| Previous Section | Index | Home Page |
7.22 pm
Dr. Vincent Cable (Twickenham) (LD): The legislation before us today is substantial, unlike some of the other legislation listed in the Queen's Speech, and it deserves detailed attention. There is much in it with which I would agree, but we need to examine whether it is all necessary, and what is omitted from it. I will probably devote more of my remarks to the latter part of the Chancellor's speech, in which he properly addressed consumer protection issues; although I agreed with much of what the hon. Member for Tatton (Mr. Osborne) said, I noted that in his 40-minute speech he did not refer once to the consumer issues, which are actually rather important.
The Chancellor started with the big picture, and I have several broad points to make about that. We now have relative stability in the banking system after its collapse and its rescue by the taxpayers. I do not wish to repeat the history lesson that we have already had, but if people wish to read my version of it, the paperback edition will appear in the new year. It is a long story and many people were to blame, as were the leverage, the excessive complexity, the failures of regulation and so on. Although the situation has stabilised as a result of Government intervention, there is still serious risk in the system, and we have been reminded in the last few days of the potential risks for some major banks that can arise from one operator-in this case, Dubai World-going bust. There could be others out there. If there is a double-dip recession in our own economy or elsewhere-that is possible, but I am not predicting it-it will produce another round of bad debts. There are almost certainly problems with the overvaluation of the UK housing market and other asset bubbles which will appear, in turn, in the bad debts within the banking system. Many of those problems are not only historical problems, but potential problems.
Secondly, the big failure-as I have told the Chancellor many times-is not primarily a legislative issue but the reluctance of the Government to follow through on their ownership and control of leading banks in terms of influencing their lending policy. We had a good reminder of that last week when RBS, a nationalised bank, was able to mobilise hundreds of millions of pounds in support of an aggressive takeover of Cadbury by Kraft-as it happens, the world has moved on-while having to acknowledge publicly that it would not, by a very long way, meet its net lending obligations to small and medium companies. There has been a failure of governance by UKFI, the state directors-a failure to ensure that RBS and other state institutions meet the test of national interest. They are clearly not meeting that test.
The third general issue, which was touched on by the Chancellor and the shadow Chancellor, concerns the structural problems. I do not want to reopen the argument about whether the banks should be broken up or not-I will leave the Chancellor to debate that with the Governor of the Bank of England, who happens to share my views on that point. Several pragmatic steps are being taken, such as the living wills proposals, the build-up of revised capital adequacy rules, which take
account of very large institutions that are too big to fail and too big to save, and trying to put over-the-counter transactions on to traded markets. All those things would reduce the risk of a "too big to fail" collapse and they are all very sensible. However, most of them depend on international agreement, which could take years to happen and may well never happen.
Perhaps I could invite the Chancellor to say whether he agrees with an alternative proposal. He may not wish to break up the banks, but as long as they remain dependent on the taxpayer guarantee, would it not be right and sensible to ask them to pay for it? I think that that is what the Prime Minister was trying to suggest to the G20 meeting until he got fixated on a slightly more populist line on the Tobin tax. I think that he shares our view that the banks need to pay some kind of fee for this continuing guarantee, until the "too big to fail" problem has been resolved-however that happens.
On the specifics of the legislation, I turn first to the tripartite structure. It is worth quoting the Treasury Committee, which agreed on an all-party basis when it first looked into this problem. It said:
"Although we have concerns about the operation of the tripartite system, we do not believe that the financial system in the United Kingdom would be well served by a dismantling of the tripartite system. Instead, we wish to see it reformed with clearer leadership and stronger powers."
There are stronger powers in this Bill; the hon. Member for Tatton spoke on this point at length. I sense that there is confusion between two different issues here. One is the need for clear leadership-about which the hon. Gentleman is right-and, in relation to systemic stability, that leadership should be with the Bank of England. It is not clear that such leadership exists in the current council, because powers remain evenly distributed.
There is a difference between the issue of leadership and that of the structuring of the bureaucracy; that is the point that the hon. Member for Coventry, North-West (Mr. Robinson) raised earlier. I cannot believe that the hon. Member for Tatton can talk to people in the City-as he does a lot, and as I do-and not know that they are deeply uncomfortable with what he is proposing. I have met many deep-dyed Conservatives-who are smacking their lips at the prospect of an incoming Conservative Government cutting their taxes-who are horrified by the proposals to change the arrangements for the FSA and the Bank of England. They advance several arguments against those changes.
