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"alarmed this is being rushed through without proper consultation with industry. This is too important not to get right."
The lack of consultation is implicit in the comments from PricewaterhouseCoopers partner Jon Terry about the unintended consequences of the clauses about the power of the FSA for contracts, and about the distraction that those could cause when it comes to ensuring that risk is properly taken into account.
As other hon. Members have asked, why do we need a law to bring the Chancellor, the Governor of the Bank of England and the head of the FSA together, when there is a mechanism for doing that already? The answer was provided by a nameless Treasury spokesperson who was quoted in the "FT Adviser" website article. We now find out why the Bill is required. He is quoted as saying:
"We will be replacing the existing structure of the Tripartite arrangement where we meet strictly on an ad hoc basis and never publish any minutes of our meetings and never reporting to Parliament. Now they will be formalised and just like the Monetary Policy Committee they will have formal minutes."
Well, there we have it-the real purpose of the Bill and its real impact. The Bill is required because the Chancellor, the Governor of the Bank of England and the head of the FSA cannot keep minutes. The real title of the Bill should be "A Bill to make provision amending the Financial Services and Markets Act 2000 and for the installation of good practice in minute keeping by the principals in the tripartite system."
I am sure that we will all now feel much safer because of that-but things get worse. The Government's response to the House of Lords Economic Affairs Committee recommendation on the new tripartite system is that the new council will replace the existing memorandum of understanding. It clearly has no real Executive functions. As my hon. Friend the Member for Wimbledon (Stephen Hammond) said earlier, this is nothing more than a
rebranding. It fails to address the serious concerns raised by many people, such as Professor Wood of the Cass business school, that
"the tripartite structure is fundamentally defective."
"Everyone made mistakes...but it is quite clear that the actual structure of the regulatory system was not satisfactory before the crisis."
So I am left with four questions for Minister to answer on that part of the Bill. First, does he not accept that there was at best a lack of co-ordination between tripartite members, and does he really believe that the Bill will fix the problem? When meetings are so formal and the structure so inflexible, how will the system operate in a crisis? Any company that faces a new structure will at least have done some comprehensive modelling of what the new structure would be like, and those who take a proper risk approach will have done some modelling of how it would work in a crisis. Surely we should expect the same diligence to be undertaken by the Government in relation to what they propose in the Bill.
Secondly, does the Minister accept that the Bill will introduce more ambiguity about where institutional responsibility lies? My hon. Friend the Member for South-West Norfolk (Christopher Fraser) asked that question in his intervention. Thirdly, does the Minister accept the advice from the House of Lords Economics Affairs Committee that
"for crisis management to be effective, it needs to be clear who is in charge",
and also accept that the Bill does not answer that question? If he is unwilling to listen to advice from the Opposition, is he willing to take on board the comments of the CBI, CMS Cameron McKenna and the Association of British Insurers about the remaining confusion of responsibilities that the Bill will create?
"A disadvantage of giving the FSA an explicit objective for financial stability is that this would perpetuate some of the ambiguities regarding institutional responsibilities that were apparent in the build-up to the financial crisis."
Cameron McKenna says that this
"is old wine in a new skin-merely another way of expressing the existing Tripartite authority which has not delivered the stability that is needed."
"We are concerned that the proposal to give the FSA a financial stability objective will exacerbate the confusion of responsibility between the Bank and the FSA".
Finally, does the Minister accept that the new role for the FSA that the Bill proposes is a rebranding exercise, without any meaning without more fundamental change? How else are we to interpret the Government's response to the House of Lords Economic Affairs Committee recommendation at paragraph 115, about the need for executive responsibility? How else are we to interpret the Government's response that the Council for Financial Stability will work essentially by reviewing publications about the problems that are happening? It does not sound as if a dynamic institution is being suggested. This is the time to give power for macro and micro-regulation and responsibility for financial stability to the Bank of England, so that we know that somebody competent is in charge.
There are two other areas on which I would be grateful for the Minister's comments in his winding-up speech. It is clear that the need to ramp up consumer protection issues so much in the Bill is an indication of a failure to take consumer protection into account in the tripartite arrangements that were put in place by the Prime Minister. I welcome a focus on the need for consumer education. There are 9 million people in the UK in serious personal debt, and British consumers are twice as indebted as people in the rest of Europe. There is very little financial education around-so little that a MORI poll from 2004 showed that only 30 per cent. of people could work out a simple interest rate calculation.
It is not only people on the lowest incomes who are likely to enter into serious personal debt. High debt can push people on higher incomes into poverty, too. We know that there is a circular link between personal indebtedness and social problems, and that debt is a cause of social problems. Recently, the Save the Children campaign calculated that the present recession has caused 5.2 million households to be classed as sub-prime, and 25,000 consumer credit applications are turned down every day.
It surely defies credibility that financial education should come from the FSA, given its record in the present crisis. I tend to agree with the British Bankers Association that this should be dealt with elsewhere and should be more fundamental. That is why our proposals for a strong new consumer protection agency are so important, setting it out as a champion for consumers.
