The Economic Secretary to the Treasury (Ian Pearson): High frequency trading practices and the firms that use them are subject to existing regulation, which includes provisions covering behaviour and market conduct. The Financial Services Authority will take action if those provisions are breached, and it continues to assess the risks from changing market practices, in consultation with other securities regulators.
Susan Kramer: The Minister will be well aware that nanosecond ownership of shares fundamentally changes the relationship between the shareholder and the board of directors, and therefore corporate governance. However, small firms that are, in a sense, not suitable for high frequency share trading will find it more difficult to raise equity capital, and such trading is related to a lot of activity that takes place off the exchanges in so-called dark pools. Does he not think that this at least deserves some detailed scrutiny and review before we walk into another disaster involving instruments that we do not understand?
Ian Pearson: I agree with the hon. Lady that this needs detailed scrutiny and review. She might be aware of the paper that the Treasury issued on Friday entitled "Risk, reward and responsibility: the financial sector and society", which discusses a number of these issues. I am not sure that I agree with her point about liquidity and small companies, because there is evidence that high frequency trading is an important way of ensuring that there is additional liquidity. She will be aware, however, that the Committee of European Securities Regulators will be giving advice to the Commission next year on the review of the markets in financial instruments directive, which will certainly include the issue of high frequency trading and the nature of the changing equity market.
Dr. Tony Wright (Cannock Chase) (Lab): May I ask my hon. Friend about speculative share trading in Cadbury? The City Minister, Lord Myners, said recently that he thought that it had become far too easy for British companies to be taken over. Does my hon. Friend agree, and if so, what can be done in Cadbury's case?
Ian Pearson: I do not think that it would be appropriate to comment on individual cases. The UK has a long-established regime of open markets and a stock market, and all publicly listed companies are for sale; that is the nature of listing. I am confident that Cadbury is a well-run company. It is putting up a strong defence, and it will be up to shareholders to decide how they want to vote and support it.
Mr. Darling: I have never seen the attraction of a flat tax at the best of times. It would mean that people at the top end of the income scale would pay rather less than those at the bottom, and at this time, of all times, there ought to be fairness. Of course, I do not think that a flat tax would help businesses at all. The targeted measures that we are putting in place, such as giving businesses time to pay their tax, allowing them to carry back their losses and the reduction in VAT, are helping-and will help-business.
Mr. Darling: I think that I said in my statement on the pre-Budget report that about 850,000 firms had benefited from that measure. It is important that we do everything we can to help small businesses, because after all, they employ a great number of people and will, hopefully, grow into larger businesses.
Mr. Michael Fallon (Sevenoaks) (Con): Is not the reality that businesses in our constituencies still cannot access the credit that they need, and that all this newly printed money is being siphoned off into purchasing gilts to finance the extra borrowing that is a direct result of the Chancellor's failure to come up with a proper fiscal plan to reduce the deficit?
Mr. Darling: No. I believe that the quantitative easing measures taken by the Monetary Policy Committee of the Bank of England are helping the process of recovery. The hon. Gentleman has a point, however, about bank lending. As I have said before, the stock of lending is broadly similar to what it was before the crisis. In addition, the banks in which we have major shareholdings -RBS and Lloyds-have lent an additional £50 billion. At the same time, however, there has been a repayment of lending by other businesses, which is why the net figure looks so low. As I said last week, it is necessary that the deficit be reduced, and we will halve it over a four-year period once recovery has been established-but it is important to ensure that we get that recovery established.
Stewart Hosie (Dundee, East) (SNP): This recession is longer and deeper than either of the recessions of the 1980s and 1990s. Unemployment and youth unemployment are higher than they were in 1997, so the decision to add an additional national insurance burden for employers seems to make no sense, as it will weaken businesses' ability to create jobs. Does the Chancellor not agree with the chamber of commerce in his home town of Edinburgh that that makes no sense, and that he should have been incentivising job creation, not penalising it?
Mr. Darling: We have introduced a number of measures to help people get into work, and there are 2.5 million more people in work now than there were in 1997. Also, unemployment would have been much higher if we had followed the course of action taken in the 1990s and the 1980s. The measures that we are taking are working, and they are making sure that we are getting people back into work much more quickly than was the case in the past. Most people find work within six months, and many get back into work in a much shorter period. We will continue to do whatever is necessary to maintain jobs. That is important in every part of the country, including Scotland.
