, and it is for it to take advantage of the new opportunities in prospect. The Commission is due to bring forward, by the end of the year, a parallel proposal for the life assurance framework directive. That will extend the single licence principle to the life assurance sector. We welcome the Commission's declared intention to give the highest priority to achieving its early adoption. It is essential that insurance is treated on a par with other financial services.

Mr. Maxwell-Hyslop : Is my right hon. Friend seized of the point that time is of the essence in reciprocity? While German banks can sell German life insurance in Britain, but British life insurance companies cannot sell their policies in France, there is unequal competition.

On the question of fraud, will my right hon. Friend comment on the recommendation in paragraph 82 that actions for damages should be justiciable in the country in which the person who suffers lives? People with modest means have access to legal aid for an action in this country, but they cannot sue a Greek insurance company in Greece with British legal aid.

Column 951

Mr. Lilley : I agree that it is important that we reach agreement as soon as possible. The Commission is now seeking to do that, and we are giving every support. Of course, for as long as we fail to have the directive in place, the position described by my hon. Friend will pertain. In general, British insurance companies have the edge over foreign competitors, so it is they who want access to foreign markets, rather than the reverse. I think that I accept my hon. Friend's point on justiciability, but I want to consider it further. My hon. Friend the Under -Secretary may give him an answer when he replies to the debate.

Mr. Tam Dalyell (Linlithgow) : The Secretary of State said that British insurance firms have the edge, and I do not doubt that that is true. Is not that also precisely why--quite frankly, this is anecdotal--a number of Scottish firms are worried about doing business in Europe? They believe that barriers are being put up by people who know that we have the edge. That is especially true with medical insurance. Has the right hon. Gentleman received any representations from medical insurers?

Mr. Lilley : I have. I have visited Scotland twice in the past fortnight and that point was made on each occasion. The Scottish institutions are at the forefront of the industry, and if they have any specific evidence of obstacles being put in their way, I hope that they will bring it to the Government's attention. We will use it as further evidence of the need for progress.

Sir Anthony Grant (Cambridgeshire, South-West) : Is my right hon. Friend aware that the Germans are saying that they do not understand the concept of insurance broking, and therefore would have to pass special legislation before Germany could achieve the same standards as Britain? Does he agree that that is largely an excuse for delay? Will he do everything possible to ensure that the Germans do not use that bogus reason for delaying progress?

Mr. Lilley : It is true that insurance broking is not as developed in Germany as it is in this country, which is one reason why our insurance industry could benefit from the liberalisation of the Germany market. I agree that there should not be any artificial restrictions, and the absence of legislation should not be taken as an absence of permission to trade under Common Market rules. We would be hostile to any such legal interpretation.

For the Government, an important aspect of the debate will be the contributions from many hon. Members who have expertise and interest in this subject.

Progress with the single financial area is moving in the right direction, and we have avoided the dangers and pitfalls that might have presented themselves. We avoided also the over-rigorous harmonisation of sectors, which could have meant that idiosyncratic institutions and those perculiar to the United Kingdom--such as discount houses, gilt-edged market makers, and so on--would have suffered. We obtained proper permission to allow them to continue operating.

We also avoided the Fortress Europe approach and placing too much emphasis on reciprocity provisions with others outside Europe. We have ensured that the main emphasis is on mutual recognition of supervision by different member states, so that we are in the business of deregulating and of freeing up the market rather than otherwise.

Column 952

The greatest changes will be those that result from the psychological changes that the directives bring about. I mean by that a greater willingness by producers and consumers alike to think beyond their own national borders. It is very much up to our industry to take advantage now of the opportunities that have already been opened up, to prepare for those that have yet to present themselves, and to respond to the change in the psychological climate. It will be immensely to the advantage of the industry and to this country if that is done.

5 pm

Ms. Marjorie Mowlam (Redcar) : I welcome the new Secretary of State of Trade and Industry and congratulate him on his appointment. This week, we read in our newspapers that only 2 per cent. of the public knew who he was.

Mr. Lilley : That is a higher proportion than the percentage of the general public with whom I am familiar.