First, those people say that the proposals are causing enormous uncertainty. Staff at the FSA do not know whether they will have a job in six months or a year, they have taken their eye off the ball and are not concentrating on issues of regulation and supervision at a particularly delicate stage. I do not know where the hon. Gentleman has got the idea that the Governor of the Bank of England wants to be the supervisor of the Loughborough building society and many other institutions.
If the hon. Member for Tatton has ever had a meeting with the Governor, he must surely have realised that that is the last thing he wants to do, and that it would be a complete distraction from his primary responsibilities. It would also lead to duplication. The moment that integrated teams of people started working on the insurance industry-not a controversial area at the moment-some of the people would be hived off to the Bank of England and the others would be hived off
into another institution and, presumably, there would be two sets of insurance regulators instead of one. That is potentially very disruptive and confusing, and it is clear to me that people in the City do not want that reform.
I think that I am the only person in the House, with the possible exception of the right hon. Member for West Dorset (Mr. Letwin), who took part in the agonising process of legislating for the original Financial Services and Markets Bill back in 1999-2000. It was a terrible process, and I would hate to think that an incoming Government, if one were formed by the Conservatives, would inflict on us a similar piece of legislation. It is not necessary. There is one specific issue on which they are right, which is the need for clear unambiguous responsibility for systemic stability to be given to the Governor of the Bank of England. That needs to be there and it needs to be clear, but it does not require a vast moving around of the whole apparatus of the various quangos and all the people in them, which is completely unnecessary.
The second big issue in the Bill concerns remuneration. My question is whether such legislation is necessary. Some of the things suggested seem perfectly sensible, but do we need legislation to bring them about? As I understand it, the basic principles are set out in the FSA code of practice, which was quite a weak document, introducing guidance rather than principles and removing a lot of companies from its arrangements. I would simply ask the Chancellor whether it is possible to ensure that remuneration practices are tightened up by issuing a fresh code of conduct through the FSA or through secondary or devolved legislation. Why enact primary legislation to deal with the matter, given that the FSA already has considerable powers?
Why do the Government not use the direct powers that they already have, through the semi-nationalised industries? There was an embarrassing episode a few weeks ago when it was announced that the Royal Bank of Scotland would remunerate its highly paid staff in deferred stock, and that they would not be paid for three years. It then emerged-that is, RBS admitted-that the bank would pay its staff in cash next year, which means that there was a straightforward failure of direction by the Government's directors in the banks. We do not need legislation to sort out those problems.
The other issue under the heading of remuneration-the Chancellor indicated that he would deal with this through a separate order-is the implementation of the Walker review. It has to be said-I am sure that this is true even among his departmental colleagues-that there was incredible embarrassment, in the Government and elsewhere, at the whitewash that Sir David Walker has produced on disclosure. The idea that what he calls high-end staff who are highly paid should not be individually identified is a very strange one, because we already have explicit exposure in several cases.
All the pay, bonus payments and pension arrangements of directors of public companies are declared in an annual report. Even with unquoted companies, any director paid more than £200,000 a year has to be publicly declared. We have a situation, which the Government seem to have accepted, whereby if someone is paid £250,000 as, say, the finance director of a middle-sized metal-bashing company, all their details have to
be publicly declared. However, if they are in a bank, not only do their individual details not have to be declared, but their existence does not have to be acknowledged. That is an extraordinary state of affairs, given that banks are underwritten by the taxpayer.
Mr. Charles Walker (Broxbourne) (Con): Surely the difference is that there can be high earners in banks who do not hold any executive position, whereas the example to which the hon. Gentleman referred is of someone on the board of a private company.
Dr. Cable: That, indeed, is the point. Why should people who have highly paid positions in private banks, but who do not sit in either an executive or a non-executive role on a board, not be declared? Why should such disclosure be limited to directors alone, whether executive or non-executive? The principle of disclosure has already been accepted, and the kind of arguments that I have heard from some people in the investment banks-"We don't want to be identified because there's a security issue"-apply just as much to the directors of those other companies. Sir David Walker has produced an embarrassing mouse of a report that has clearly embarrassed the City Minister. I hope that when the Chancellor produces his revised direction-I am not sure what status that document has-he will take that fully into account.