Dr. Phyllis Starkey (Milton Keynes, South-West) (Lab): May I report back to the Chancellor the information that I was given yesterday by the Volkswagen training centre in my constituency about the car scrappage scheme? I was told that it had been hugely successful in boosting jobs, particularly in the motor retail sector. The centre's evidence showed that it had been taken up by people who would not have bought cars otherwise, and especially by large numbers of elderly motorists and women. They valued the simplicity of the scrappage scheme and found it very useful.
Mr. Darling: I met one such customer in Manchester last summer-[Hon. Members: "That's two, then!"] On the basis of those two anecdotal pieces of evidence, I am sure that we must be on the right track. Rather more importantly, however, since the Budget last year there have been 290,000 orders for new vehicles. We have made a further £100 million available, and the scheme is an example of how a comparatively small amount of money has helped the confidence in the motor industry, which is a major employer in our country. In addition, Honda has announced that it is switching some production from Japan to this country, and Nissan too has reported an increase in production. This is an example of a policy making a difference to a very important part of our country's industry.
Mr. George Osborne (Tatton) (Con): Businesses need a credible plan from the Government to deal with the fiscal deficit. The universal reaction last week from every single business organisation was that that plan does not exist. One important step that the Chancellor could take today is to be honest about the real-terms cut in departmental spending that the figures that he announced last week imply. Will he confirm what Treasury officials told the Treasury Committee this morning and give us, in the Chamber now, the projections for departmental spending that he refused to give last week?
Mr. Darling: First, we have set out a plan to cut borrowing by half over a four-year period. I understand the hon. Gentleman's view, which is shared by some others as well, that we could go further and faster. However, I believe that attempting to do what we are doing in a period one year shorter than that would result in taking £26 billion more out of our economy. That would be damaging to our economy and very damaging to our future prospects, which is why I do not think that his policy on this matter is right.
Secondly, in relation to departmental spending, I said in the pre-Budget report last week that I wanted to ensure that we could protect front-line services in the NHS and in schools, and make sure that we had sufficient police on the beat. I made that clear, but I also made it clear that I was not going to fix individual departmental expenditure limits for each Department at this stage, because there is still a lot of uncertainty around. We already have spending for the next year; that remains my position.
Mr. Osborne: I do not think that the Chancellor can be aware of the universal reaction to his PBR statement last week. The international markets believe that there is "no coherent plan" in the UK, that our sovereign credit rating is "vulnerable" and that interest rates are going to be forced higher, leading to the UK losing its "top-notch status" for the first time ever. Every single business organisation slammed the report as being no plan for recovery, and the Chancellor completely betrayed the high responsibility of his office, which would have been to stand up to a Prime Minister who is pursuing a policy of scorched earth and political dividing lines.
I ask the Chancellor a very specific question: will he publish the departmental spending projections? I am talking not about the projections for individual departments, but about the overall departmental expenditure limits that we had to leak after the PBR. His Treasury officials told the Treasury Committee this morning that they would, so will he publish that information this afternoon?
Mr. Darling: I said to the hon. Gentleman that we had not fixed the spending for individual Departments, and until that time it would not be right to speculate on what each Department might or might not get, because there is so much uncertainty. In relation to the general point that he makes, I believe that what we have done is the right thing for the economy. We are supporting the economy. To start taking money out of the economy now, as he proposes, would damage our prospects for the future. It is important at the same time to set out a clear path for reducing the amount of borrowing, and I have done that as well. We are one of the first countries to do that. That is a sensible way of proceeding, it is the right thing to do to support our economy, and it is the right thing to do to support jobs, which Labour Members, at least, regard as being of paramount importance.
Mr. Bellingham: Does the Chancellor agree that his Government's decision to remove from the Bank of England its banking oversight and regulatory function was incredibly misguided and short-sighted? Does he also agree that that is one of the main reasons why the banking and financial crisis in Britain is worse than in practically any other country-apart, perhaps, from Iceland?
Mr. Darling: No, I do not agree with the hon. Gentleman. That had nothing to do with the origins of the crisis in the banking sector. The start of the problem was that too many banks, particularly in the United States in the sub-prime market, took on risk that they did not understand. If the hon. Gentleman was right in his analysis, there would not have been a banking crisis in any other country. The fact is that every developed country has experienced this-and as the hon. Gentleman knows, they all have different models in relation to regulation and supervision. The primary responsibility for any organisation must rest with the board of directors of that organisation, and in too many cases they were found wanting. I do not agree with the hon. Gentleman. I think that his analysis of what happened is wrong.
