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Apart from that, there some very important measures in this Bill, which go right to heart of the public debate. People have talked about bankers' pay, which is a major public concern. There is also a real awareness of the importance of the international regulations. I was pleased to hear my right hon. Friend the Chancellor speak about them in his opening address. I was particularly pleased to hear what he said about the credit ratings agencies-some of the real culprits in all this when they went on advising people about putting together hopelessly complex products and provided ratings for them. That then encouraged people to sell them when they were, in fact, houses of straw. I also greatly welcome the measures on consumer protection, particularly on the credit card cheques, in respect of which many hon. Members of all parties have campaigned for extra controls.
Nobody has mentioned clause 29, which I am particularly pleased to see in the Bill. It gives extra powers to the Financial Services Compensation Scheme. In all the disasters around financial services over the past couple of years, the Financial Services Compensation Scheme is just about the one organisation that has been extremely efficient and has managed to ensure with record speed that people have received the compensation owed to them. I am sure that the Financial Secretary will mention this in his concluding speech, but the clause would make it possible for the FSCS to ensure on an agency basis that all the customers of the Icelandic banks, for example, get paid out. That would mean that the money of overseas customers, or United Kingdom customers with accounts abroad, would be protected as well. I think that it would cover all internet banking as well, but perhaps my hon. Friend the Economic Secretary will clarify that point when he winds up the debate. In any event, it is a small but important measure.
I welcome the Bill, which I think will provide a way through a difficult situation and will help to put the regulation of our financial services on to a more secure footing in years to come.
9.30 pm
Mr. Mark Hoban (Fareham) (Con): We have had a thoughtful but rather low-key debate. That is surprising, given that the Bill is meant to be the central plank of the Government's strategy in the run-up to the next general election. There seemed to be no passionate desire among Labour Members to defend the existing structure of regulation in the United Kingdom, and they seemed to have no real confidence in their arguments. When Labour Members discuss the reforms that Conservative Members have proposed, there are no discussions about whether they are right or wrong in principle; we are merely told that they might be quite difficult to implement. That hardly suggests that Labour Members have confidence in the structure of which the Prime Minister himself was the author in 1997.
My hon. Friend the Member for Wimbledon (Stephen Hammond) spoke of the link between the financial crisis in this country and the economic crisis that we have experienced during what has been the longest and deepest recession since the 1930s. That point was echoed by the hon. Member for Halton (Derek Twigg), who reflected on the experience of his constituents and on the link between the problems of businesses and households and the financial crisis.
It is important to ensure that we produce the right response to the problems that we have seen over the last two or three years. Taxpayers have had to stump up billions of pounds in guarantees for the financial services sector. People have lost their houses, and businesses are under threat. We need to establish whether our current regulatory system has failed, and if it has failed-as we believe it has-we need to think about the right way in which to introduce reforms.
My hon. Friend the Member for Henley (John Howell) referred to the confusion that has arisen from the FSA's being given the objective of financial stability. Those of us who are veterans of the proceedings on the Bill that became the Banking Act 2009-such as the hon. Member for South Derbyshire (Mr. Todd), the Economic Secretary to the Treasury and the hon. Member for Northampton, North (Ms Keeble)-will recall our debate about financial stability. We discussed the problems involved in giving the Bank a responsibility for which there was no definition, and giving the Bank a responsibility without, necessarily, any additional powers to implement that objective. We also debated whether or not financial stability should be an objective for the FSA.
On that occasion, the hon. Member for Wallasey (Angela Eagle), then Exchequer Secretary, responded by saying:
"the FSA has important objectives in relation to financial stability and the Financial Services and Markets Act 2000, which has a direct bearing on what we are talking about. For example, the FSA has a responsibility for maintaining market confidence in the financial system. That, too, is about financial stability". --[ Official Report, Banking Public Bill Committee, 30 October 2008; c. 232.]
It appears that last year the Government were very clear about the fact that the FSA had responsibility for financial stability. This year they appear to have changed their mind. I wonder whether that has just a little to do with the problem that affects the Bill. The Government are focusing on cosmetic changes, producing the illusion of activity and reform without making any substantial alterations.
My hon. Friend the Member for Cities of London and Westminster (Mr. Field) expressed concern about the contractual relationship between employer and employee. The hon. Member for South Derbyshire raised a similar issue last year during the debate on what was then the Banking Bill. My hon. Friend also spoke of imbalances between the economies in the far east with current account surpluses, the role that they had played in supplying funds to London and New York and acting as intermediaries in the financial services markets in those two centres, and how that had fed the growth in credits and led to the asset price bubble that has burst to the cost of families and businesses across the country. He also touched upon the need to understand complex financial products. I think we would all agree that regulators and businesses failed to understand the nature of the risks in respect of these products, and the consequences of those risks when people were taking up products such as collateralised debt obligations, and CDOs squared, on a large scale.
