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Mr. Flight: Even the Government must have perceived some of the fundamental truth in the comments of my right hon. Friend the Member for West Worcestershire (Sir M. Spicer). I recollect a conference organised just before Christmas by the Treasury to focus on the arguments about the regulation of mortgages, where it was duly noted that the large players in the industry were asking to be regulated. An ironic comment was made by a certain senior Treasury official.

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The large players welcome regulation. It raises the threshold of entry enormously. The innate tendency on regulation is towards consolidation and cartels. This point has been grasped very powerfully by Don Cruickshank, which is why he, like us, has called for the competition theme to be included in the key territory of objectives.

Let me get rid of one Government argument in the other direction, which is invalid. It is nothing to do with the concept of the FSA's being a regulator of competition. It has to do with the simple proposition that the objective of the rules and conduct of the FSA, and the way in which it handles them, should be to avoid doing things which damage either domestic competition or the UK's international competitiveness.

5.15 pm

The Government seek to buy off Don Cruickshank by means of what strikes me as an over-complicated mechanism, proposed in new clauses 27, 28, 29 and 32. The first reference to the proposals was made by the Chancellor of the Exchequer in his green Budget statement. This is yet another example of spin that turns out to be different from the reality. The Chancellor suggested then that the Competition Commission would be established as an independent body to direct the FSA to change rules that were damaging to competition, adding the footnote that the Treasury would have a reserve power.

The Bill, however, makes it clear that the commission will be piggy-in-the-middle between the Office of Fair Trading and the Treasury, and that only the Treasury is empowered to tell the FSA to change rules. Moreover, that power is hedged around. If the Treasury considers that there is a case for retaining a rule that protects consumers in regulatory terms, it will opt for retaining it even if it is uncompetitive.

That brings us full circle. Unless one of the FSA's key instructions from the public via Parliament is that it must do its best not to produce anti-competitive rules and regulations, it will tend to do anti-competitive things. It is ludicrous to set up all this complicated machinery involving the OFT, the commission and the Treasury without giving the FSA the right brief in the first place. While I hope that the machinery will lead to some useful analysis, it will undermine itself unless the FSA is given the right brief. Amendments Nos. 192 and 30 deal with that.

We will not press amendment No. 30, which I confess was tabled in the fear that amendment No. 192 might not be accepted. Amendment No. 192 makes our point. It deals with both domestic competition and international competitiveness, an issue that the OFT/Competition Commission machinery ignores. The United Kingdom's financial services industry has become our biggest employer, biggest exporter and biggest contributor to gross national product.

Sir Nicholas Lyell: When my hon. Friend said that the proposals for the Competition Commission ignored the issue of international competitiveness, the Minister shook her head, suggesting that he was wrong. I believe that he is right. Perhaps he will elaborate.

Mr. Flight: I thank my right hon. and learned Friend. I was about to elaborate.

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The Government seem not to have made provision for what the Opposition want: the establishment of a unit in the OFT to monitor the international competitiveness of British regulations as against those of the United States, France or Switzerland, particularly for international business. Nor have they provided for either the commission, as originally suggested, or the Treasury, to be directed to change rules if they are found to be severely damaging our international competitiveness. I at any rate can find no such provision. I recollect a reference to the Competition Commission having to be aware of international competitiveness, but cannot remember where I saw it.

The huge recovery in Britain's international financial services industry in the past 30 years has rested on extremely competitive tax arrangements, technical ability and software administration. Those are all delicate matters. That is why the Chancellor of the Exchequer has fought so strongly to keep us out of the net of the European withholding tax. That is why the Government will have to change stamp duty arrangements--business will leak away elsewhere if we have an expensive stamp duty.

If our regulation is unclear or too expensive, or if it does not provide clear, safe harbours within its rules, a lot of international business will go to, or go back to, New York and other financial centres. How our regulatory regime compares with others is immensely important to employment and the prosperity of the industry. As Howard Davies has so often said, good regulation is an asset; bad or unclear regulation a liability.