I remain concerned about the practical implications of the use of the courts proposed in the class action proposals. Given that the courts are likely to be snarled up by judicial reviews of Government economic policy, one wonders whether there will be any room for consumer cases to be heard at all. But this is a serious issue and many commentators have commented on the fact that the proposals will create a US-style litigation culture. It would therefore be good to hear from the Minister what work has been done to show that that culture in the US has benefited customers, and what lessons have been learned by the Government in framing the Bill and the regulations that will come with it.
This is an area that would have benefited from wider consultation, to ensure balance if nothing else. I would like to hear more about how the Government see the balance which will be required between the responsibilities and the rights of consumers.
I want to ask some questions of the Government about how the Bill will relate to emerging regulations from the EU and the direction of travel in relation to the G20. I listened with great care to what the Chancellor said at the beginning of the debate about the red lines and the connection with regulation. I am not yet convinced that any of us understands precisely how those red lines will work, or how the Government's stance in the Bill will be taken forward.
I have two issues in mind. As the Minister knows, the Commission issued a Green Paper on collective redress, setting out a number of options for settling large-scale consumer complaints. That was followed by a period of consultation earlier in the year, which produced conflicting results not only on whether collective redress was desirable, but on how it should be implemented. I understand that some leading European lawyers have questioned whether, under EU law, there is a clear legal basis for consumer
collective redress. I am therefore keen to know to what extent the Government have taken into account the Green Paper and the underlying consultation, and whether their proposals conflict with European law.
In September the European Commission adopted proposals aimed at addressing regulatory weakness at micro and macro-prudential level through the creation of a European system of financial supervisors and a European systemic risk board. The Chancellor covered some of that, but I would still be grateful if the Minister who is to wind up could say what the relationship will be between what the Bill proposes and what the Commission proposes.
Looking more widely at the implications in terms of the G20, concerns have been expressed that the speed with which the Government are acting in the Bill, in advance of similar proposals from other countries, is a distinct competitive disadvantage. That has been expressed mostly in terms of the power to control remuneration contracts, but also in terms of creating living wills. The CBI has pointed out the need for the consistent action that other countries are taking if we are to avoid damaging the UK's competitiveness, and PricewaterhouseCoopers has commented on how the provision as drafted may catch others whom it was not originally intended to cover. Indeed, Lord Myners dismissed that with a rather populist phrase about curbing "reckless greed", but I hope that the Minister will treat the subject more seriously and tell us how the proposals go further than merely treating the symptoms of the disease, and get to the heart of the cure, which would involve a complex culture change in the appreciation of risk-a much broader and more complex subject.
The noble Lord dismissed concerns that the UK's unilateral action would be contrary to competitiveness, stating that it was
"setting the trend and direction of global thinking",
so will the Minister tell us the likely time lag between our leadership of global thinking and others catching up and putting the same proposals into operation?
All that is important because of clause 8, which imposes a duty
"to promote international...regulation and supervision".
It also includes a duty in terms of
"the desirability of maintaining the competitive position of the United Kingdom in respect of financial services and markets."
The Library research paper on the Bill points out very effectively that the FSA is already involved in the promotion of international regulation and supervision. The paper notes that
"around 70 per cent. of the FSA's policymaking effort is driven by European initiatives, including the Financial Services Action Plan".
It also discusses the way in which the FSA already participates in other international forums, including
"the Basel Committee, the International Organisation of Securities Commissions, and the International Association of Insurance Supervisors".
After reading clause 8, and after listening to what the Chancellor said about the relationship between the UK and the world in his opening speech, I am left with an overriding question about what, additionally, the Bill delivers and what scope and tactics-strategy might be
too big a word for it-the Government have in place to deal with international regulation and supervision as part of their overall approach to the supervision and regulation of the financial services industry in this country.
8.53 pm
Derek Twigg (Halton) (Lab): I welcome the Bill, which will give consumers more protection, an issue that I shall dwell on in my speech. The legislation will also empower the FSA and the Government to introduce tougher regulation of banks and their risky practices; better protect the taxpayer; importantly, restore consumers' confidence in financial services by providing people with greater protection and education; and, very importantly, provide powerful and easier routes to redress when consumers have suffered widespread detriment.
Although we might be discussing how we will create better regulations to give the consumer more protection, we should not forget the impact of the banking and financial crisis on constituencies such as mine and the human cost, which is so often lost when we get to the detail of such Bills. Over the past year or two, unemployment has increased more rapidly in Halton than anywhere else in the north-west bar Knowsley. Recently, the unemployment rate has slowed, but it continues to affect many families and individuals in my constituency and elsewhere. People have found themselves unemployed for the first time. Indeed, one constituent told me that, until recently, he had not been unemployed in 38 years.
Many more people have fallen into debt, something that we are discussing as part of the Bill, and many have had their houses repossessed. We should not forget the impact on businesses, particularly small businesses. All that, of course, was caused by the incompetence and greed of bankers and financial institutions.
