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The second part of the Bill that I want to deal with relates to supporting consumers. I shall do so fairly briefly, although it is important. It is important that we encourage people to know more about financial services and to understand the benefits and risks. Clause 6 gives the FSA the power to establish an independent consumer financial education body, which will deliver the implementation of the money guidance service from spring next year, as recommended by the Thoresen review a couple of years ago. The service has already been tried out in the north-west, and I understand that it is working. However, it is important that we can encourage people to know more about and understand the financial system, especially as it is in our interest to ensure that people save more and take advantage of financial products. That requires a certain amount of knowledge, however.
Clause 26 includes an important provision that addresses a problem that we have had for several years. There have been several instances in recent years of a large group of consumers having suffered detrimentally at the hands of regulated firms. The clause will give the FSA the power to obtain redress and compensation more easily. Basically, it allows the FSA, if it thinks that there is a problem, to implement an investigation. If the investigation uncovers a problem, that will then be remedied and a solution will be imposed.
I can think of two instances in which that provision would have been helpful: the mis-selling of personal pensions in the late 1980s and, more recently, bank charges. The FSA will have the power to do something without having to wait for court action. In addition, clauses 18 to 25 establish a new form of collective proceeding to allow for a new form of class action. I do not want to see the widespread development of such action, as there has been in the United States, so the provision is more tightly drawn. However, it means that, if there is a remedy, a class action can take place and, I hope, the matter can be resolved. That is a new development in UK law and the first example of our allowing group action in the courts for people with similar claims, but it is an important thing to do.
Mr. Darling: We will give the courts the discretion to allow both. I know that there is a lobby outside the House on that point, but people have the right to say, "I don't want to come into this, because it might compromise my rights elsewhere," so it is best to let the courts have the discretion to look at the individual merits of the case. No doubt that point can be argued in Committee, however.
The Bill contains powers to stop the issuing of unsolicited credit card cheques, which has proved very troublesome especially for people who do not have the means to prevent that from happening. We amend the Financial Services Compensation Scheme to allow it to act as an agent for a foreign scheme so that people do not have to go abroad to get their remedy but can go through the UK organisation. There is also a technical change to the recovery of funds when the Banking Act 2009 is used in relation to a failing bank.
The powers in the Bill are essential; they will enhance and strengthen the supervisory regime. Taken together with the existing powers in the 2009 Act, they go a long way towards having a stronger and more effective regulatory system. As I said, what matters at the end of the day is that we have, not just in this country but across the world, regulators and supervisors who are doing their job. It is vital that those responsible for running financial institutions understand what we are doing. They should not be afraid sometimes to question what is being suggested, but they should be willing to take strong action themselves to ensure that they do not get into the difficulties that we have seen over the past two years. I commend the Bill to the House.
Mr. George Osborne (Tatton) (Con): Let me begin by apologising to the Chair for my not being here for the winding-up speeches. I have let the Chancellor and the Liberal Democrat spokesman know about that. In fact, I suspect that not many Members will be here, because although this Bill is supposed to be the centrepiece of the Queen's Speech, it has not exactly grabbed the attention of Parliament. That does not mean, however, that these issues are not very important.
In the past two years, we have witnessed a catastrophic failure of bank regulation-arguably the greatest failure of financial regulation that this country has ever seen-which has contributed to the longest and deepest recession in this country since the 1930s and a huge loss of national wealth. The exposure of taxpayers to £1 trillion of guarantees and capital support has required them to undertake the largest bank bail-out of any country in the world.
If we want to understand how completely ignorant the regulatory system was of the problems brewing in the financial system that were about to explode, I suggest that we remind ourselves of the Mansion House speech that the then Chancellor gave on 20 June 2007-just a few days before he became Prime Minister and just a few weeks before the credit crunch began in earnest. I was there; I sat, as I remember, alongside the Financial Secretary to the Treasury, who was here earlier in the debate. We heard the then Chancellor lavish praise on the assembled financiers, making the portentous claim that we were entering what he predicted was
"an era that history will record as the beginnings of a new golden age of the City".
Of course, the so-called beginnings of a new golden age were in fact the very end of a huge financial bubble. The regulatory system did not understand what was going on. It believed its own propaganda about a new age of stability that it had created. It did not understand the fragility of the funding models of our major banks, it was completely ignorant of the risks being run with leverage, and it was drastically ill prepared for what was about to happen.
Mr. Barry Sheerman (Huddersfield) (Lab/Co-op):
I have been to several meetings in the City at which the hon. Gentleman has spoken. Could we have a look at
some of his speeches from about the same period, which I remember also included glowing endorsements of the City?