Ms. Mowlam : I am sure that that is so, but that is the Secretary of State's problem, not the public's. The right hon. Gentleman is the Secretary of State for Trade and Industry, and the public are not. If only 2 per cent. of the public know anything about the Secretary of State, one must hope that he will double that figure by the time of the next general election. If so, he will be progressing as fast as inflation under the present Government.

The Secretary of State's speech was marked by a great deal of complacency. He said that regulation is in place and working, but has he forgotten Barlow Clowes, House of Fraser, Dunsdale Securities, Blue Arrow, Polly Peck, Guinness, and British and Commonwealth? The right hon. Gentleman said also that he hoped that a "psychological change" would flow from the directives, and that the City would wake up to that change. However, as the many questions from all parts of the House show, the insurance industry does not need a psychological change. It is worried about the built-in structural differences that pose difficulties to British insurance companies. It does not need a psychological change, and for the right hon. Gentleman to suggest that one should be the main focus of the directives is very worrying.

Mr. Quentin Davies (Stamford and Spalding) : Does the hon. Lady appreciate that the Barlow Clowes scandal and the others to which she referred occurred under the previous regulatory regime, before the existing financial services structure was put in place and before the single market regime came into effect?

Ms. Mowlam : I am sure that the hon. Gentleman acknowledges that the same degree of complacency was evident before the new legislation's implementation in 1986. There is no substance to the point that he makes. The Blue Arrow case is to go before the courts this week, and in that instance the compliance officers were operating as a consequence of the Financial Services Act 1986. Other cases that have arisen since then include British and Commonwealth and Polly Peck. I accept that the Guinness and Barlow Clowes scandals, together with others, were perpetrated before that legislation, but of the six or seven instances that I cited, the majority have occurred since the Act was implemented.

Column 953

Mr. Campbell-Savours : Perhaps I may add to my hon. Friend's list the case that I raised before. I refer to the leaking of price-sensitive information relating to the cut in the base rate a week last Friday. It is known by City dealers that a firm named Barclays de Zoete Wedd and another named Salomon Brothers were both active in the market in the one and a half hours before the Chancellor's statement. People are asking questions about those companies' actions, and if only to clear their reputation, if that is possible, the Government should order an inquiry into how that price-sensitive information got into the hands of people in the City.

Is it true that a senior Minister had dinner the evening before with a director of a major City bank, when the imminent cut in the interest rate was discussed? I only want to know the truth. Did that happen, or did it not?

Mr. Ian Bruce (Dorset, South) : Answer.

Ms. Mowlam : I thank my hon. Friend for raising that point.

Mr. Bruce : Answer.

Ms. Mowlam : I will answer, if the hon. Gentleman will permit me. I am sure that the Secretary of State listened carefully to my hon. Friend's remarks, and I hope that he will fully cover them when he winds up the debate.

As the House knows, we welcome the move towards a single market. At the same time, we accept the widely held view that the pace of change will be slow as a result of the many aspects that the Secretary of State mentioned, including derogation, different regulatory systems, and cultural and linguistic barriers.

Mr. Batiste : The hon. Lady welcomes the creation of a single market, but does she accept that the introduction of credit restrictions in the United Kingdom would severely weaken our banks and financial institutions at the very time that they need to perform at their best? Will she completely dissociate the Labour party from the introduction of any system of credit control?

Ms. Mowlam : I am sure that the hon. Gentleman is aware that the proposals contained in our three-pronged approach to the country's economic problems are no different in respect of credit controls from those of the French and Germans, so clearly that will not be a problem in the single market.

It would be helpful if the Government would take into account and recognise the contribution by the City and the financial services sector to the British economy, and that it is in the interests of all British people that Government policies--including those of the next Labour Government--help to maintain the financial services industry's quality and vitality.

Contrary to the assertions by the Secretary of State last week, the Labour party is happy to be an ally of the City, provided that the City is happy to be an ally of the British people. The aims and values that the Labour party conference openly embraced state that we welcome the open market wherever its free operation achieves the end of providing real choice for the consumer. The difference between our attitude and that often displayed by the Government is that they and the Tory party have become hypnotised by their own obsessions with the single market and have forgotten its ultimate purpose. The open market

Column 954

has become for the Government an end in itself. For us, it is the means to an end. Only at the point at which the single market fails to deliver that end will we intervene.

