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Is what the Government are doing in this Bill merely an admission that the FSA has failed to use its existing powers? A lot of market participants take that view of the Bill and think that there is no need for a general
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extension of those powers. The FSA's statement of September 2008 was extensive and inclusive, and the necessary powers appear to be in place. The Minister must be clear tonight as to why these proposed powers are necessary. I am grateful to have had the opportunity to make a few brief remarks. Unlike the hon. Member for Coventry, North-West, I am grateful that I will not be on the Committee, but it will explore a number of these issues.

8.12 pm

Mr. Mark Todd (South Derbyshire) (Lab): I do not know whether I shall be serving on the Committee for which some people are volunteering and on which others will be extremely disappointed not to be serving. It will consider a portmanteau Bill covering a wide range of issues relating to financial services. Thus, the hon. Member for Twickenham (Dr. Cable) reasonably said, "Well if it is such a bag, let's see what other elements might be stuffed into it." The Committee will almost certainly have before it a number of amendments suggesting the inclusion of a variety of measures, particularly on consumer protection, that might be useful.

May I run through some of the issues in which I have been particularly interested, the first of which relates to the Council for Financial Stability? I serve on the Treasury Committee and I subscribe to the opinions that it expressed: that this would appear to be a rebranding exercise, unless far greater detail is given about how this body will function. The Bill is silent on that-we will doubtless hear more in Committee. Those who miss that experience will miss out on the detailed exposition that might be given.

One of the difficulties that we face is that at the start of this crisis no institution explicitly had responsibility for financial stability, but now everyone has. The Financial Services Authority has been given it-or it will be given responsibility, should this Bill pass into law-and the Banking Act 2009 gave it to the Bank of England. I am not sure that that makes us feel much safer, partly because when everyone shares a responsibility, it is not entirely clear who is genuinely answerable for decision making-I shall discuss that later.

Secondly, I am not sure that we are very clear on what financial stability actually means. We know when it is absent-that is easy to work out; we have been through a period of obvious financial instability-but it is not entirely clear how we define "financial stability" and how we learn, institutionally, of the threats that there might be to it, which will not be identical to the ones through which we have been recently.

In any institutional framework-be it this tripartite system or the system that the hon. Member for Tatton (Mr. Osborne) proposed-the things that most concern me are how exactly it will work, and how information flows and how the allocation of the tools and responsibilities for dealing with crises are addressed. This is one of the areas where the Governor of the Bank of England has been perfectly fairly pressing the political class in this country to define its positions more clearly. If we are to allocate responsibilities for financial stability, the crucial element is to work out who does the various tasks. We are still searching for firm answers on that.

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One of the issues that concerns me most is information flow. If the FSA retains, as I believe it should, the regulatory responsibility for financial institutions in this country, the information gathered will be a crucial part of the Bank of England's carrying out of its financial stability responsibilities. I am not entirely clear that that information flow works correctly now; it is not built into law in the 2009 Act. I, like those who sat through that Committee stage, remember some discussion about whether it might be included in the legislative obligations attached to the FSA and passed through to the Bank of England.

My second area of concern relates to who exactly makes the decisions. There are trigger points during a crisis at which it is clear that one person provides information and another says, "This is what we are going to do." I am always uncomfortable about such a process. We still have some refinements to make on this.

The hon. Member for Tatton has departed to the event that will keep him away from the wind-ups, so I shall have to address the hon. Member for Fareham (Mr. Hoban) in the hope that he may pass this point on. The hon. Member for Tatton gave an exposition of the support that he appears to be getting, but some of that comes from those who, as I have said, are naturally looking to their own futures and wish to make positive remarks to what they see as a possible Government in waiting. If I were in such a role, I would not want to be dismissive or rude about proposals put to me by an Opposition who appear to be leading in the opinion polls. We have to understand human nature.

Christopher Fraser: I am listening carefully to the hon. Gentleman, but does he acknowledge that the lack of co-ordination among the tripartite authorities, as has been described, has contributed to the severity of the financial crisis we are going through?