Mr. Osborne: I am not claiming that anyone in the House fully understood what was going to happen. However, I did warn in 2006-I do not remember a single member of the Government saying this-that an economy built on debt is an economy built on borrowed time. The hon. Gentleman might remember-he probably put them in his election address-all those claims about having abolished boom and bust and the economic cycle, about how Britain was better prepared and how this was a new age of stability. If he does not remember, let me reassure him that over the next few months we will be reminding him and his constituents of all the things that were said.
The crucial point is that such was the regulatory regime of our banking system, and these were the people who were supposed to understand the risks that were being run. Although it is true, as of course the Chancellor said, that other countries have experienced some very severe problems with their banking sectors-the United States, the Netherlands, Belgium and so on-there are also examples of banking regulatory regimes that got it right. The Spanish banks are in much better shape than the British banks because the Spanish central bank banned some of the off-balance-sheet vehicles that became prolific in this country. The Canadian central bank imposed a leverage backstop, which was never considered here. The Australians, whose central bank pursued a "twin peaks" model of regulation, still have four double-A rated banks. There are examples of banking systems that got it right, while it is generally accepted that Britain's was the most exposed. Indeed, this morning we heard that Canada has come out of recession, which means that Britain is the last country in the G20 still in recession. That shows how exposed we have been.
Ms Keeble: I agree with the hon. Gentleman that there are genuine issues about people not spotting what was coming. However, the Bill is partly about supervision and regulation. In all the hearings with the Governor, I do not remember him sending out clear warnings about what was happening. There was general discussion of debt, but I do not recall people talking about the exact mechanisms that caused the problems. That is partly why I think that maintaining the FSA-of course, it has had its problems-is the right way to proceed instead of going back to a system that was itself somewhat flawed.
Mr. Osborne: The hon. Lady might remember the words of a previous shadow Chancellor, my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), who spoke for my party during the passage of the Bill that became the Bank of England Act 1998:
"With the removal of banking control to the Financial Services Authority...it is difficult to see how and whether the Bank remains, as it surely must, responsible for ensuring the liquidity of the banking system and preventing systemic collapse."-[ Official Report, 11 November 1997; Vol. 300, c. 731.]
I would not dispute what are clearly the facts. My concern is that the hon. Gentleman-the right hon. Gentleman-is proposing that supervision
and regulation should go back to the Bank of England. I saw no evidence that more warnings came from the Bank about the crisis that was brewing than came from the FSA.
I am not claiming that the Bank of England got it right; I have said so in private at the Bank as well as in public. However, it did warn-not often enough, not loud enough, and certainly not much listened to by anyone-that, for example, the housing boom was developing at a pace that was beginning to alarm it.
Let me explain why I think that a change in the structure of regulation, as well as its content, would help. After everything that we have been through, it is pretty remarkable that the Government are not asking some big fundamental questions about the structure of regulation that they set up. Almost every other country in the world is proposing considerable changes to its regulatory structure. As far as I am aware, only in this country, of all the major economies that had a banking crisis, are the Government content to stick with the existing system. Of course, we know exactly why that is. Everyone knows that if Labour Members were in opposition or were not currently led by the man who was Chancellor when the system was introduced, they too would be looking at changes to the structure of regulation. They are wedded to defending the current system because it happened to be introduced by the man who leads them. The proposal was developed, completely in secret, in opposition. It was, I believe, kept in a safe in the hotel bedroom of the hon. Member for Coventry, North-West (Mr. Robinson), and deployed, without any warning, two or three days after the general election. The then Governor of the Bank of England, the late Eddie George, almost resigned as a result. There was then a hasty consultation and the measure was introduced. We are now stuck with the Government defending this system for the simple reason that the Prime Minister thinks that there will be some reputational damage to him if he admits that it has not worked very well. I have to tell him that the reputational damage has already been done.
Mr. Robinson: May I just deal with the point about the late Eddie George's attitude? I was in on most of the meetings at that time-of course, the then Chancellor was in on more of them-but when the issue of the Bank of England's overall responsibility for systemic integrity was discussed, the then Governor's principal concern was that he would have enough money to deal with that, and to inject liquidity where necessary. He had in mind a ridiculously small amount of money at the time, and we gave it to him. On that basis, so long as he was left with that responsibility and had the money he thought necessary, he went along with the proposal and indeed welcomed it in subsequent speeches.
This is not particularly fair to the late Eddie George as he is not here; however, I, too, had several conversations with him about precisely what
happened. My conversation with him seems to have been somewhat different from the one the hon. Gentleman had. The Bank of England was not consulted, and this fundamental proposal was made on the future supervision of banking. Given that we are discussing, 12 years later, the biggest failure of banking supervision, it is worth going back to that moment.
