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6.36 pm

Mr. Adrian Bailey (West Bromwich, West) (Lab/Co-op): Thank you for calling me, Mr. Deputy Speaker, and let me say that I think my remarks should fall well within the available time limit. I am a member of the European Scrutiny Committee, and I should perhaps begin my remarks by conveying the apologies and regrets of its Chairman, my hon. Friend the Member for Linlithgow and East Falkirk (Michael Connarty), who ordinarily would have wished to have participated in the debate. Unfortunately, however, he is away on other European scrutiny business.

I do not claim to be a representative of the Committee because, as other Members will appreciate, it can be difficult to secure consensus on a body that incorporates those with a fairly pro-EU stance such as myself—I say that with due deference to my hon. Friend the Member for Birmingham, Edgbaston (Ms Stuart)—and those such as the hon. Member for Stone (Mr. Cash), the right hon. Member for Wells (Mr. Heathcoat-Amory) and my hon. Friend the Member for Luton, North (Kelvin Hopkins), whom I will not categorise, but who would fairly describe themselves as not being historically pro-Europe. We might, however, agree that the Committee has been well engaged in debates on matters to be discussed at the Council, particularly those to do with European financial regulation and supervision. It has rigorously examined the ministerial position by questioning a Minister from the other place, Lord Myners. Although Committee members do not all share the same European or other political views, I think it is fair to say that the issues have been thoroughly debated.

I have my own views, of course, and not only on broad European issues. Wearing my other hat as chair of the all-party group on building societies and financial mutuals, I also come at these matters from the perspective of a long-standing supporter of the mutual sector of the financial services industry, so I am alert to the impact that any proposals from Europe may have on such bodies.

It is important to recognise the context of the debate that will take place. It has, of course, in a sense been ongoing since the onset of the credit crunch. I think it is fair to say that our Ministers and Prime Minister have led the moves in Europe to ensure that there has been a Europe-wide response to the problems created by the credit crunch, and my right hon. Friend the Foreign
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Secretary outlined some of them in his opening remarks. There may be issues of concern for the Government—and, indeed, for all Members present—in the proposals for financial regulation and supervision, but our Government’s track record in pursuing the interests not only of this country, but of Europe in general, has so far been fairly effective.

The proposals have developed from the original ones—the European economic recovery plan in December—to “driving economic recovery” in the March Council and now an element for debate is

That is, obviously, at the core of my remarks.

There are two pillars to this approach. The European systemic risk council—the so-called “euro early warning system” or “macro-prudential board”—which is to be under the president of the European Central Bank, is an essential pillar. I think there is a huge degree of consensus on the need for an international body to examine and highlight any potential deficiencies in the European and international financial services industry. It was precisely the absence of such a body that allowed the problems in the American sub-prime market to continue. They were recognised long before the financial institutions and the regulators realised that what appeared to be a local problem in the United States had huge international significance that would have such a profound impact on the British economy, and the entire European economy.

The other pillar is the European system of financial supervisors. It will be made up of national supervisors, but will be overseen by three new European supervisory authorities, which would, in effect, develop European regulatory policy on supervision within the individual countries. Those proposals are due to be debated and delivered over the forthcoming year.

Mr. Cash: Will the hon. Gentleman give way?

Mr. Bailey: How could I resist the entreaties of a fellow member of the European Scrutiny Committee?

Mr. Cash: I am most grateful to the hon. Gentleman. I, too, have a great interest in the mutuals; my family founded the Abbey National in the 19th century. What he has described comes out of the de Larosière report, as I pointed out in my letter to the Financial Times of 27 February. Does he accept that the structure is a legal framework from which everything else flows, and that if we were to disagree with its characteristics, it is only by asserting the supremacy of the Westminster Parliament and insisting that we legislate on our own account and require the judiciary to obey that we could get out of that situation—if indeed that was the policy of my party, or indeed his own?

Mr. Deputy Speaker: Order. That was an excessively long intervention, given that we are time-limited. Perhaps the Procedure Committee might consider time limits on interventions. I call Mr. Bailey.

Mr. Bailey: The hon. Gentleman potentially opens up a lengthy debate. All I can say is that these issues are properly negotiated and debated within the Council. There is a difference of opinion within the European Scrutiny Committee on whether it is necessary to have a
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European structure as opposed to an international structure, and whether Britain's best interests might be served in engaging with an international structure. Hon. Members will have differing approaches to that.

