House of Commons
Tuesday 2 February 2010
The House met at half-past Two o'clock
Prayers
[Mr. Speaker in the Chair]
Oral Answers to Questions
Treasury
The Chancellor of the Exchequer was asked-
Financial Sector
1. Linda Gilroy (Plymouth, Sutton) (Lab/Co-op): What steps he is taking to protect the economy from the effects of excessive risk-taking in the financial sector. [314428]
The Chancellor of the Exchequer (Mr. Alistair Darling): Reform is necessary at domestic, European and international level to ensure that we have a regulatory system that can effectively monitor and, where necessary, curb risk-taking in the financial services sector.
Linda Gilroy: I thank my right hon. Friend for that reply. On the use of regulatory tools, has he noticed that commentators increasingly suggest that a more equal society is a more effective and efficient society? Will he use those tools to bear down on the very high incomes that we still see particularly in the banking sector?
Mr. Darling: I agree with my hon. Friend that it is important that we have a fair and just society; that we ensure that, when people are rewarded, they are rewarded for their effort; and, in the banking industry in particular, that the relationship between what somebody does and what they get should be better aligned. That is why we received the agreement of the G20 countries and imposed restrictions on what the banks in which we have shareholdings can do. I hope that over the next short period, banks in this country and others remember that they live in the same world as the rest of us. They ought to show restraint at a time when everybody else is having to pull in their belts.
Sir Peter Tapsell (Louth and Horncastle) (Con): As the measures already announced by the British and European Governments are widely seen as being inadequate "to stop the second shoe falling", will the Chancellor do his best to persuade the Financial Stability Board and the European Central Bank to embrace as many as possible of the proposals in the Volcker plan, so that we can have genuinely international bank reform?
Mr. Darling: I agree with the hon. Gentleman that global agreement on the reforms that we need is highly desirable. The proposals that the United States made 10 days ago, the requirements for increased capital, where necessary, to ensure that the amount of capital held is commensurate with the risk undertaken, and the measures to take forward the work on resolution plans-living wills, if you like-are all very important. They represent a common objective. For the reasons that I explained earlier, I do not take the same view of the proposal that might come from the United States on breaking up large banks. The real problem is the interconnectivity of institutions, and we need reforms on that. However, I certainly agree with the hon. Gentleman that, importantly, regulation in Europe and in the United States should move forward together, and that is one of the things that I shall raise at the G7 Ministers' meeting in Canada this weekend.
Ms Dari Taylor (Stockton, South) (Lab): Is it not the case that banks that mainly handle hedge funds are seen by many as casino banks? Is it not time that we looked at that world of hedge funds and separated their activity in banking terms from that of banks that handle everyday mortgage and saving-that is domestic-needs?
Mr. Darling: I do not think that the division that my hon. Friend provides is quite as simple as that. Hedge funds can perform a useful function, but it is important to ensure that, when banks engage in risky activity, they have sufficient capital behind them if things go wrong. That is why we are very happy to work with some of the proposals from the United States and, indeed, other parts of the world. Most people recognise that the situation is quite complex, and I see that the Opposition have now shifted their position from warmly embracing the break-up of banks to an assurance, which the shadow Chancellor gave to bankers at the weekend in Davos, that they would not do any such thing.
Dr. Vincent Cable (Twickenham) (LD): The Chancellor and I have agreed to differ on the Government's rejection of the Governor of the Bank of England's advice on breaking up those banks, but now that the President of the United States has made the case that proprietary and, indeed, wider, own-account trading by banks is dangerous and must be separated from traditional banking, do the Government not wish to rethink their position at all?
Mr. Darling: Interestingly, if one looks at Paul Volcker's proposals, which he made as part of his Group of Thirty proposals a year ago, one finds that he recognised that proprietary trading could be risky and recommended that greater capital be held against such risky activities. We have expressed that view before, and the issue clearly needs to be looked at. However, we must also bear in mind that most British banks do not engage in that much proprietary trading, and it certainly was not the root cause of the recent problems.