If there is a serious desire to control the inevitable tendency of regulation to lead to a lack of competitiveness and to create cartels and consolidation, the regulator must have an upfront brief as an objective not to do that, which will be as important as his other objectives. We welcome the proposed monitoring, and will see how it goes, but to have such an expensive and complicated mechanism simply to monitor domestic competition and not international competitiveness is to miss out half the key point.

Mr. Cousins: I am following the hon. Gentleman's argument and am studying the proposals in amendment No. 49 extremely closely. If the amendment were accepted, would it encourage the Financial Services Authority or the relevant competition authorities to regulate such matters as, for example, the introduction of charges by bank cartels for access to their cashpoint machines, or would it deter them?

Mr. Flight: I was actually talking about amendment No. 192, the key amendment, which would add competition and competitiveness to the list of objectives. Amendment No. 49, which the Minister has referred to as our "seek to" amendment, is designed to beef up the second part of clause 2, which deals with principles. The phrase "have regard to" in the clause as drafted is extremely woolly. Indeed, although the FSA repeats that phrase in its literature and brochures, it has made it very clear that it views the objectives as far weightier than the so-called principles.

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Secondly, I think that the part of the amendment to which the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) may have referred is that which calls upon the regulator not to interfere unduly and unnecessarily in the internal management of businesses. However, it all depends on the justification. If a bank cartel charges in a cartelised fashion, the regulator has every justification for interfering.

Mr. Cousins: May I draw the hon. Gentleman's attention to paragraph (b) in amendment No. 49? Does he understand that as inhibiting the capacity of a regulator or a competition authority to deal with such matters as charging for access to cashpoint machines? The provision would seem to have that effect.

Mr. Flight: The hon. Gentleman is referring to the provision that I mentioned. The amendment calls on the authority not to interfere unnecessarily in the management of the commercial affairs of the businesses or persons whom it is regulating. The provision is clear; in no way would it fetter the activity of the regulator, where the regulator perceives the operation of cartelised pricing practices. Indeed, as I have pointed out, the real problem is that regulation encourages such cartelised practices.

The purpose of the amendment is clear. If the FSA was carrying out its regulatory duty, and if it were set to do its competition duty, it would get on with it. If the authority extended its activities beyond that, as is the tendency of bureaucracies, it would be restrained. Under the provision, competition is required to be an objective; in many cases, the right action of the FSA depends on competition being an objective.

Sir Michael Spicer: The hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) wants to intervene, to stop people doing things and to run things by bureaucracy, whereas my hon. Friend is making a brilliant case that it all depends on whether the practice is anti-competitive. If there is a purely commercial judgment, in which transparency comes into charging, that is good, if it would improve competition. My hon. Friend is correct to draw that distinction. Labour Members do not want to make that distinction; they want to interfere come what may.

Mr. Flight: The point is clear.

Mr. Cousins: Will the hon. Gentleman respond to the point made by his hon. Friend the Member for West Worcestershire (Sir M. Spicer)? Is it the policy of the official Opposition that charges should be introduced for access to cashpoint machines, in the interests of transparency of costing?

Mr. Flight: The hon. Gentleman seems to be intervening in a most incoherent fashion. I have made it clear that the policy of the Opposition is, first, in favour of competition, which represents an important protection for consumers. Secondly, in attempting to get the measure right, there is a risk that regulation will damage competition, in exactly the ways to which the hon. Gentleman referred--thus the need for competition as an

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objective. Thirdly, as the measure is about checks and balances, it is unreasonable for the regulator to have powers to ferret into businesses, other than where justified under its objectives. If part of its objective is that it is supportive of competition, it would be empowered in the whole matter of banking cartels. The hon. Gentleman may be surprised to learn that the person whom the Government have appointed to examine banking competition, Don Cruickshank, entirely agrees with our views. The compromise is insufficient to achieve his objective of the more competitive banking system that we and the hon. Gentleman want.

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