Andrew Mackinlay (Thurrock) (Lab): In his discussions with the Bank of England about regulation, has the Chancellor discussed, or will he discuss, the involvement of Lloyds TSB in the practice of "stripping"-laundering money-from Iran via London into the United States which has caused it to be fined more than $300 million as a preliminary fine, which ordinary people in the UK are having to pay as a consequence of their ownership of Lloyds TSB?
Mr. Darling: No, but I know that my hon. Friend has raised the matter before. I will write to him about it. I had better do that, for the sake of completeness, and I will arrange for a copy of the letter to be placed in the Library.
"that we have with the Bank and the FSA is the right one."-[ Official Report, 30 November 2009; Vol. 501, c. 876.]
Given that we have seen loan-to-value ratios of 125 per cent. and rampant self-certification in domestic mortgage lending going unchecked, warnings about the asset price bubble going unheeded, a banking system that came within hours of collapse, and total taxpayer exposure to that banking system now equivalent to about £40,000 per
family, could he tell the House what kind of disaster it would take to persuade him that that structure was not the right one?
Mr. Darling: The hon. Gentleman is working on the basis that it was the regulatory structure that caused those problems. Equally, I might ask him how he thinks reversing the FSA into the Bank of England, with the same people doing the same job, would automatically have meant that the problem would not have arisen. I have explained to the House on many occasions what the problem was. Principally, it was a failure in relation to those responsible for running the banks-a failure to understand the risks to which they had become exposed. Yes, there were mistakes in the regulatory system and the supervisory system in every major developed country in the world. There is no doubt about that, but I honestly do not think that putting the FSA into the Bank of England would have prevented the problem from arising in the first place. I remind the Conservative party that just a few weeks before the crisis, the one policy that it had come up with was a policy that it was not necessary to regulate mortgages, because the risk lay with the institutions not with the individuals. Look where that policy would have ended up.
4. Mr. Ken Purchase (Wolverhampton, North-East) (Lab/Co-op): If he will commission comparative research into levels of remuneration in (a) the banking sector and (b) the public sector; and if he will make a statement. 
The Chief Secretary to the Treasury (Mr. Liam Byrne): I am happy to look at the case for this research. We understand the pain both of the banking sector and of the public sector quite well, and we are introducing reform to both.
Mr. Purchase: But does the Minister understand the anger that is reflected in the response of public sector workers to the pre-Budget report, when they see the incomes being given, granted to or thrown at the banking sector? Does he not understand that he must take further measures in order to redress the balance? When the economy returns to good health, will he make public sector pay a priority for the Government?
Mr. Byrne: Fixing the very poor level of public sector pay that we inherited was of course a priority for us, and that is why over the past 10 or 11 years the pay of teachers has gone up by 52 per cent., that of police officers by 57 per cent. and that of nurses by 65 per cent. I think that, by and large, we have fixed the investment gap that we inherited from the Conservatives, but as we move into the years ahead we have to prioritise halving the deficit over four years. That is why we are asking for pay restraint in the public sector, starting with public service leaders, whom we are asking to take a pay freeze next year.
Dr. Vincent Cable (Twickenham) (LD):
On the Government's proposal to tax banks' bonus remuneration, are the Government yet in a position to say which of the 192 regulated banks it will apply to; what the main exempted categories are, be they shares or contractual
agreements; and, as it will take a long time to suss out the difficult avoidance possibilities, whether they have ruled out the possibility of extending the policy into the next financial year?
Mr. Byrne: I understand that the draft guidance has been published. The proposals that we have introduced are designed to bite on banking groups, but we remain open to the possibility of extending the legislation and the tax if the avoidance measures that some have talked about are put into practice.
Dr. Cable: But does the Minister not agree that one of the important pieces of unfinished business is the largely taxpayer-owned £1.5 billion bonus pool in RBS? As the board of directors publicly defied the Government over that matter, do the Government propose to take any further action, either by replacing those directors or by giving them fresh instructions about how to deal with that bonus pool?
Mr. Byrne: RBS is a bank in which we exercise a certain degree of influence over remuneration policies-but the hon. Gentleman will be pleased to hear that its management have not yet made proposals for a bonus pool.
Kelvin Hopkins (Luton, North) (Lab): If my right hon. Friend undertakes the research that my hon. Friend the Member for Wolverhampton, North-East (Mr. Purchase) suggested, will he look back to 1979 and see how pay levels have changed since then? Will he look in particular at how the take-home incomes of the richest have been affected by the massive tax cuts for the rich that the Tories introduced at the time?
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