Given that the EU consists of 27 countries, including several of the world's major economies, and is a major economic force in terms of the eurozone, just as the City is a major financial source, I cannot believe that it is not better to combine the strengths of that bloc to represent European interests on the international forums more effectively. We have been engaging with the G20 to ensure that a world economic recovery takes place, and nobody has argued that that should preclude work undertaken at the European level with broadly the same economic objectives. I do not share the position that the hon. Gentleman outlines, but I recognise that it exists. I believe that there are global international financial movements that have to be looked at on a global scale, regional financial movements—and corporations and bodies that operate regionally—for which it is appropriate to have regional supervision, and national corporations, for which it is appropriate to have a national level of supervision.

Specific areas of concern were highlighted during the Committee's investigations, the first of which related to whether the European systemic risk council should deal with the whole of Europe and whether the way in which it is being proposed, under the presidency of the European Central Bank, was likely to mean that it focused only on the eurozone. It is clearly necessary for this particular body to deal with the whole of Europe, including countries, such as Britain, that are outside the eurozone. Another issue was whether its chair could be the president of the ECB, because in its deliberations and considerations it may have to look critically at the ECB. A clear potential conflict of interest is involved, and that issue must be addressed. The risk council should include the national regulators, and that should include the Financial Services Authority. I hope that Ministers will take up those issues and prosecute them effectively at the Council.

There will obviously be a tension between the national supervisory framework and the potential European supervision. I believe, and I know this to be the feeling of British financial institutions, that any outcome must be sensitive to the specific needs of the structure of the British financial services industry. In the past, building societies have been concerned that Britain's supervisory financial regulators have not had sufficient understanding of, or sympathy for, the mutual movement. That situation could be much worse if the balance of regulatory power moved away from this country to Europe. That is a matter of considerable concern, and it is fair to say that we expect our Ministers to prosecute that particular argument very effectively.

There are issues to address in relation to credit rating agencies. I know that our ministerial team is rather at odds with the Commission's recommendations on those. There is a serious issue associated with the credibility of credit rating agencies. The power that they have in their classifications has enormous significance for the survival of financial institutions, yet historically—this includes their role in the credit crunch—they have not been beyond criticism. Who regulates or monitors them to see just how accurate and relevant their ratings are?
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There is far more credibility than one might think, but I hope that the Minister will ensure that whatever model comes out of these deliberations will provide effective national accountability for organisations in this country, with particular reference to the sort of model that credit rating agencies use to assess British financial institutions. There is a need for much greater transparency and more monitoring of the outcomes of the ratings that those agencies give. Our track record in Europe in getting effective European action on the recovery is good, but the issues that I have mentioned must be vigorously addressed in the debates that will be held.

The broad thrust of the Commission’s proposals is good, and the EU could play a vital role in leading the world economic recovery by re-establishing faith in the international financial system, but we must ensure that the proposals that we adopt are sensitive to the needs of the British financial services industry. The City is a major world financial centre, and the potential consequences of getting it wrong are serious indeed. We need a regulatory and supervisory structure that recognises not only the strength of the financial services sector but the diversity of provision within it.

6.51 pm

Mr. David Heathcoat-Amory (Wells) (Con): These debates can on occasion become ritualistic, but today’s has real significance because it takes place against a background of announced constitutional change. The European issue is, at root, a constitutional question. It is about where power resides, who exercises it and whether it is controlled and accountable. The Prime Minister has picked up the question of constitutional renewal as a possible way to save his Administration. The Labour Government have noticed that they are almost more unpopular than any other Government in history, but instead of changing the Prime Minister or the Government, they have hit on the idea of changing the constitution. We do not yet know what form that will take—whether it will be rigging the voting system or a genuine attempt to reconnect Parliament and the Government with the people.

Last week’s statement by the Prime Minister contained little new, but I can at least agree with the aims of transparency, accountability and devolution. It is the devolution of power that interests me especially. The Prime Minister said that

I do not think that there is, but clearly there should be. The only problem is that we have heard all this before, two years ago, when the Prime Minister first took office. He said then that he wanted

He went on to announce a lot of gimmicky ideas about citizens juries and what he called a new community right to call for action—we never heard anything more about that. He also said:

Almost in the same breath, he denied the British people a vote on the Lisbon treaty, in an almost immediate contradiction between what he said and what he did.

