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Mr. Loughton: Not only will great resentment be created if those Scottish legal and financial practices have to send large amounts of money south to London to pay their membership fees, but the fixed membership fees and charges that my right hon. Friend mentioned will hit smaller firms disproportionately. That can give only two results: either the costs will be passed on disproportionately to the consumer, or many of those businesses will withdraw from the market altogether and there will be less competition and less choice for the consumer.

Mr. Heathcoat-Amory: My hon. Friend is right. Just as all taxes are eventually paid by individuals, so too charges and fees are eventually borne by the saving public. An escalation in fees will deter the very savings habit that we all want to encourage.

I have said enough to show that we shall not oppose the Bill's Second Reading. We have several deep-rooted worries about it, and our suggestions for its improvement will be tabled as amendments. In respect of timing, we shall not unnecessarily delay the Bill, if it is true that the Government have accepted the recommendations of the Joint Committee and have implemented all of them in the Bill. If that has been done, as we have been assured, there is a good case for the Bill to go to Committee in short order and to be carried over into the next Session of Parliament without having to start the process all over again in November. The Bill has already been delayed enough, and there is considerable uncertainty in the marketplace. We certainly want to improve the Bill, but we shall not impede it.

In conclusion, it is in the interest of all hon. Members that there is a regulatory system that serves the market and all who buy and sell in it. Let the House, and the Government, reach out for a regulatory system that will

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be the asset to the United Kingdom that I have already urged. The system should be the scourge of wrongdoers, but, at the same time, a model of how to balance effectiveness with fairness. If that is the Government's aim, the Bill certainly has our support.

5.29 pm

Mr. Barry Sheerman (Huddersfield): Since the general election, the Labour Government have introduced a large number of constitutional reforms. Some would say that, through the Select Committee on Modernisation of the House of Commons, one of the most revolutionary changes has been the innovation in which many of those present in the Chamber this afternoon have participated: the pre-legislative inquiry, especially one of both Houses of Parliament. I had the privilege to be the deputy Chairman of the inquiry into the Bill before us. A Member of Parliament is asked to do all sorts of things, some dull and boring, others exciting and challenging. Participation in the pre-legislative inquiry fell into the exciting and challenging category.

We should not underestimate the revolutionary nature of such an inquiry, for in many ways it upsets our traditional methods. Some of us are sick to death of the yah-boo element in the House of Commons--one builds up a certain distaste for it after a while, even while continuing to participate when necessary--but the inquiry offers a process whereby at least two cultures are blended. Working with Members of the upper House was an education, because their approach to Committee work differs from ours: they were surprised by our approach, and we learned a great deal from theirs.

The experience was a valuable one. If I want to stay on-message, I should not say this, but it should be acknowledged that some of the hereditary peers gave the Committee excellent quality advice that I would not have wanted to be without. I am sure that, in due course, we shall find new sources of high-quality information. However, for the sake of honesty about the quality of the debate, it has to be said that knowledge in the upper House of how this country's financial institutions work is of greater quality than that of the lower House. That is due to the breadth of experience available in the upper House, especially on the academic side, such as that of Lord Eatwell, Lord Poole and others.

We had an interesting time. The mix of the two cultures was productive and we gradually learned to work together in a positive manner--even more positive than I have experienced on Select Committees in the past. There was a task in hand that we had to achieve in a relatively short time: we were given two months, extended by an extra month to examine the Bill's compliance with the European convention on human rights. Politicians will go on as long as they are allowed to, so even if we had been given six months, we would have said that there was not enough time. However, the discipline of having two months plus one struck me as sufficient to enable the job to be done.

There is one caveat, which was strongly expressed by Lord Burns, whose chairmanship I greatly valued. I do not know whether he was gamekeeper turned poacher, or poacher turned gamekeeper, but it was interesting to see him struggle with the change between the two roles, which at times had to happen quite quickly. I am sure that some of the parliamentarians taught him a little in that

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respect, although he taught us a great deal in terms of technique and tactics. Our approach to the task was constructive: we had an end in view and a timetable to keep, and we got on with the task.

Those of us who had spent more time dealing with industrial concerns than with the City became far more aware of the importance of the Bill. Not one of us failed to learn something of great value about the contribution that the financial services sector makes to the life of this country. That sector contributes at least 6.4 per cent.--and probably more than 7 per cent.--to national income in terms of gross domestic product. It employs 1.17 million workers, although that is probably an understatement. If we compare that with the 21.5 per cent. of gross domestic product that flows from manufacturing industry--I must always make that point--which employs 5 million people, we can see how important the City and the financial institutions and services are to this country.

The challenge is to ensure that we introduce regulation that delivers the right environment that allows the industry to grow. It is a fascinating industry because it will grow only with good regulation. It will not grow without regulation because that is an essential quality of the United Kingdom, and of London in particular. One does not always win arguments about what language should be in a Bill, so one derives quiet satisfaction when an amendment that one really wants is accepted. I was most grateful when my fellow Committee members said that an environment of integrity is important to the workings of the City of London. That reputation for good regulation, honesty and integrity on the part of all who work in the City makes all the difference.