I say to the hon. Gentleman, as I have said to him before, that traditionally the regulatory system was modelled on the basis that if one firm was all right, the entire system was all right. Over the past 18 months or so, however, we have seen that we have to look behind that, because risks were laid off to institutions, which laid them off to further institutions. In some cases, we found that the first firm that had attempted to lay off its
risk was buying it back through another part of the empire, without having any idea of what it was doing. The interconnections of financial institutions are the problem, and that is why the hon. Gentleman's proposals do not fit the bill. In fact, he is rather like a general fighting the last war rather than taking account of where we are likely to be in the future.
Dr. Cable: The Chancellor says that this is not the basic cause of the problems within the UK system. Is it not true, however, that there were enormous losses within the Royal Bank of Scotland, for example, as well as within the mortgage lenders? Is not the real reason why the Government-and, for that matter, the Conservatives-are not willing to go down this route the fact that they have been persuaded by the City, for its own self-interested reasons, to adopt this position of a level playing field? Whereas the Government took the world lead in the bank rescue operation, they are now lagging behind the rest of the world in dealing with this very dangerous problem.
Mr. Darling: No, I do not accept that. If the hon. Gentleman reflects on what has happened since 2007, he will see that the problems were partly to do with liquidity. For example, Northern Rock was totally dependent on wholesale funding, and when that dried up, the bank effectively collapsed. However, the other problem was that too many firms, such as RBS, clearly did not understand the extent to which they were exposed, and because of that they got into difficulties. That was a feature of many of the banks that failed. We need, first, to ensure that we have adequate capital that stands behind the banks' activities, and that that capital is commensurate with the nature of the operations. Secondly, we have to ensure that in the event of a bank getting into difficulties there is a resolution plan-a living will-whereby the regulators of the banks know exactly what needs to be done and who needs to be doing what.
The crucial thing-this comes back to the point raised by the hon. Member for Louth and Horncastle (Sir Peter Tapsell)-is that it is necessary for us to ensure that the regulatory reforms are not just put in place here but done on a broad-based international basis. That is what we need, and it is in all our interests to ensure that it happens. Let us remember that at the end of the day we have to ensure that we have a robust regulatory system, but also a system that ensures that banks are there to provide credit for the economy, which is the objective of all the reforms that are being put in place.
Mr. George Osborne (Tatton) (Con): The Chancellor is proving quite a defender of the old model of finance. The President of the United States did not say that he wanted a return to a full-scale Glass-Steagall approach and the break-up of the banks; he said that he wanted to separate retail deposit-taking from large-scale proprietary trading, large internal hedge funds, and large internal private equity funds. I agree with him, and I think that these things should be agreed internationally. Could the Chancellor explain very specifically why he disagrees with the President of the United States?
Mr. Darling:
As I have said before, we have still to see the details of what the President is proposing; I understand that we will see more during the course of this week. I have to say to the hon. Gentleman that we are dealing
with a complex set of proposals. On the day that the President made his announcement, according to Robert Peston-[Hon. Members: "Ah!"] Well, I am sure that he is right on this. Robert Peston said that the shadow Chancellor had told him
"explicitly...that a Tory government would impose an identical dismantling of British banks to those suggested by President Obama."
Yet on 28 January, in The Wall Street Journal, the hon. Gentleman said:
"I fully understand that modern universal banks need to offer their customers investment banking services"-
in other words, a complete climbdown from the position that he had adopted only seven days earlier.
Mr. Osborne: Let me make this clear to the Chancellor of the Exchequer. I agree wholeheartedly with the President of the United States that large-scale proprietary trading should not sit alongside retail deposit taking. If I were in the Chancellor's job, I would be trying to work on that internationally instead of opposing it.
May I ask the Chancellor about something else that the President proposed in that speech? He said that he wanted a bank levy; and, of course, the Swedish Government have proposed a forward-looking insurance levy. At the Finance Ministers' meeting, the Prime Minister floated the idea of a Tobin tax, but the Governor of the Bank of England told the Treasury Committee:
"I don't know anyone on the international circuit who is enthusiastic about it".
