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'(2C) Before exercising the powers contained in subsection (2A), the Authority shall consult those persons likely to be affected by the imposition of fees, and shall publish any representations it receives on that subject".'.

No. 23, in page 11, line 13, at end insert--

'(2D) The power to charge fees under this section shall be exercised so as to ensure that the costs of regulation under this Act are proportionate to the benefits.'.

No. 5, in page 11, line 27, at end insert--

'(3C) Before exercising the powers contained in subsection (3A), the Authority shall consult those persons likely to be affected by the imposition of fees, and shall publish any representations it receives on that subject".'.

No. 24, in page 11, line 27, at end insert--

'(3D) The power to charge fees under this section shall be exercised so as to ensure that the costs of regulation under this Act are proportionate to the benefits.'.

No. 6, in clause 40, page 16, line 5, at end insert--

'(2A) Regulations under paragraph 1 of Schedule 6 shall not be made unless a draft thereof has been laid before and approved by the House of Commons.'.

No. 8, in schedule 6, page 38, line 37, at end insert--

'(3A) A condition of the imposition of fees under this paragraph is that in any year following 1998 they should not, taken together with the implied value of the cash ratio deposits for the time being required to be maintained under section 6, exceed the total amount of such fees payable in 1998, adjusted for retail price inflation, unless both Houses of Parliament, by resolution, have given their approval for that amount to be exceeded.'.

No. 35, in page 38, line 37, at end insert--

'(3A) The power to charge fees under this schedule shall be exercised so as to ensure that the costs of regulation under this Act are proportionate to the benefits.'.

No. 9, in page 38, line 41, at end insert--

'(aa) provide for the reduction of fees in cases where the expenses of the Authority incurred in carrying out the transferred functions are minimised by the record of the authorised institution.'.

No. 10, in page 39, line 17, leave out 'instrument in writing' and insert 'statutory instrument'.

Mr. Fallon: I acknowledge that this large group of amendments covers a subject that was raised at some length in Committee, but we make no apology for

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returning to it. There is widespread concern about the costs of supervision involved in the transfer of responsibility.

It is to the Government's credit that they have recognised that concern right from the start. Ministers have used phrases such as "bearing down on costs", and suggested that costs should be no greater under the new arrangements than under the existing arrangements. We need to find a way of translating those good wishes into the statute to ensure that a duty is imposed that will bring about the desired results.

If Ministers are sincere in wanting to bear down on costs, as I believe they are, they cannot possibly have any objection to amendment No. 15, which is one of the range of amendments that we suggest. It would simply cap costs at their existing level, adjusted for inflation as the years unfold. I cannot see how Ministers could resist that amendment.

Amendments Nos. 23, 24 and 35 would ensure that the concept of proportionality, which was also proclaimed by Ministers in Committee, and by the Economic Secretary in her speech outside the House last week, can be placed in the statute.

I understand why the earlier amendment on proportionality suggested by my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) in Committee was felt to be incomplete, in that it was rather too narrowly drawn and covered only a certain sector. The new amendments on proportionality go much wider, and I therefore hope that they will be more acceptable to the Government.

I hope that there is no hang-up about the concept of proportionality. It is there in Ministers' speeches and is recognised in the consultation documents by the Financial Services Authority. I therefore hope to see a favourable reaction by the Economic Secretary.

Amendments Nos. 4 and 5 try to extend the consultation already provided for under schedule 6 to the fee-charging powers of section 43 of the Financial Services Act 1986 and section 171 of the Companies Act 1989. The reason is simple: if we do not amend the Bill in that way, we will have differing degrees of consultation under different statutes, and that is undesirable in principle. I would in any case want to see an improvement in the consultation, and the same should apply to all fees imposed under the provision.

Amendment No. 6 can be considered with amendment No. 10. It raises an important point which I believe was not considered in Committee, which may represent an inadvertent lapse in the drafting of the Bill. Unlike many of the other instruments that set the new fees structure, the instrument under schedule 6 is not subject to parliamentary scrutiny.

That is wrong. The supervision fees represent substantial sums, and it is wrong to give the Financial Services Authority virtual freedom to raise taxation. If the Bank's regime for cash ratio deposits will be subject to affirmative resolution under schedule 2, the authority's regime should also be subject to proper parliamentary scrutiny. I should be most surprised if that amendment were thought unacceptable.

Finally, amendment No. 9 introduces a new concept in that it provides for remission or reduction of fees for good compliance. In other words, it would ensure that

22 Jan 1998 : Column 1224

well-established institutions with good track records of compliance that had not troubled the authorities would have their fees progressively reduced--or at least the authority should have the power to reduce their fees. That is because the costs of supervising them will be lower. It is not only sensible in itself but builds into the new system a strong incentive for better compliance as the system beds down.

I fully accept that the amendment may not be as perfectly drafted as parliamentary counsel would wish, but I hope that the Economic Secretary will at least react positively to the idea, even if she does not like the amendment.

I notice that paragraph 18 of the Financial Services Authority's consultation document says:

We should take the hint and build into the fee-charging mechanism some incentive for banks to ensure that the costs of supervising them are kept as low as possible.

Mr. St. Aubyn: I believe that I can tell the House what happened when the third chapter of the Bill was first announced. I have it on the reliable authority of a book called "Blair's Hundred Days"--the inside story of that period. According to that book the Governor of the Bank of England, who is referred to as "George"

The purpose of the amendments is to ensure that the Government, having shown their capacity for grand larceny, do not proceed to go on robbing banks in London in broad daylight. They have only themselves to blame for the fact that we feel it necessary to table the amendments.

If the entire concept in part III of the Bill had been thrown open to the type of consultation that would have been appropriate--at the very least, some sort of consultation with the Governor of the Bank of England--perhaps by this stage we would have had more confidence in the protestations, promises and general charm offensive that we experienced from the Economic Secretary in Committee and from her colleagues.

I agree that we are disappointed not to have the Paymaster General by the hon. Lady's side. There was nothing more charming than watching them working in harness on the Bill. We raised some important questions about part III with the Paymaster General in Committee and hoped that by now he would be in a position to answer them, particularly those relating to the activities of banks in offshore tax havens and how they might impact on banks in London. Who knows, he may pop up unexpectedly--as he did in Committee--before the Report stage is over and provide us with some illumination.

The point about cost is that we are not sure that the Government and the Bill demonstrate an understanding of what has driven the extraordinary success of the financial market in London. Underpinning that success was the good judgment of the Bank of England in administering a light touch to the wholesale market that is based in this city. It is fair to say that there were some failures of the banking system--there are always failures. If one tries to devise a system in which no failures can take place, one removes the principle of moral jeopardy and, as a result, people are simply tempted to chase the highest rates of

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interest from the most dubious, highest-risk-taking financial institutions, with the result that the entire system comes under threat.

The risk of failure always has to be there and, as we all know, there have been at least three major failures in the past 18 years. I suggest to the House that each of those teaches us a lesson about the three guiding principles for the supervision of banks under part III. Our amendments would enable the new head of super-SIB to focus on those guiding principles, while reassuring banks in London that he would do so in a way that would not impose unnecessary and unreasonable costs on their operations.

The first major failure in London in the 1980s was that of Johnson Matthey. That experience taught the Bank of England that the old way of doing things had to change. Indeed, the Government responded with the Banking Act 1987, as well as changes in the regulation of financial services in London. We needed to create a new legal framework for banks operating in this financial centre, which is what the previous Government did.

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