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Kelvin Hopkins: I agree with the right hon. Gentleman that this is all about power, but power is about more than elections and institutions. It is about who controls the economy, and economic power is fundamental in the modern world. Does he agree that retaining power over our economy is fundamental to retaining democratic power in Britain?

Mr. Heathcoat-Amory: I entirely agree with the hon. Gentleman who has an honourable history of standing up for economic self-government. I have always thought it bizarre that a left-wing party should contemplate handing over power to bankers who are not even in this country. The Government wanted a conclave of bankers meeting in private in Frankfurt to control the British economy. That is temporarily off the agenda, although it is—bizarrely—still official Labour party policy to join the euro, when economic conditions allow. I do not know when that might be, but we would be in real economic trouble if we had joined the euro. We would be being crucified by a high exchange rate that we could do nothing about. We need only look at the Republic of Ireland to realise what we are, luckily, missing.

The concept of devolution of power downwards is completely contradicted by the Government’s European policy. Instead of devolving power away from political elites downwards to Parliament and people, the Government’s European policy would transfer power upwards, away from this place and the people whom we represent, to the most remote and centralised bureaucracy of all—the European Union. This is a continuous dynamic process.

Like the hon. Member for West Bromwich, West (Mr. Bailey), to whom I listened with great care, I am a member of the European Scrutiny Committee. Every week, we deal with dozens of proposals to make that transfer of power. New draft directives, regulations and decisions about defence and foreign policy all come to our Committee and there is nothing that we can do to stop them. All we can do is to try to ensure that they conform to the legal powers in the treaty—the Commission is always trying to get round those powers and take more decision-making to itself. We can also recommend some proposals for debate, and some 5 per cent. are eventually debated in Committee. Again, those Committees can do nothing to stop or amend the proposals, and nor can Ministers, because they have been agreed by majority voting.

I would love to invite hon. Members to come to watch us trying to make sense of the blizzard of European proposals, but it is forbidden for them to attend our Committee. We meet behind closed doors, in private, which again contradicts what the Prime Minister said about openness and transparency. It is all talk: in practice, there is no transparency or openness. The Government are afraid of allowing anyone else to see how powerless we are.

Mr. Cash: Is my right hon. Friend aware that in a recent opinion poll 72 per cent. of the British public believed that Britain should break European rules if that is thought to be in the national interest? Does he not find that very interesting?

Mr. Heathcoat-Amory: I do indeed. Frustration is building up, which was demonstrated in the recent European election results. People are either indifferent
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or hostile. The more powers that the European Parliament gets, the fewer people vote for it. In each and every treaty change since the founding of what was then called the common market, the European Parliament has been given more powers, but in each and every direct election since 1979, the average turnout has fallen. When people vote, they vote for rejectionist parties or extremist parties. We have to listen to that and do something about it.

The hon. Member for West Bromwich, West described at some length the transfer of powers in the area of financial regulation and I have an example to discuss further. During the passage of the Bank of England Act 1998, the Opposition criticised the fact that the regulation of banks and financial institutions would fall between the triangle of the Treasury, the Bank of England and the Financial Services Authority. We were told at the time that we need not worry, because there was something called a memorandum of understanding that would sort everything out. Well, the credit crunch arrived and nobody could find the memorandum of understanding. Profound and urgent reform is needed to sort out exactly who makes the rules, who enforces them and where the lines of accountability lie.

However, the EU has another idea, which is to transfer the process to the EU. That will create more confusion, because a similar problem will arise. The Commission wants to control and regulate and so does the Council of Ministers—and we also have the European Central Bank. Instead of a triangle of confusion, we will have a hexagon of confusion. Instead of reforming and changing our system for the benefit of the City of London, we will transfer the whole process to a jurisdiction that we do not control.

The Government do not want that. The Committee of which I, my hon. Friend the Member for Stone (Mr. Cash) and the hon. Member for West Bromwich, West are members has taken evidence from Treasury Ministers and they resist the transfer of power upwards, although there is of course very little that they can do about it. Indeed, we had confirmation of that in a letter that we received last week from the Minister who was responsible for such matters in the Department of Business, Enterprise and Regulatory Reform. He admitted that he objected to the setting-up of the new regulatory committees as it would

He said that there would be no check on whether or on how future committees could be set up without any national agreement and confirmed that the proposal had been adopted by the European Parliament, which does not say much for the influence that the governing party is supposed to have through the European Parliament. He also said that that

the proposal.

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