Thirdly, it seemed to me that what the Chancellor said about short selling was right and appropriate, and that the changes to the legislation are exactly as they should be. We should not have a completely dogmatic, fundamentalist opposition to short selling. Short selling-dealing in stock that one does not own-may have a perfectly legitimate role in certain markets. However, there is a particular problem with banks, because banks' reserve capital-their regulatory capital-depends on share capital, which depends on the share price, and if the share price is manipulated as a result of short selling, that brings the taxpayer directly into the frame. That means that people are, in effect, gambling against the taxpayer, which is not right. It is also dangerous, and it is quite right that there should be strong regulatory powers to govern it.
Fourthly and finally, the consumer issues are important. Several of the consumer provisions in the Bill are sensible and helpful. There is the class action to avoid large numbers of people having to go to the Financial Ombudsman Service. The Chancellor cited the case of pension mis-selling, and I would guess that the same applies to payment protection insurance. There are many examples of how the procedure could be simplified, and it is good that there are to be stronger disciplinary powers for the FSA.
The idea of having a centre for financial education is also helpful, in bringing together the different strands of activity in financial education. It is not yet clear where the money will come from, whether the centre will be independent or what the governance structure will be, but no doubt that will emerge in Committee. It is also useful to have proposed action on credit card cheques, which have been the subject of some abuse in the past. I am not quite sure what future such cheques have, because my understanding is that banks will stop using and transacting cheques. Indeed, I am not sure whether such cheques will exist in future, so perhaps we need some clarification there.
There have been some helpful submissions in the past few days from the citizens advice bureaux and the Consumers Association, listing a whole lot of other provisions. They make the point that if the Bill is to be a round-up of useful consumer actions, why are those other things not being considered as well? There are about a dozen suggestions, but I will list only what seem to be the most important. First, there is the issue of contingent charges. Since the court ruling last week that legitimised what the banks have been doing in imposing what many regard as unfair charges on overdrafts and other things, is it not now necessary to straighten out the law? It would appear that the court ruling was based on a narrow point of law rather than an issue of principle. Should not this Bill be used to sort out that problem? There are hundreds of thousands of people, if not millions, who have lost money as a result of those unfair charges and who feel a strong grievance about it.
There is also the issue of set-offs. People are finding that if they put money into a deposit, that money is directly deducted from their outstanding loans. In effect, the banks are appointing themselves as preferred creditors, which is fundamentally wrong and unfair to the consumer. There are also issues such as unauthorised and unsolicited overdraft limits being raised unilaterally, without any consultation with consumers. Then there is the issue of the repossession of the properties of landlords-a matter in which the Government have been actively involved in the past. I had understood that the Bill would be a vehicle for strengthening legal protection for victims of repossession in such cases.
There is also the unilateral re-pricing of debt by many banks in respect of their outstanding loans, and the changing of minimum payments on credit charges at the discretion of the banks. There are many such practices, although I do not know-I am not a parliamentary draftsman-whether new laws are necessary to deal with them. What would be helpful-I make this as a practical suggestion-is if the Government could indicate which of the many proposals being made by the various consumer protection bodies are covered by the FSA, by the Office of Fair Trading or by both, which can be dealt with through secondary or devolved legislation, and which require primary legislation, so that we can understand how consumer protection in banking and finance can be brought up to date and up to scratch.
Mr. Cash: In the context of the various tiers and hierarchies of legal intervention that exist, the hon. Gentleman's pursuit of the simplicity that he set out at the beginning of his remarks, and his desire not to have too much duplication, would he concede that it would be far better if the matters to which he has referred did not end up being adjudicated in, for example, the European Court of Justice? The decisions to which he has referred would then all be adjudicated under a series of directives that would ultimately take control away from our courts and hand it over to the ECJ. Does he not see the inconsistency in his argument?
Dr. Cable:
I do, but one of the problems is that what often happens if there is inadequate consumer protection in the UK and the Government do nothing about it is that European parliamentarians then try to bring in new rules at European level, and try to deal with the
problem by putting it in a single market context. I do not think that the consumer protection aspects are predominantly a European industry.
To summarise, there is much in the Bill that is perfectly sensible. However, I would question whether some of it is strictly necessary-and if the Government are to embark on a wholesale review of the current deficiencies in consumer protection in respect of banks, quite a few key items are missing.