Things will go wrong in any complex area of our economy. Pensions mis-selling is one shadow of the past, and some of us remember well what the Maxwell experience did to the City. Morgan Grenfell was another unfortunate experience, as was the Bank of Credit and Commerce International. Any large sector must learn from five or six such episodes. In some ways, the regulatory system that we are introducing in this Second Reading has benefited from the failures of the past. The incoming Government knew--and the seeds were sown with the previous Administration--that there had to be a dramatic change in the quality of regulation. Achieving a market of integrity was a prime concern.

This is a particularly unique sector. An Opposition Member who knows a hell of a lot about information technology and electronic communications--and who is not in his place at present--pointed out that we are introducing a regulatory regime at a time when the industry has never moved so quickly. There is an accelerating pattern of change in all our lives--and it is particularly fast in the financial services area. It is a global market. Instant transactions can be made electronically, which means that London and Britain--this country benefits from our use of the English language and our financial expertise--has a wonderful opportunity. We must make every effort to ensure that this fine industry grows and expands.

At the same time, we must be aware that regulations that are set in concrete will not measure up. A financial services authority must have the flexibility to move quickly and to change in order to respond to enterprise. This is a very enterprising sector--but those who would

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make mischief are also enterprising. If a regulator cannot move quickly, the mischief makers will not be caught. We must strike that fine balance between the needs of an expanding industry and the need for flexible, quality regulation.

Before I refer to the nature of this Bill, I point out that we must get it right. I have been in the House long enough to have seen an awful lot of bad legislation passed. I acted as a shadow spokesman on home affairs in the proceedings on several large criminal justice Bills. They were awful, and the Administration had, with a red face, to abandon large sections of many of them. I do not want to mention particular instances--some were mentioned in the Special Standing Committee. On two or three occasions, I was the Opposition spokesman on prevention of terrorism Acts. That legislation was originally introduced in haste by a Labour Government, and experience demonstrates that much of it was wrong.

Much ordinary legislation is, despite every effort, poorly conceived, thought through and delivered. The process undergone by this Bill is a great contrast. The draft Bill was introduced in July 1998; the period of consultation on the Bill was extended and, as the Chief Secretary said, there were 240 responses. The Select Committee on the Treasury held a short inquiry, followed by a Government response to the consultation process and the establishment of the Joint Committee.

Hon. Members should not forget that the House of Lords Delegated Powers and Deregulation Committee had a valuable input into our report and expressed wise opinions. The Joint Committee report was published two months later and the Government then responded to it. They asked us to extend the Joint Committee's work to assess the Bill's implications for the European convention on human rights. The Government then responded to that assessment. All that happened before Second Reading.

This is complex legislation and we want to get it right, and I cannot think of anything more that could have been done to achieve that. The Bill has been through an excellent process, and I hope that the Government and all successive Governments will learn that it is a model for a better way to deal with complex legislation. This Second Reading is, therefore, a milestone, and I hope that it will be a beacon--if I may mention beacons--in legislative performance. I hope that many other Bills undergo such scrutiny to the same effect.

I do not want to go back over ground that was properly covered in the opening remarks of Members on both Front Benches. We all know that the Joint Committee decided to specialise--we considered particular accountability and statutory objectives and principles. We had amusing and interesting debates about what is an objective and what is a principle, which is more important and whether they should be listed in alphabetical order or prioritised. We think that we got it right in the end.

The Joint Committee also did a great deal of work on discipline, enforcement and the tribunal. We concentrated on six areas. I fear that the only people who will read our reports will be those writing PhD theses about 20 years from now, but they will find that we made a substantial difference.

Working parliamentarians understand the issues arising from legislation because they immerse themselves in them. I am concerned, however, because I read in the so-called serious press comments about our work which

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were totally inaccurate and often superficial. One newspaper attributed to the right hon. Member for Wells (Mr. Heathcoat-Amory), who opened the debate for the Opposition, remarks that he did not make in the Joint Committee. The Daily Telegraph inaccurately reported the remarks of the Chairman of the Joint Committee, which he then had to correct in a letter to that paper. The tone of commentary, particularly in The Daily Telegraph, was superficial. The City editor and his journalists could not have run their stories had they read the material and acted professionally. That is not a total condemnation of the media; one or two people read the stuff and wrote reports on the basis of what was said in Committee rather than what was suggested.

A report in The Times said that our Committee's two main recommendations--after all the time taken--were to split the job of chairman of the Financial Services Authority from that of chief executive and to bring mortgages into the proposals. The inference was that, since the Committee failed on those two matters, it had wasted its time. Nothing could be further from the truth. If one reads the recommendations, one finds that the Government have responded to the majority of them--the serious stuff--and changed the Bill in the right direction, which all members of the Committee appreciated.

I say in passing that, as I sat through discussions on the posts of chairman and chief executive, I did not regard the issue as a priority. It is an issue that perhaps would be nice to consider following the retirement or moving on of Howard Davies; it was not seen as one of the matters on which we would go to the wall.