That view does not detract from our concerns about the failure of long-term investment in British industry--but no doubt a debate on the implications of taking the short-term approach will take place on another occasion. From the principle that I have stated flow our two main objectives--to ensure a positive enabling approach to UK financial services in Europe, and to maintain a firm commitment to investor protection for consumers of financial services in the UK. From the negotiations leading to the big bang, to the introduction of the Financial Services Act 1986, one Minister after another has tried to convince the industry that the Government have been doing a good job. As has already been pointed out, the new Secretary of State for Trade and Industry is the ninth in as many years. I am sure that the new Secretary of State believes, like his predecessors, that he can do an even better job and that only a few changes are required to correct the minor errors that remain.

The reality is very different. Over the past year, I have spent a considerable amount of time listening to people in the financial community voicing their growing resentment of the failure of strategies executed or supported by the Department of Trade and Industry over the past 10 years. Examples include the selection of the wrong market maker system in SEAQ to the virtually complete re-writing of the FSA rules and structure, where the Government blundered along without direction.

The same is true of the Government's dealings in respect of Europe. Despite their recent trumpeting about co-ordinating international bodies, which the right hon. Gentleman repeated today, successive Ministers failed to rationalise the dissemination of information in the real business of enforcement. Ministers have gone to the United States and to Japan, and have returned only with agreements that had already been reached between the regulatory bodies of those countries and of this country.

How can the City have faith in a Government who pay minimal attention in the directive on undertakings for collective investment in transferable securities to the problems confronting our unit trust industry, which the Secretary of State failed to mention, because of the unfair advantage enjoyed by our competitors who have, as the Germans do, tied distribution channels, so making access for our industry more difficult and problematic?

Secondly, as the Minister mentioned, there are the difficulties in the insurance industry, which faces structural problems. Banks in Germany and France make it difficult for competitors to get into the market, as they are an addition, and it worries them greatly. Then there are the problems of greater vulnerability to takeovers in the industry when faced with French and German conglomerates. Thirdly, there is the question of the future for our intermediaries when they are faced with the high capital adequacy levels demanded in the capital adequacy directive that the Minister referred to. Labour wants the London market to remain the lead financial centre in Europe. It is quite clearly a national asset of considerable value.

Mr. Jeremy Hanley (Richmond and Barnes) : Will the hon. Lady give way?

Column 955

Ms. Mowlam : Yes, but it is the last time.

Mr. Hanley : I am grateful, and I declare any interest which might be published in The Observer colour magazine.

Will the hon. Lady make it absolutely clear whether her party's major policy is that of direct intervention by the state, or whether she will still uphold the Government's policy, which is basically self-regulation under supervision from the state?

Ms. Mowlam : I have answered that in principle, and I shall answer it in detail in a minute.

The London market is of essential importance to this country and we want it to continue. The difficulty--this was evident from the Secretary of State's remarks on the insurance industry--and what the Secretary of State does not seem to realise, is that, when other representatives in the EC talk about level playing fields, they send 12 players to the negotiations. The Government send our team without even a goalie. That is the sort of problem we face in negotiations in Europe. If the Government do not do what the French Government are doing for Paris and what the Germans are doing for Frankfurt, however hard the City competes for business in the single market its prospects will be scuppered.

Our greatest concern must be the Government's cavalier attitude towards consumers' interests. The Government were primarily motivated to promote wider share ownership as a cheap way of trying to popularise privatisations. Having created those investors for their own convenience, the Government must now have a responsibility for their interests.

What have the Government done to avoid the situation in which the number of brokers prepared to deal with private clients has plummeted? There has been no mention of that today. The minimum size of deals now accepted by some brokers is as high as £50,000 or £100, 000.