7.40 pm
Mr. Geoffrey Robinson (Coventry, North-West) (Lab): In common with the shadow Chancellor, I would like to apologise for being unable to attend for the concluding speeches. It is a great pleasure, as always, to follow the hon. Member for Twickenham (Dr. Cable). I am pleased that he has given a general welcome to much in the Bill. Having read the Bill and on listening to today's speeches, it strikes me that a great deal will be left for the Committee stage, which is likely to involve debate on detailed complicated amendments-both wrecking and others-so I am bitterly disappointed that I have not been invited to sit on it. [Interruption.] I am sure that those who do have that honour and pleasure will keep me well informed about the progress they are making. I look forward to hearing that some of the problems I foresee-on short selling and on other issues raised by the hon. Gentleman-are resolved at that stage.
It seemed to me that even the shadow Chancellor, if we put aside his polemics, was broadly in agreement with the provisions and measures-certainly the objectives-in the Bill. One point on which he rather doggedly nailed his colours, his prestige and his personal pride to the mast-Labour and Liberal Democrat Members do not understand his reason for doing so-was in respect of the merger, or indeed the subordination, of the Financial Services Authority and its functions to the Governor of the Bank of England, who clearly does not want that role; at least, he has not made that clear to me yet.
Mr. Andrew Smith (Oxford, East) (Lab): Does my hon. Friend agree that the shadow Chancellor was deeply unconvincing in putting forward his arguments? As I listened to him, I wondered whether he was not in a sense giving the game away. He used a double-edged political sword against us. He said that we were defending the existing arrangements because of the Prime Minister's role in their genesis, but it sounded to me as if he was attacking them precisely because of the Prime Minister's role. Is there anything in that?
Mr. Robinson:
There is a great deal in that. Certainly in the early stages, when the shadow Chancellor first came up with his idea of getting rid of the FSA and spoke in hostile tones about it, he adopted a minatory posture towards all and sundry in the City and elsewhere. On that, I agree with my right hon. Friend. However, today he seemed to be emollience personified and there was nobody in the world more reasonable than the shadow Chancellor. He was bending over backwards to accommodate everybody; he was negotiating with everybody and consulting everybody; his offices were full of representatives from the City; the FSA was coming in and the insurance industries and bankers were coming in-and, of course, the Governor of the
Bank of England had a special place there. The shadow Chancellor would have us believe that the whole financial world agrees with him, and he quoted one or two examples of people moving tentatively, although not fully, in that direction. The situation is anything but, of course.
Mr. Todd: Does my hon. Friend agree about another problematic element in the shadow Chancellor's speech? He referred to the sensible action by some of the people he spoke to, in their giving some kind words to his thoughts, in the possible prospect of the hon. Gentleman being in a position to deliver a package of change in the future. Those in the FSA in particular may well be considering carefully how to position themselves in relation to the Opposition party and may at least be putting forward some words of insurance because of the circumstances that might develop next year, although my hon. Friend and I would join many others in wishing that that does not happen.
Mr. Robinson: I entirely agree with my hon. Friend. The one consoling factor is the fact that the shadow Chancellor will not have any prospect of implementing his proposals and causing the ructions that he clearly wants to. When he prays in aid people like Jacques de Larosière and Mr. Fischer, I wonder what supernatural financial wisdom he chooses to invest in them. I would have thought, and I put this to the Minister in his place on the Front Bench, that the House, the country and particularly the City of London should be much more concerned about another French person, namely Michel Barnier-I hope I have pronounced the name correctly and apologise if I have not. He seems to me to be a greater threat to our interests than anything from Jacques de Larosière, who was governor of the rather different French central bank in a rather different set of circumstances and with a different range of responsibilities.
I propose to look more closely to home and discuss the words of Andrew Large in commenting on the proposals. I do not want to say that he has any particular claim or any unique knowledge to be prayed in aid in any way, but he does speak with a great deal of authority, having been a former deputy governor for financial stability at the Bank of England. He wrote:
"So I am not convinced that to split the FSA and put supervision squarely into the Bank is wise or necessary, or that it would deliver a better result than the improvements under way"-
the improvements in the Bill that we debating now, which have been welcomed throughout the House. He continued:
| Next Section | Index | Home Page |