The hon. Member for Coventry, North-West (Mr. Robinson)-who made a late bid to serve on the Public Bill Committee, if the Government Whip is looking for a volunteer alongside the hon. Member for South Derbyshire-was critical of the appointment of Michel Barnier as the Commissioner responsible for
internal markets, who has jurisdiction over financial services. We may well turn to this in more detail in the debate tomorrow on the Commission's proposals for reforming the architecture of financial supervision in the European Union.
The hon. Member for Coventry, North-West was right to be critical of that appointment. I sometimes get the sense in discussions on European financial services that the Treasury has let a matter rest for a long time and then rides in like the seventh cavalry, but ultimately fails to change things. We have had a flurry of activity over the past few days, with the Prime Minister and others trying to persuade President Barroso that Michel Barnier should not be appointed a Commissioner. All came to nought, however, because the Treasury and the Government did not wake up to the risks until it was too late. I fear that we will see the consequences of that inactivity over the course of the life of the Commission.
The hon. Member for South Derbyshire spoke about employment rights, and he referred to the Bill as a portmanteau Bill. That is an apt description, as it highlights the fact that it is a hotch-potch collection of provisions that lacks a coherent theme. It does not really address the financial crisis, or some of the consumer credit issues that a number of Members have discussed during the debate. He asked, rather cynically, "Well, what do the people who argue in favour of your Conservative reforms want?" I am not entirely sure what Jacques de Larosière, Austan Goolsbee or Stanley Fischer want from a Conservative Government, and I do not know what is in our gift to give them. However, the fact that they recognise that there needs to be significant reform of financial regulation, and that more powers need to be given to central banks over the regulation of the financial services sector, demonstrates that our proposed reforms go with the grain of international debate.
The hon. Member for Halton (Derek Twigg) talked about the impact of the financial crisis on the economy and on families and businesses in his area. That reminds us of the need to get the regulatory system right in order to minimise the risk of such crises arising again. He also referred to the indefensible practice of credit card cheques. Whenever I talk to people from the credit card sector, I always listen with fascination to their defence of these cheques, but there is no credible defence, and they should be scrapped.
The hon. Member for Northampton, North was the only Member on the Government Benches to offer even a slight defence of the existing regulatory regime. She gave an account of the discussions the Treasury Committee had with the Bank of England and others about complex products and the credit bubble. Part of the problem was that no one really had responsibility for financial stability or for working out what the impact of these risks would be on the financial system and the wider economy. That points to the gap in the system of financial regulation, which the Prime Minister established in the late '90s. No one had that responsibility, and sadly, the Bill does not address that fundamental problem.
There are no significant measures in the Bill that demonstrate that the Government have learned the lessons from having seen the first run on a UK bank in
living memory. There appears to be nothing in the Bill that would prevent that from happening again. Secondly, our economy as a whole has been massively over-leveraged because nobody took responsibility for macro-prudential regulation and the maintenance of financial stability. It now appears that the Bank and the FSA share that responsibility without there being any clarity as to what that means, and what they will do in practice. It is all still to take place within the framework of the tripartite arrangements set up in the late 1990s. We know from the criticism of those arrangements how badly they have worked. We still do not know who, in the final analysis, has responsibility for financial stability: is it the Bank, the FSA-or, indeed, the Chancellor of the Exchequer? We have gone from a situation where nobody had responsibility to one where everyone has responsibility, but neither is a satisfactory outcome.
It is not just banks that were over-leveraged; consumers were, too. Our consumers were more highly leveraged than those in America, and personal debt in the UK is equal to that in France and Germany combined. Where are the measures in the Bill to address that? As I said, we welcome the measures to ban unsolicited credit card cheques, but we have long called for the Government to go further in tackling some of the issues relating to consumer credit and rebuilding the savings culture in this country.
This financial crisis has wreaked devastation on consumers, families and businesses. We have seen the mis-selling of structured products, falling interest rates for savers and pensioners, and an increasingly concentrated banking sector. Again, nothing in this Bill gets to the root of why regulation is failing consumers. We welcome the measures in the Bill on collective redress and class actions, but it says something about the weakness of the regulatory structure that we have to find mechanisms for consumers to hold product providers to account. Where is the FSA or the Financial Ombudsman Service failing, if we need to give consumers those powers? We need to examine some of the fundamental failures in consumer regulation if we are to get this right.
The Bill fails to address the weaknesses in the regulatory structure and demonstrates the Government's failure to undertake the fundamental reform of financial regulation that we so desperately need. It is a long list of measures that are, in part, cosmetic; it is a restatement of what is already happening, rather than reform to address the structural failures entrenched in the reforms of 1997.
A number of Conservative Members have asked whether the Bill is about cosmetic change or about change to the architecture, and whether it is substantial or merely a rebranding. Parts of the Bill remind me of one of those TV makeover shows: people come in and there is a blaze of activity for a short time-new paint is put on the walls and a few new lampshades and carpets are put in-yet the reality is that we still have the leaky roof, the rocky foundations and the dodgy walls. They remain unchanged as the makeover team moves off, leaving the real problems behind for someone else to sort out.
What the people of this country need is real change, not some tacky makeover from a Government running out of steam, caught out by their own failings but lacking the courage to own up to their mistakes and scrap the system that they set up. The Bill does contain measures that we will support, but they need more
scrutiny, because they are being railroaded through the House by a Government afraid of robust scrutiny of the new powers being taken by the FSA.