If the investment services directive, to which the Secretary of State referred, is accepted as it now stands, investors who put their money into other European firms may not be entitled to the same sort of protection for their money as investors in British firms. In the years ahead, we could well be hearing of another Barlow Clowes, and even if it was a Barlow Clowes with a French, Spanish or Italian accent, the outcome for British investors will be exactly the same. The major area where the Government have failed to protect the British people in the open market--it is amazing that the Minister got through his speech without even mentioning it in passing--is by ignoring the need for a consumers directive to be implemented at the same time as other directives in 1993. When I mention the interests of the British people, I mean the British people, not some small group of people dealing in an obscure market. I mean the 41 million people who have building society or bank accounts, the 24 million people with car insurance and the 18 million with life assurance. They need to know what rights and protections they have if they purchase services from other European countries. At present, the Government will fail to tell them.

Let us turn briefly to what the City is saying. Today, the Minister described why he thinks that the Government should be proud of their record on regulation and investor protection. The Government have introduced a cycle of regulation followed by deregulation. Let us look back to

Column 956

the curtailment of powers of business investors to take civil actions when firms breach self-regulatory organisations' rules, which was once described--the Secretary of State grins--as the cornerstone of the Financial Services Act 1986. That is one of the many U-turns which the Government have implemented and the industry has had to survive.

There is no doubt that a quality product, produced in this country, needs defending and that its standards need to be maintained. If self-regulation cannot enhance and maintain that quality, the Government should act as quality controller.

The structure of regulation of financial services in this country requires amendment. It seems that everyone except the Government agrees with that. On this side of the House, we are not interested in change for change's sake. Quite clearly, the present structure is young and needs a period of stability to bed down, but several major weaknesses have been exposed in the existing system which need changing, both in the duplication of regulatory agencies and in the detection of fraud. What the Government and the Secretary of State have failed to acknowledge today is that, unless these problems are dealt with, the integrity of the present regulatory regime will be undermined.

We are not arguing for more regulation : we want more effective and precise regulation. If one talks and listens to people in the City, one realises that that is the problem that they and the investors are facing.

Sir Robert McCrindle (Brentwood and Ongar) rose

Ms. Mowlam : I am sorry, but I have given way too often, and many hon. Members wish to speak.

Consumers are heavily dependent on other people's skill and integrity when buying a financial service. Therefore, it is as well, in some senses, that the Government are not offering financial services. Investors are bombarded by cross-selling between banks and building societies, and are exposed to the highly dubious practice of cold calling. We need to know what has happened to the attempt to agree even minimal harmonisation of regulatory rules across host nations so that consumer protection is maintained.

In its place, we have conduct of business rules, which, as the Secretary of State mentioned earlier, are designed to protect the consumer. The Secretary of State failed to tell the House that these rules can be challenged by non-British firms in the courts on the basis of whether or not they serve the "general good". If that happens and the case is taken to court, it could take a number of years. The person who suffers in the interim is the British investor. In the meantime, EC firms will come here and our firms will suffer for lack of a competitive advantage.

The Parliamentary Under-Secretary of State for Corporate Affairs (Mr. John Redwood) : Could the hon. Lady clarify for us which regulatory bodies the Opposition would abolish, and which ones they would set up and strengthen?

Ms. Mowlam : I was not referring specifically to financial bodies. I made two points very clearly. First, under the present system of regulation, there are a number of regulatory bodies, and they need streamlining--talk to anyone in the City and they will confirm that. As the Minister well knows, the Association of Futures Brokers

Column 957

and Dealers and the Securities Association are in negotiations, and other negotiations have been considered and will be considered, so streamlining is already under way.

Secondly, I referred to the regulation of serious fraud. About a dozen bodies deal with that. The Select Committee--not the report that we are discussing today, so this is not really relevant, but I shall answer the Minister's question--stated quite clearly that, in company investigations, a centralised computer-based system was needed. The Minister is so concerned about what we shall do with those regulatory bodies, but it will be equally interesting if he can answer whether that centralised database will be provided. The regulatory bodies need that degree of communication.

It would also help, if the right hon. Gentleman is interested in answering, if he told us how he advises Japanese and United States regulatory bodies when they come to this country. I have been to the States and talked to such bodies. With the present Government's regulatory structure, it is impossible for such bodies to know whether they should talk to the Serious Fraud Office, the Department of Trade and Industry, TSA or the Securities and Investments Board. Clearly, under our present system, that is a problem which we would address. It will be interesting to see if the Minister has any suggestions to make about what he would do.