One of the reasons why I-as the current shadow Chancellor, who hopes to be in the Chancellor's job in a few months' time-have decided to publish our proposals and make a big effort to consult on them and talk to as many people as possible, including the three different parts of the tripartite regime, is precisely so that I can get my thinking right in opposition, rather than just deploying the whole thing two days after a general election, which I could of course do, following the previous model. I will come to the structure of our proposal, but also to why we think it is necessary. I will deal later with the content of regulation because I completely agree with the Chancellor that that is very important as well, but we have to look at the structure of the regulator.
We have a tripartite regime under which no one knows who is in charge and who is giving official policy. We have a Governor of the Bank of England who regularly gives interesting speeches-at Mansion House, and in Edinburgh recently; he also gave evidence to the Treasury Committee last week-on how he thinks banks should be regulated. His views are very interesting but they bear absolutely no resemblance to official Government policy as just stated at the Dispatch Box. We have a chairman of the FSA, a man of great integrity and intelligence, who says that quite a lot of the activities of the banking sector are "socially useless". I do not know whether the Chancellor of the Exchequer or the Prime Minister share that view, but it has certainly been noticed not just in the City but around the world. And we have a Prime Minister who turns up at the fag end of the G20 Finance Ministers meeting and announces to a completely stunned audience-no doubt including the Chancellor-that he is in favour, suddenly, of a Tobin tax. The United States Treasury Secretary then has to give an immediate reaction to that view, and of course rubbishes it.
So those who would ask "What's the view on financial services from the UK authorities?" would get three or four completely different views; that is how dysfunctional the current relationship is. The Chancellor deals with it much more than I do, but even my own dealings with the different legs of the tripartite regime-one group of people told me something completely different from the previous group who came to my office-suggest to me that this relationship is not working particularly well.
"There is to be a Council for Financial Stability, consisting of...the Chancellor of the Exchequer...the chair of the FSA, and...the Governor of the Bank of England."
"keep under review matters affecting the stability of the UK financial system".
That is what the great change is supposed to be: a Council for Financial Stability consisting of the Chancellor, the FSA and the Governor. I did a little bit of research,
and the memorandum of understanding that originally created the tripartite regime created a standing committee-not a council-on financial stability, which
"is chaired by the Treasury and comprises representatives of the Treasury, the Bank and the FSA. It is an important channel for exchanging information on threats to UK financial stability".
Unless Members can explain to me the fundamental difference between a council and a standing committee, it is not clear what this Bill achieves regarding the regulatory structure. Indeed, the only difference I can spot is that, according to the memorandum of understanding, at least the standing committee was required to meet once a month. According to the Bill, the Council for Financial Stability will be required to meet only four times a year, so the number of required statutory meetings has actually been reduced.
Nor is the Chancellor required to turn up to the council. Perhaps the Chancellor can confirm this for me, but I think that in the entire period when his predecessor was Chancellor-10 years: the longest time that anyone had been Chancellor for a century-he never once physically attended the tripartite committee. There was one joint telephone conversation with the US authorities and the US Treasury Secretary; that was the only time the then Chancellor took part in the meetings of the tripartite committee-on the telephone. So it is not exactly clear how this proposal will fundamentally change things.
Mr. Robinson: We do not want this Second Reading debate to become a Committee stage debate, but will the shadow Chancellor kindly explain to the House precisely how his new arrangement is going to work, involving as it does, as I understand it, a block transfer of the FSA and its head into the Treasury? Therefore, the chair of the FSA and all its huge responsibilities will be subject to the Governor of the Bank of England, and the FSA will have no chance to make its own representations separately or "legitly" to the Treasury, with whom ultimately the real responsibility in a crisis would reside. The hon. Gentleman has been talking about relationships. How is the relationship going to work between, presumably, the head of the FSA and Governor?
I want to put on the record what some other people, not just the Conservative party, have said about the proposals in the Bill. The Treasury Committee, chaired by the right hon. Member for West Dunbartonshire (John McFall), said that the proposals are a "largely cosmetic measure", and that
"merely rebranding the Tripartite Standing Committee will do little in itself".
"What is not clear from the Government's proposals is how the proposed Council for Financial Stability would actually operate or what powers it would have to require the FSA and the Bank of England to pursue particular policies."
Indeed, the ABI says that clause 5, which gives the FSA explicit responsibility for financial stability-just months after the last banking Bill gave the same explicit responsibility to the Bank of England-will
"exacerbate the confusion of responsibility between the Bank and the FSA".
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