On executive remuneration, my constituents have raised with me the issue of greedy bankers and bank bonuses. Of course, I am not talking about the ordinary bank workers in the offices of local branches but those who take the decisions and make the big salaries. It is hard to ignore the link between the risky activities of companies at a corporate level and an incentive structure that rewards such risk-taking at an individual level. Knowing what we know now, it seems remarkable that the financial institutions and those who had responsibility for managing them did not recognise and understand the risks they were taking on and were unable to prevent the consequences or to put in place plans to deal with them.
I am pleased that the Bill gives the FSA new powers on bankers' pay. Importantly, it also gives the FSA the power to rule that employment contracts not compliant with the code are void and unenforceable, and to make provision for the recovery of any payment made under a void provision. There must be more transparency on the disclosure of remuneration and pay bands. Irresponsible behaviour has to be changed. I welcome the increased supervisory and information-gathering powers and punitive measures.
The provisions on the disgraceful practice of sending out unsolicited credit card cheques to consumers are particularly welcome. There is no doubt that that can encourage people to take on more debt when many are
already in financial crisis, and I am pleased that the Government will legislate to ban that practice. We have seen the usual bad practices with small-print conditions-for example, the interest rate applying to payments is not clearly stated in all cases, and it is sometimes not indicated that using credit card cheques to make payments means that cardholders do not have any redress against the credit card company. I welcome the intention to make it an offence for a credit card issuer to send credit cheques to a customer other than in response to a request from that customer.
Excessive bank charges have been the subject of ongoing discussion, particularly with the recent court ruling. That problem has to be dealt with, and I would prefer the Government to take more regulatory powers in order to do so. We should take action on unsolicited credit card limit increases that just appear through the letterbox. The practice of changing the interest on monthly credit card payments will particularly affect young people and get lots of them into debt.
I very much welcome the proposed establishment of the consumer financial education body and the provision of guidance on money. Several hon. Members have mentioned the importance of education on consumer credit and financial management. Consumer education and awareness is a key part of the Bill. Citizens Advice welcomes the establishment of the consumer financial education body, saying that it is a step change that will benefit consumers enormously. The work of citizens advice bureaux in delivering financial education has demonstrated the appetite and need for such training and the quantifiable improvement that it makes to people's confidence in dealing with their financial affairs. For example, according to Citizens Advice, 38 per cent. of clients who took part in the Save Xmas financial education sessions funded by the Office of Fair Trading said that they had since made changes to how they save.
From October 2008 to September 2009, citizens advice bureaux dealt with more than 2 million debt problems-an increase of 21 per cent. on the same period in 2007-08. I pay tribute to citizens advice bureaux, particularly the branch in my constituency, which does an excellent job, and with which I work very closely, in helping people in severe debt or other financial difficulties, which have been exacerbated by the economic downturn. I particularly commend its volunteer programme. I am pleased that the impact of debt on health is being further highlighted. That is why the primary care trust in Halton has been funding debt advice in addition to the money that the Government are putting in.
A few months ago, I met representatives from the Resolution Foundation, whose aim is to improve the well-being of low earners by delivering change for that income group, who are currently disadvantaged. The foundation identified that low earners fall into an "advice gap" whereby commercial advisers focus their attention on the better-off, and the third sector and the Government focus on the most vulnerable. Its research found that a low earner in receipt of money guidance could be £60,000 better off by the age of 60 by making sound financial decisions throughout their life.
A poll conducted by the foundation in March 2009 found that nearly 3 million low earners worry all the time about their personal finances-double the number in a similar survey in 2007. The CFEB will increase the profile of money advice, the wider financial capability
agenda and general financial education that so many people badly want to see. It will also be able to raise funding from a variety of streams, with no extra administrative burden on financial services.
Short selling has been mentioned. It has been an area of great concern at the outset of the crisis and since, and there is some discussion about how it should be regulated. I think it right that the FSA should have a power to place a restriction on short selling and require its disclosure. An independent power dealing with market abuse is very important, but I would like Ministers to provide further clarification, because points have been made about how such a power will be incorporated in the Bill and actually improve the situation. I continue to have serious concerns about short selling. I understand the benefits that it can bring, but we have seen far too much of the disadvantages of that practice, and I would like some more information on it.
Increased supervisory powers, information gathering and punishment are key measures that I support, but I also welcome measures to enable consumers to obtain redress and compensation more easily in cases of widespread consumer detriment.
I want also briefly to mention banks and bank lending. I know that there is a view that some banks have improved, but I still get constituents and businesses coming to me to complain bitterly about the banking system and how it does not help small businesses, particularly regarding lending. I am not suggesting that we have to put such regulations in this Bill, but we should consider the issue.
I welcome the Bill's main proposals, but there are certainly other areas, particularly those affecting consumers, that we need to look at. I hope we can discuss them at a later date.
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