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Sir Nicholas Lyell: The hon. Gentleman might be right in one part of his intervention; I shall wait to find out whether Ministers think that he is. If he is, he has sold the pass--I withdraw that remark, which is not a kindly way of expressing myself. However, he is wrong in the other part of his intervention. If market confidence includes our international competitiveness, it is plainly acceptable to put that up among the regulatory objectives. Therefore, I am delighted to have the hon. Gentleman's support.

Mr. Tyrie: The Bill clarifies the meaning of "market confidence" in clause 3, which states:

That is a matter of systemic risk--making sure that the financial system is not imperilled and does not collapse. It has no bearing on whether the financial system is more or less competitive, and no reasonable reading of clause 3 would ever lead one to suppose that it did.

Sir Nicholas Lyell: My hon. Friend is entirely right. Unfortunately, although I would like to think that the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) has made a point with which Ministers can agree, I do not believe that he has.

I do not think that there would be any serious problem with disciplining an undercapitalised player in the market. The fact that the FSA had to consider as an objective our international competitiveness could not possibly inhibit its putting out of business a player who lacked sufficient capital. Nothing could damage the UK's international competitiveness more swiftly than significant players in the UK market going down the drain for lack of capital.

The amendment of the Bill in this respect is the most important point that we shall discuss today. I should like to think that Ministers will offer to go away and reconsider the matter, and I am quite happy that they should agree to do so without obligation. It is highly desirable that they should think again, even if correction has to wait until the Bill is debated in another place.

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Mr. Timms: Amendment No. 192 refers to

However, the right hon. and learned Gentleman has concentrated so far on the competitiveness aspect. Does he envisage greater importance attaching to that than to competition, which has previously appeared to be the main focus of Opposition concern?

Sir Nicholas Lyell: That brings us back to a matter of language, and I am grateful to the Financial Secretary for enabling me to clarify the position.

As I understand his remarks, the hon. Gentleman uses the word "competition" to mean competition within the United Kingdom as regulated, supervised and controlled by the Competition Commission, the Director General of Fair Trading, and so on. That is important, but that was never the key thrust of the Opposition's concerns regarding competitiveness; obviously, we failed to make our point.

There was a period--it may even have extended into this debate--when "competition" and "competitiveness" were used interchangeably. There may have been room for confusion. We support what the Government are doing vis-a-vis the non-distortion of the market by the anti-competitive effects of regulation within the UK market. That is good and detailed and it has my support. However, it does not meet our overall concern, which is that the burden of regulation and the manner of it could damage our international competitive position. That is where further thought is needed, and that is where the Bill needs to be adjusted.

Sir Michael Spicer: I may have misheard one of my right hon. and learned Friend's earlier remarks, but I thought I heard him say that the best regulator was competition in the first sense in which the Minister gave it. I understood my right hon. and learned Friend to say that that was at least as important in terms of regulation as international competitiveness.

Sir Nicholas Lyell: My hon. Friend is right. Again, we are into the matter of language. The best regulator is competition in that it keeps businesses up to the mark and makes them provide better products. It possibly makes it less, rather than more, likely that people will be charged for using their access cards in various machines. Competition is plenty of good, healthy businesses competing with one another. It does not matter whether the business is a United Kingdom bank or an American or Japanese bank. In one sense, the healthy effect of competition is the best regulator. However, there is common ground between us that we need regulation as well. That is the subject of the Bill, and in this instance we are discussing the objectives that should be put to the regulators.

I am arguing, in accordance with amendment No. 192, that we should make as part of the objectives not only competition in the internal UK sense in which the Minister and I understand it, but our international competitiveness. That is deeply important.

Mr. Beard: The right hon. and learned Gentleman has introduced the international dimension to the debate. Will he say what would happen to the FSA if it went into

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international negotiations to establish an international regulatory arrangement, if it had at the centre of its objectives the maintenance of competition and promotion of United Kingdom competitiveness? Those with which it was negotiating would say immediately, "This country is not negotiating to establish the integrity of international financial arrangements. It is negotiating to give the United Kingdom a strong competitive edge." The negotiations would therefore fail.