Mr. Todd: I do not think that that has contributed to the severity of the crisis; I think it did contribute to the slightly muddled handling of the crisis at its very beginning. The report that the Treasury Committee prepared on the initial stages of the banking crisis usefully highlighted some of the difficulties of communication both between the tripartite authorities and, perhaps equally importantly, outwards to the rest of us, as they acted. I do not think that there was a proper process of public exposition of what was going on to critical market makers and to the general public.

Christopher Fraser: Therefore, if we do not tackle the structural problems with regulatory reform, there will be more ambiguity about where responsibility lies. Does the hon. Gentleman agree with that?

Mr. Todd: On that, I would side with the hon. Member for Twickenham by saying that structures do not necessarily clarify responsibility or improve communication.

I am leaving this House at the next election, so I do not mind saying one or two things that I might not have said on another occasion. I went through the painful process of observing health service reform, as I suspect that we all did-certainly those of us who have been here since 1997-and the obsession with structural reform
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in the health service is an exact example of the atrophy that can be produced if that obsession is followed through. We end up freezing people's actions for a period; they worry about their careers and try to work out where they will be doing their jobs and how they will carry out their responsibilities instead of doing the things that we genuinely want them to do. The Government have not been guiltless of an obsession with structures. I advise the Opposition, should they have the opportunity to implement their plans, not to follow those obsessions.

Let me turn to other positive elements of the Bill. I will be very surprised if anyone pops up in this debate and says that living wills are an unwelcome proposal. There is an issue with quite how they will be implemented, but I would probably argue with the hon. Member for Tatton, were he here, and say that part of the exercise is to tighten corporate rigour over the understanding of the structures and risks. One of the difficulties that we have seen is the extraordinary engineering that sometimes goes into corporate structures in the financial sector, which is perhaps lost on some of the board, too. An attempt to force companies into at least applying rigorously an understanding of how their organisations fit together and therefore how they might be deconstructed at some stage in the future, should it come to that, is a helpful process that they should have to go through. Yes, it is tiresome and possibly bureaucratic, but it will possibly also expose areas of uselessness and pure engineering in an activity rather than areas of functional need. It is certainly useful for the regulator to understand that process, too.

That is only one element of addressing the issue of whether such institutions are too big to fail. I, too, take the view that capital and liquidity obligations are almost certainly the key element of dealing with the "too big to fail" argument. However, I do not rule out the approach that the Governor of the Bank of England has, I think espoused-if we do not force the break-up of these institutions, we should at least structure them in such a way that taxpayer risk is more confined. If one chooses a corporate model that includes a retail bank and an investment bank structure, we should at least have some means of limiting the taxpayer liability to the service element of the banking institution that we are supporting. Such a provision is worth considering and is not developed within the Bill.

When it comes to improving corporate governance, although it is certainly true that there has been regulatory failure-those who do not think that should look at the internal audit report that the FSA produced after Northern Rock-there has clearly been behavioural failure too, which is not the responsibility of regulators but is possibly to do with the nudges, to use the fashionable term, that we try to apply to prompt appropriate action among those who are carrying out functions in our society. I assume that the new powers on financial reporting, which I believe that the Treasury will be taking, will address the Walker recommendations on risk committees, giving them a separate reporting stream in corporate governance. Perhaps we will hear more about that in Committee.

Although the regulation of remuneration, which many have commented on already, is certainly popular, it has a rather muddled parentage. In considering this Bill, we should be concerned about whether high bonuses or pay should be subject to regulation only if they increase
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the risk of the institutions. That is how they should be considered; it is not for this House to consider in this Bill whether it is equitable to pay people staggering amounts for carrying out their tasks. There is a question about whether society should permit that and whether people should be taxed more, but that is a separate issue that the House should certainly consider but in a different context.