These welcome measures should not obscure the fact that the Government could have used this Bill to achieve fundamental reform of the regulation of the financial services sector. It could have been used to establish clear lines of responsibility for maintaining financial stability and it could have dealt with the fundamental structural weaknesses in the system that the Prime Minister set up in 1997, but instead it has entrenched the problems of the past, ducking the questions about who should be in charge and avoiding real reforms that would have given real protection to consumers.
We require wholesale structural and institutional reforms with a fresh approach to regulation and supervision. The Conservatives have put forward detailed proposals that learn the right lessons from this financial crisis and would put us on a sustainable footing going forward. Instead of defending the tripartite structure, as the Government are forced to do, we would scrap the FSA and give the Bank of England enhanced powers over prudential regulation, thereby leaving nobody in doubt as to who is in charge. Instead of having a single organisation trying to tackle financial stability and protect consumers, we would create a consumer protection agency to act as a consumer champion.
What a shame that the Government will not admit their mistakes, will not own up to their failings, and instead blame everyone but themselves. It is clear that while this Government are in charge, we will not get the real reforms that this country needs; all we will see are cosmetic changes saving the face of the Prime Minister-the architect of the system that has so badly let down households and businesses across this country. It is becoming increasingly clear that the Government are incapable of learning and incapable of implementing the change that this country needs. Only a general election can bring about real and substantial reforms to the architecture of financial regulation to ensure that we give better protection to consumers, learn the lessons of the excesses of the past decade and put this country back on the right track.
9.45 pm
The Economic Secretary to the Treasury (Ian Pearson): The global financial crisis has led countries across the world fundamentally to review financial systems and their interaction with the broader economy. Last year and earlier this year, we ensured that the UK authorities had the power to deal with failing banks while continuing to protect consumers and taxpayers. Our economy needs well-managed, well-functioning banks and financial institutions to perform a vital set of functions, channelling investment and helping people to save and plan for the future.
Although a prosperous financial sector is in everyone's interests, so too is a stable one. Through this Bill, we have an opportunity to strengthen the financial framework so that the UK not only addresses the effects of the crisis but harnesses the lessons of the past two years, ensuring that in future any crises will not only be less damaging but less likely altogether. The Government's aim is simple: to ensure that the financial system that emerges from the crisis is not only built on a stronger and sounder footing but is fairer and works for consumers.
The tone of the comments made by the hon. Member for Fareham (Mr. Hoban) stood in stark contrast with those of the shadow Chancellor. I got the impression that the shadow Chancellor had thought deeply about this and that he disagreed with us on one fundamental issue to do with the structure of regulation, but agreed with large elements of the Bill. He said so. He said that recovery and resolution plans were a good idea and he supported lots of other elements of the Bill. However, I did not hear a shred of evidence to support the idea that the fundamental wholesale reform suggested by the hon. Member for Fareham would produce any benefits for consumers and investors.
It is clear that when it comes to structure there is a fundamental disagreement between the Government and the Opposition. The Opposition have made their views on the institutional framework clear, but their suggestion that if we had handed the FSA lock, stock and barrel back to the Bank of England we would have prevented the financial crisis, or would prevent a future one, is simply misguided. Putting together responsibility for regulating not just the big banks but the small ones-the smallest building societies, individual financial advisers and the smallest credit unions-does not make strategic sense. Many different institutions and frameworks exist in different countries across the world, but no model of financial regulation has been successful in fully insulating any country from the crisis.
The shadow Chancellor and the hon. Member for Fareham cited a number of people who support their view. We can do the same. The simple fact is that there is no perfect supervisory architecture. My hon. Friend the Member for Coventry, North-West (Mr. Robinson) quoted Andrew Large, who knows a lot about these matters. The solution, to my mind, is not to rearrange the responsibilities of those with a role to play in preserving financial stability, but to ensure that all responsible parties have the right tools at their disposal to maintain financial stability and that the right framework exists to ensure effective co-ordination of the authorities' activities.
We should not be talking, as the Opposition are, about shifting the deckchairs. We should be talking about strengthening the deckchairs so that they can carry the weight that we all now realise is required of them. It matters not who does the job, but that the job is done effectively and the institutional framework is clear and coherent.
At this critical time, we need the authorities to focus on reducing risk, not on having to deal with the disruption and uncertainty caused by unnecessary institutional upheaval. The hon. Member for Twickenham (Dr. Cable) made a valid point when he warned of the dangers that significant institutional upheaval could bring. Instead, by introducing the Council for Financial Stability, we propose a change from the existing standing committee arrangements. The council will be responsible for considering emerging risks to financial stability and co-ordinating an appropriate response by the UK's authorities. Most important, it will place financial stability arrangements on a more formal, transparent and accountable basis.
A second crucial element of the Bill relates to recovery and resolution plans, or living wills.
Mr. Oliver Letwin (West Dorset) (Con): Will the hon. Gentleman give way?
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