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5.30 pm

Mr. Beard: Such arguments have been rehearsed before. On each occasion, the case made against including competitiveness as an objective of the Bill is that under the Competition Act 1998 there exists the Competition Commission. To give authority for regulating competition to the FSA in respect of financial matters would mean two organisations regulating one sector of the economy, which could lead to nothing but muddle.

The second argument reflects the importance of competition, which is acknowledged by hon. Members of all parties. It is far more powerful to have a separate watchdog over the FSA's activities that takes steps to regulate competition when a breach occurs than to incorporate safeguards in the organisation that we want to avoid breaching competition.

Those arguments have never been answered by the Opposition in their continual efforts to promote the idea that competitiveness is neglected.

Mr. Flight: The hon. Member could not have been listening. We are not calling for the FSA to regulate competition. We argue that in its rule making, a key objective should be not to regulate in a way that damages competition or international competitiveness but in a way that increases competition. That has nothing to do with the role of a competition regulator. We entirely agree that the Office of Fair Trading and the Competition Commission should cover that territory.

It would be extraordinary to incur the expense and burden of the OFT and commission in monitoring to ensure that the FSA is not making rules damaging to competition if it is not a priority instruction to the FSA to avoid so doing. That is just making jobs for people by having the FSA wrongly briefed. That is a clear answer to the bogus argument about making the FSA a competition regulator.

We are reasonably happy with the machinery, although we question what the Competition Commission adds. We imagine that OFT investigations will be at a more general level and the commission will undertake something more in-depth before passing a recommendation to the Treasury. That would put in another process which might not be entirely necessary; but reviewing competition to secure against anti-competitiveness is a good and sensible objective. We believe that there should be a parallel requirement in respect of international competitiveness. To complete the logic of the scheme, it needs to be made clear to the FSA that its regulation is to be competition friendly rather than unfriendly and competitiveness friendly rather than unfriendly.

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Sir Nicholas Lyell: This is the most important debate on Report and we are focusing on the most important subject that is at all controversial. I say, I hope with reasonable humility, that there is serious misunderstanding in this Chamber and the Government of the distinctions between competition and international competitiveness. The roles that the Competition Commission and the Director-General of Fair Trading are being given by the Government--which we welcome--have nothing to do with international competitiveness. I should be grateful if the Economic Secretary would nod to show that she recognises that, and to show that she recognises that they are concerned with the avoidance of distortion of or interference with competition in the UK market. That is their function under the Competition Act 1998.

Those bodies have two main functions--the avoidance of cartels and anti-competitive agreements, and the avoidance of businesses being able to exploit dominant positions. It is desirable that nothing in the regulatory system that the Bill proposes should distort competition within the UK. That much is desirable, and I support the Government's new clauses on that matter.

That is not the issue between the Government and the Opposition.The issue is the promotion of the UK market and its international competitiveness with the United States, Japan, France and Germany. It is important to decide whether, as we say in amendment No. 192,

should be made an objective in the Bill. We say that it should, as that is fundamental to the success of the City of London and of the financial services industry that the FSA will regulate. That will be to the benefit of consumers here and worldwide.

If we have a healthy, vigorous and competitive market, consumers in this country are likely to get better value. I should have thought that, with new Labour, there could be agreement that vigorous competition is, in the end, the best regulator. It should not be the only regulator--we are not arguing for that. However, it is the best of all, and I am pleased to see that the Economic Secretary and the Financial Secretary agree with that sentiment. What follows from that common recognition is that that matter should be an objective under the Bill. We should not deceive ourselves.

Miss Melanie Johnson indicated dissent.

Sir Nicholas Lyell: The Economic Secretary is now shaking her head, but I ask her to listen for a moment. Why is it not good enough that the proposal is simply what is described, rather grandiosely, as a principle under clause 2(3)? Why is it necessary--in my opinion and that of my hon. Friends--that it should be an objective in clause 2(2)? This is fundamental to the structure of the Bill and to what we are seeking to create.

There is an important difference in the wording between clause 2(2), which deals with the objectives, and clause 2(3). Clause 2(1) states that the FSA must

Clause 2(2) sets out the objectives, and clause 2(3)--which deals with what some have called the principles--says that the FSA must "have regard to" the principles.

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Paragraphs (d) and (e) are the key. Paragraph (d) refers to

and paragraph (e) refers to

    "the international character of financial services and markets and the desirability of maintaining the competitive position of the United Kingdom".

We must recognise how much weaker the words "must have regard to" are when compared with the words

    "must, so far as is reasonably possible, act in a way . . . which is compatible",

which are used about the objectives. The words relating to the objectives are intended to be stronger--and they are stronger. The fact that they are intended to be stronger means that each of the four objectives that are set out in clause 2(2) is specifically analysed and expanded upon in clauses 3, 4, 5 and 6.

The objectives are market confidence, public awareness, the protection of consumers and the reduction of financial crime--all worthy objectives which we support. However, it must be remembered that all those objectives will tend to increase the weight of regulation and the requirement on the authority to ensure that it--I almost said darned well--regulates.

Clause 2(3) then tells us that the authority must have regard to other desirable aims, including our international competitiveness. However, that is put too low. The Minister replied with a carefully crafted portion of her speech. I realise that it was rightly pored over by her advisers. She said that the Government had reconsidered everything and thought that it was right and adequate simply to mention the competitive position of the United Kingdom as something to "have regard to". That puts the aim far too low.

Let me meet what might be the counter argument. One could argue that if maintaining our competitiveness was an objective, it would make the other four objectives impossible to achieve. That argument does not hold water. If one had five objectives instead of four, with the maintenance of the competitive position of the United Kingdom as one of them, one would set exactly the right balance. In a sense, one would lift a little bit of responsibility off the FSA. If the FSA under-regulates at present, it can be criticised for failing to meet its objectives. However, if it over-regulates, it will at least meet them. If one points out that it does not have regard to the desirability of international competitiveness, it will say that it paid regard to that, but that it had to strike a balance. That will result in over-regulation.

Why is that approach damaging? I want to refer to a speech made recently by the Lord Mayor of London, when he described in simple statistical terms the relative competitive positions of the City of London and of our competitors in New York, Frankfurt, Tokyo and so on. If London had a base figure of 100, the costs of doing business in New York were said to be 117; in Japan 134; in Paris 154; and in Frankfurt 163. Two things threaten our competitive position. One of them is stamp duty and the other is the burden of regulation. Everyone should have regulation, but over the past few months we have been thinking about--and I know that Ministers have--

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how we can make regulation not too expensive and burdensome. That is the balance that we must get right. Clause 2 sets the scene and it would be a better clause if it put the objective of our international competitiveness upfront and not down among the things that we must have regard to.

Mr. Cousins: I remind the right hon. and learned Gentleman that the first of the regulatory objectives set down by the Government is market confidence, a concept which embraces both competition and competitiveness. If the Opposition's new regulatory objective were added, what would a regulator do to deal with a bank that had inadequate capital, but was trading both in the UK and abroad? In that case, the regulator would be faced with a conflict of objectives. That would be wrong. The regulator should focus on market confidence as the single most important objective embracing both competition and competitiveness. It should judge its actions in the light of the need to protect market confidence and not be confused by any other consideration.

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