Sir Robert McCrindle rose --

Ms. Mowlam : I am sorry, but I gave way to the Minister as a matter of courtesy and I shall not give way any more.

The point that I was making about business rules, which is central to consumers in this country, is that we have a set of rules that can be taken to the courts and as a result the protection that we consider essential for our consumers could be rejected on the grounds of general good. That is not just my worry. The British Bankers Association, which made a submission for this debate, is particularly worried about that point, not just for consumers, but for the competitive disadvantage to British industry.

The Minister knows, but failed to tell the House today, that in reality, without a consumers' directive but with the list of directives that he gave us, we shall get a harmonising down in consumer protection to the lowest common denominator of the European countries. When the Labour party comes to power, it will fight hard for a consumers directive. In the interim, the least that the Government can do is ensure that clients' assets are not available to the liquidator in the event of an investment firm becoming insolvent. Clearly that is not a problem here, but because of some structural conditions in other countries, it will present difficulties in harmonisation.

The Government should further ensure that all EC firms must disclose the nature of their compensation scheme by telling investors at the point of sale exactly what scheme applies, so what compensation they are entitled to. The minimum that the Government should achieve is that compensation schemes throughout Europe meet strict criteria, such as the index-linking of any limits on compensation and cheap, easy access to such claims.

The problems of cross-frontier dealing create considerable difficulties for British consumers. In 1987, there was a

Column 958

case before the European Court of a British person living in Spain dealing with a Swiss insurance company about a problem with his car in Italy. It was not clear under which country's law that particular consumer should make his complaint. Such a problem is a legal nightmare for the individual. It is enough to make any British consumer break out in a cold sweat. They now face the prospect of recurrent cosmopolitan nightmares under the present regulations without that directive.

Consumers will not be alone in suffering from sleepless nights if the future of London as the lead financial centre is called into question. The House is well aware of the City's present clear advantages : in-depth experience, a range of specialist markets and greater liquidity than elsewhere. They need to be supplemented with Government assistance and encouragement not only to improve infrastructure and to supply trained and qualified staff, but to integrate technological infrastructures and to extend communications, such as the countrywide broad-band network.

Without those changes, the City will struggle to keep its competitive edge. The Labour party is pledged to give that support. The disengagement of Department of Trade and Industry Ministers is pervasive, yet the task is so central that it is left to the chair of TSA, Stanislov Yassukovich, to suggest that City of London corporation should set up a research unit to fund the problems of infrastructure in the City of London. If the Department of enterprise illustrated half the enterprise that it expects of others and dealt with that problem, the City would not face its present difficulties. The Government in their response not just to Europe but to the City may go down in history as so complacent--perfectly illustrated by the Secretary of State's speech today--that the map of the square mile must undergo a humiliating boundary review as we reach the next century.

5.23 pm

Mr. Kenneth Warren (Hastings and Rye) : I congratulate my right hon. Friend the Secretary of State on his first speech in his new post from the Dispatch Box. Whatever the stupidity of the 2 per cent., he is admired by 100 per cent. of Conservative Members, who believe that he is the man for the job.

I declare a formal interest in the debate. I doubt whether any hon. Member with outside interests is not affected by the developments as we move increasingly fast towards 1992. I hope that the business managers on both sides will note my regret that Back-Bench Members are to be given only 70 or 80 minutes to debate this important subject. The benefit of that to those present is that my speech will be severely truncated. It is important that more time should be given to these important issues.

I am not so much concerned that it has taken 16 months for this matter to come to the Floor of the House. When a Select Committee report is published, it is good to give the House and those outside who are interested in it time to review what is going on. It may be uncharacteristic for a Select Committee member to do so, but I thank the Department of Trade and Industry for the efficiency with which it has made available in time for this debate several papers which we requested. We trust that that is a foretaste of how it will assist us in future. Today's papers state that the Confederation of British Industry will investigate the

Next Section

Home Page