The Government have responded very positively on mortgages by including in the Bill the possibility of addressing the issue later. We will not have to return to primary legislation. Given a fair view, the issue may be revisited if the structure and code do not work. So, let us sometimes say what really happened in a Committee and not what some journalists imagine happened.

A long time ago, I used to be a member of the Public Accounts Committee, before which civil servants were hauled and intensely questioned. Committee members would try to wrong-foot them and embarrass them. Another revolutionary aspect to this Committee's approach was that we did not play such games. We ran the Committee like a seminar. Given that, when I worked for a living, I was a university academic, people may say that that was a result of my malign influence, but that was not so. The Committee decided that proceedings would be run like a seminar and that six--or even eight--people would join us to give evidence and participate.

Without looking around the Chamber at places to which I should not even allude, rather unusually, six or eight senior people from the City, the regulatory world, the ombudsman's office and elsewhere contributed to a positive discussion, and intervened on each other. Indeed, even the person in charge of the Bill from the Treasury and those from the FSA intervened in the discussion. What a different, innovative way in which to approach the legislative process. It was excellent, and achieved results.

There was a quiet satisfaction when we saw that the Bill, especially as amended, met with increasingly wide acceptance. Of course there was some variance on some parts; everybody wants a little more than he is going to get. Indeed, I received a very nice letter from the Consumers Association only on Friday, suggesting other

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changes. It will of course have an opportunity to continue lobbying when the Bill is in Committee. It is amazing to think that we are only about to begin that process. Although there is still an opportunity for change, there is a fair degree of acceptance that this important Bill goes in more or less the right direction. We should be reasonably content with that.

Of all those who gave evidence, no one objected to or found a problem with the notion of a single regulator. No one wanted to defend the old method of self-regulation, because it was not really self-regulation but what was described as "a self-regulatory process". The broad view was that we wanted to move to a fully statutory system.

Very strong voices also argued that we should include practitioners and consumers, to give them a real hold on the Bill and the FSA. I believe that, as a result of all our recommendations and everything that happened during our investigations, the role of the consumer and the practitioner were enhanced. I believe that practitioners and consumers went away fairly content with the changes that they had managed to persuade us--and that we had managed to persuade the Government--were along the right lines.

To conclude, I admit that one journalist got it right on 30 April, after we had completed our investigation and publicly launched our report. The leader in The Independent that day said that we had improved an entirely practical and relatively enlightened piece of legislation and helped to turn it into a practical and workmanlike piece of legislation. I believe that we have helped the Bill to be the Bill that it should have been--the Bill that it wanted to be--although the legislative process was difficult. I do not believe that we have created a bureaucratic monster, but I take what the right hon. Member for Wells said about watching the FSA grow and seeing how things work.

The test of any regulatory body is how it carries out its task from day to day. In this instance we have had a great deal of experience, because the FSA, under Howard Davies, has been operated under the previous legislation, albeit in a rather contrived way. At least we have something on which to make a judgment. I believe that many of us feel reasonably content about those early months of practice.

I think back to the experience under the previous Administration of setting up the Environment Agency. I applaud many of the things that have happened in the overarching Environment Agency, but real problems with the agency have not yet been sorted. I am sure that we shall not have a similar experience with the FSA.

The Bill has the makings of good legislation. It is a vital piece of legislation, so I was delighted to hear the right hon. Member for Wells say that, provided certain standards and criteria were met, the Conservatives would accept its carry-over to the next Session. The new FSA must be in place if we are to face the next century with a regulatory system that will allow this important industry to grow.

The focus on one ombudsperson is also important. Many of our constituents are very confused about what happens when they want to complain about their pension or insurance policy--or perhaps, some day, their mortgage. We have all met people in our advice surgeries who have been the casualty of poor financial advice that they were given more than 30, or even 40 years ago.

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People visit me and say, "Mr. Sheerman, I worked for a certain well-known company in the town"--perhaps an engineering company--"and I thought that I was in a good pension scheme, but the only thing that that pension delivered was the difference between getting any state benefits and being in the poverty trap." Over the years, many people have not been given enough good-quality information on which to take the important life decisions that affect every aspect of life--on pensions, mortgages and long-term care. I believe that the regulatory system that the Bill will erect will be flexible enough to ensure that such good-quality information is provided.

I especially like that part of the Bill which ensures that the FSA gets out there and helps to educate the British people. I sometimes say, having something of an environmental interest, that we conduct lifecycle analysis for products, but it is time that we conducted lifecycle analysis for human beings, because the decisions that people take early in life can change--and sometimes warp--their opportunities for the rest of their life. Financial services are especially important in that regard. Anyone who makes the wrong choices early on, as a result of being given bad guidance and advice, gets a pretty rough deal later on, in terms of a happy retirement and much else. We did not spend a great deal of time on that part of the Bill which relates to the provision of financial information, but I feel passionately that it is very important.

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