Our decision making on that should be informed, but not wholly governed, by competitive pressures. We are too easily persuaded by financial institutions saying, "If we do this, all these people will wander off and go to the United States, Switzerland or wherever else they think it might be advantageous to go"- [ Interruption. ] I am not saying that we should ignore it. We should be informed by it, but not necessarily governed by it. One point that we should be governed by, which is important and that again came up in the discussions on the Banking Bill, is the fact that we should not threaten the contractual nexus between an employer and an employee.

One element of this Bill, cited by the hon. Member for Tatton, touches on what the Government might intend if they outlawed certain pay and remuneration practices. Although I would not subscribe to the view that our problems have stemmed wholly from a failure of regulation, there are ways in which we can encourage rational and prudent behaviours and discourage the opposite. These include addressing remuneration models and strengthening risk governance and reporting. They should also cover strengthening the capability of non-executives and the robustness of the relationship between shareholders and the board.

One of the saddest elements of listening to the evidence given in the Treasury Committee has been listening to banks talking about their interaction with shareholders. Perhaps the most telling remarks were those made by representatives of HSBC, who related how they were strongly criticised by shareholder representatives for their conservative models of banking. Shareholders also totally ignored some of the evidence that lay before them of extraordinary risk: the ABN AMRO acquisition was endorsed by RBS's shareholders. It is worth thinking carefully about how shareholders can be better empowered and informed in making critical decisions about their interest in companies.

Let me turn to clause 6, which has not yet received any attention and which covers the education role of the FSA, establishing a new consumer finance education body. I strongly welcome the operational separation of the FSA from the education function and the broadening of the governance of that critical activity, which I take to be the implication of setting up the board. Presumably, the body will absorb all the FSA's function in consumer education, including the work carried out by PFEG-the Personal Finance Education Group-in schools. It is worth commenting on the FSA's view of how it carries out those functions now.

In an exchange between Lord Turner and me in the Treasury Committee last week, I pointed out that the FSA had certainly caught "targetitis". A huge screed of targets have been set for achievement in financial education, but if one glances through them to try to make sense of their qualitative elements-in other words: what difference are we making by doing what we are doing?-the report is almost entirely silent.

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Dr. Pugh: The hon. Gentleman may have noticed that the Chancellor of the Exchequer referred to the fact that such schemes were being trialled in the north-west. It would be interesting if he could tell us exactly what the quantifiable results of the trials were.

Mr. Todd: The hon. Gentleman raises an interesting point, on which I cannot enlighten him. I can say that if one glances through appendix 7 of the FSA's annual report, one finds an example of the way it reports targets. It was set a target of reaching 516,000 children in England with a learning money matters project and reported that it had exceeded the target by reaching 742,500 children. As far as I can tell, that figure seems to be the number of schools to which the FSA sent material multiplied by the number of pupils who were presumably in those schools, so one wonders whether the word "reach" is appropriately applied to such a limited and-from what I know about the distribution of the packs-doubtful link to a school institution. There is a lot more. I picked only the first two targets.

A lot of money is being spent on that objective and more is to come, so clear quality indicators are required, showing what difference has actually been made by providing those services. No one doubts that providing financial education for children and for consumers at large is very important, but what I have seen is of relatively limited quality. Quite often it is fancy stuff; as an MP, I should be proud to give it to constituents, but I wonder whether they would actually use it. I have repeatedly raised concerns about the issue, but have not been satisfied, so if the measure improves the governance of the programme, I shall be delighted.

Finally, I welcome the measures on facilitating collective proceedings by consumers. It is an important step. I note the concern of the banking industry and its opposition to the proposal, but I merely note it-they would say that, wouldn't they? We should obviously listen carefully to detailed representations, but we should press ahead on the principle. We are dealing with complex products and services, and without the aid of a representative body the ordinary consumer at large is often ill-placed to pursue a complaint against a financial institution. Giving consumer groups a clear role would leave it far less to chance that well-informed and resourceful consumers will sometimes win through in the end. I represent someone who has been fighting their way through energy issues-an almost equally complex area-and it is a delight to deal with someone who is really getting to grips with the detail. However, the experience has left me feeling that vast numbers of people do not have the time, expertise or will to go through such a process. That definitely applies to the financial market, so if collective action is to be the first step, I welcome it.