Sir Nicholas Lyell: The hon. Gentleman is probably wrong about that, but in any event it is not what we are discussing. If we were setting up an international regulatory system, which is not what we are doing--you will call me to order, Mr. Deputy Speaker, if I go on too long about this--but which to some extent we have under European directives, our objective would at least be to ensure that the international competitiveness of the United Kingdom would not be damaged by that system. The hon. Gentleman can go along with me to the extent that it should be one of our objectives to safeguard--I think that "promote" is a perfectly fair word--our international competitiveness. I understand the point that the hon. Gentleman is making, but I think that he makes too much of it.

I stand by the desirability, as I thought we all did, of the United Kingdom financial services market being highly competitive. That is our objective. I shall conclude with the words of Don Cruickshank in his letter to the Chancellor of the Exchequer of 22 July 1999. When asked to look at the international position vis-a-vis the banking sector, he made the following point:

At the moment we have not got it right, and our new clause would help us to do so.

Mr. Tyrie: It is annoying to speak after my right hon. and learned Friend because one always finds that he has stolen a little of one's thunder. I had intended to quote the same passage from the Cruickshank report. However, I am sure that I shall find other passages on which to draw.

The absence of a countervailing pressure on the FSA to set against the urge to regulate lies at the heart of the our anxieties about the Bill. We have said from the start that stronger provisions to inculcate competition and encourage international competitiveness should be included in it. Despite the Government's new clauses, such provisions will remain lacking.

There are three major lacunae. First, the FSA's overwhelming incentive will be to watch its back so that no one accuses it of failing to regulate strongly enough. When Conservative Members said that in Committee, we were accused of simply representing City interests. However, the consumer will pay for excessive regulation to ensure that the FSA watches its back. The consumer always pays when competition is eroded through increased regulation. The failure to strike a balance between regulation and competition, to which my right hon. and learned Friend the Member for North-East Bedfordshire (Sir N. Lyell) alluded, is a central weakness in the measure.

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The second lacuna relates to the point that my hon. Friend the Member for West Worcestershire (Sir M. Spicer) made a moment ago. It is not sufficiently well understood that competition acts as a regulator. It is often the best regulator. That applies especially to new entrants into a market. The scope for new entry into a market is especially vulnerable to high levels of regulation because the detailed knowledge that is required to get into a market inhibits new entrants. However, new entrants often create greater competition--that is the so-called theory of creative destruction that Schumpeter propounded in the 1930s. He argued that competition was not necessarily achieved through lower prices, but through people entering markets and offering new and better products.

My right hon. and learned Friend the Member for North-East Bedfordshire alluded to the third lacuna. It is competitiveness, on which the Bill is almost silent. The Financial Secretary to the Treasury asked an important question, and was thinking his way through to the answer as he listened to my right hon. and learned Friend's response. Improved competition will almost always lead to improved economic performance, but better regulation may make no difference. Indeed, competitiveness could be eroded by regulation that is introduced to ensure that there is no miscreant or bad apple in the barrel. That trade-off goes to the heart of our anxieties.

The Government's response has been to deny the fact that there is a trade-off between regulation and economic performance. They claim that perfect regulation will lead to maximum probity and credibility in the market, and to respect for the product from consumers and foreign counterparts. According to that theory, there is no need for checks and balances in the system because there is a happy coincidence of interests between optimal regulation for the prevention of financial crime and misdemeanours, and optimal economic performance. Regrettably, that is not the case. There is a tension between those two objectives and the FSA will have to deal with it--day in, day out. Our concern is that that balance has not been addressed properly by the Bill, which is why we have tabled amendments so vigorously. We believe that the FSA must be required by statute to take that trade-off fully into account, and the only way to achieve that is by including competition in the Bill as an objective.

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