There is a lot to welcome in the Bill and I very much hope that we will be able to pass it before Parliament is dissolved.

8.33 pm

John Howell (Henley) (Con): I want to return to the subject of architecture. I looked in some detail at the Official Report of the Queen's Speech debate on the economy in the other place, and particularly at the remarks of Lord Myners. It was difficult to see where he was departing from the view that the financial architecture was important; indeed at one stage, with
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consummate cheek, he accused the Conservatives of not being good at seeing the big picture of financial architecture and economic challenge, so I wondered whether the Chancellor's comments earlier, when he tried to downgrade the importance of the architecture, expose something of a rift between him and the City Minister.

There is no better example of the Government's failure to see the big picture and the need to change the financial architecture than the Bill. It is a superb example of how the Government have failed to see that the crisis has made the need for a big picture change more necessary than ever. They fail to realise that it is no longer the case that just a bit of restoration to a slightly damaged canvas is required-changing the artistic imagery slightly. Instead, we need a new canvas. Instead, what we get in the Bill is detailed draftsmanship and micro-management to hide the fact that the proposals introduce little substantive change to the overall regulatory architecture of the financial sector. That is largely concealed behind quite profound changes in consumer protection and consumer action, with many of which I, like the hon. Member for South Derbyshire (Mr. Todd), agree.

In summing up in the Queen's Speech debate in the House of Lords, Lord Myners said that the Bill would ensure that the financial system was

continuing the image of architecture that has pervaded the debate. That may be his aim, but it is difficult to see how this Bill rebuilds anything. He has presumably forgotten that architecture is relevant only if the building has strong foundations, and that merely slapping on a coat of paint and papering over the cracks does nothing.

Christopher Fraser: Does my hon. Friend agree that the way in which the Bill is structured leads to more ambiguity about where responsibility lies, and does not tackle the fundamental problems?

John Howell: I do indeed agree, and I thank my hon. Friend for his intervention. I will say something about that in a few moments.

The Bill does nothing fundamental about those issues, as is demonstrated by the fact that it has at its heart the preservation of the tripartite system, albeit that that system will be enhanced by more regulation. I was interested in the comment by the hon. Member for Coventry, North-West (Mr. Robinson), who is no longer in his seat, that there is risk in changing the financial architecture. I agree; indeed, there was a risk in changing the architecture to the tripartite system in the first place, and the results are now coming home to roost. The question is not whether there is risk involved, but how that risk is managed. That goes to the point that my hon. Friend the Member for Tatton (Mr. Osborne) made about how the new structure would look under a Conservative Administration.

As so often with this Government, there are only two tools in the toolbox. The first is the target culture, which is seen here in the role of the FSA, and is pursued elsewhere through the declaratory legislation of the Child Poverty Bill and the fiscal responsibility Bill, which will encourage special interest groups to drag the
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Government through the courts when targets are not met, until economic policy decisions will inevitably be taken by judges rather than Parliament.

The second tool in the box is regulation, of which the Bill before us promises much. As with so many other Bills that rely on regulation, however, we debate it in a vacuum and we do not get to see the regulations into which the substance of the Bill has been hived off-sometimes not even in Committee. I therefore ask the Government to outline the timetable for producing the draft regulations associated with the Bill-particularly those on collective proceedings-and to ensure that they will be available to the Public Bill Committee, because I am volunteering to serve on it, given the fundamental nature of the Bill.

There is every indication that the Bill has been rushed through without as much thought as it deserved, notwithstanding the recent White Paper. Although there was consultation on the White Paper, I am struck by the number of organisations that have complained at the lack of consultation on the detailed proposals in the Bill. Clifford Chance makes that clear in an article in Lexology on 24 November, in which he says:

Maggie Craig of the Association of British Insurers is quoted in an ABI press release as saying that she is

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