Given that the Governor talks to the Chancellor a lot, presumably the Chancellor is included among those who are not enthusiastic about it. Can we take it that the Tobin tax idea is now completely dead?
Mr. Darling: On the hon. Gentleman's first point, I said that where there is common ground between us and those in the United States, we will work closely with them; that is something that I intend to pursue at the G7 meeting this weekend, along with other Finance Ministers. I do not accept the proposition that if we simply break up banks we will sort the problem that needs to be sorted, because of the connections between financial institutions. That needs to be got right. The hon. Gentleman-he is allowed to do this-has changed his mind over a period of all of seven days. Today he was promising a speech on a new economic model; it is clear that we get a new economic model from him every single day.
International levies and an insurance fund are something worth looking at, and we will certainly work not only with the Americans but with other countries on that.
Unsecured Loans
2. Bob Spink (Castle Point) (Ind): If he will take steps to provide greater protection to people who take unsecured loans at high interest rates; and if he will make a statement. [314429]
The Exchequer Secretary to the Treasury (Sarah McCarthy-Fry): We are concerned about the impact of high-cost credit products on the most vulnerable in society. The Office of Fair Trading is reviewing the market for high-cost credit, and its report is due out in the spring. We will respond quickly to address the issues raised.
Bob Spink: Some interest rates and some lenders' practices are indefensible. What are the Government doing to build the capacity of third sector lenders? We need to do that to displace the need for pay-day loans and logbook loans.
Sarah McCarthy-Fry: I thank the hon. Gentleman for his question and pay tribute to him for his work in protecting vulnerable people and for the number of times he brings these issues to the House to draw attention to them.
Alongside the work that the OFT is doing on a regulatory basis, we are trying to increase the supply of low-cost credit. There is a key role in that for the growth fund, through which £98.75 million has been made available. It is on target to meet the goal of 150,000 affordable loans a year, through credit unions and community development financial institutions, which are trusted in the community and to which people know they can go to get the low-cost credit that they need.
Mr. Lindsay Hoyle (Chorley) (Lab): I welcome what my hon. Friend says, but does she agree that the biggest concern is the high interest when people sign up for credit and then the intimidation and bullying that they face in order to get repayments? What more can we do to ensure that there are alternatives, so that people can access the money that they need? How can we promote that, especially through the credit unions?
Sarah McCarthy-Fry: I certainly pay tribute to the credit union movement for its work. As I said, credit unions are rooted in their communities and provide people that those communities know. They give people the information that they need to make informed choices, so they know that they do not have to go to the high-cost doorstep lenders and that there are places where they can access low-cost credit. As I said, credit unions are a prime example of how they can do that.
Mr. Mark Hoban (Fareham) (Con): Last week the Treasury ruled out a clampdown on store cards because of the impact that it would have on store card issuers. Why are the Government ignoring the risk that shoppers can be sucked into taking out a store card because of the discounts offered on that day's shopping, but then end up paying one and a half times the interest rate that is normally charged on credit cards? Is it not time to give the OFT the power to clamp down on excessive rates and the marketing of store cards?
Sarah McCarthy-Fry: As I said, the OFT has been carrying out a quite comprehensive review of high-cost consumer credit and other credit products. It is looking at the attitude and behaviour of consumers and how they use those products, and it is examining evidence from international research. As I said, it will report in the spring, and we are committed to examining that report and taking action on what is put forward.
UK Credit Rating
3. Richard Ottaway (Croydon, South) (Con): What recent discussions he has had with credit rating agencies on the UK's AAA rating. [314430]
The Chancellor of the Exchequer (Mr. Alistair Darling): As the House would expect, Treasury officials meet a wide range of organisations and have done so for a number of years.
Richard Ottaway: The Chancellor will be aware that the Governor of the Bank of England urged him to publish a credible deficit reduction plan or risk losing Britain's triple A rating. The CBI has said:
"Current plans to halve the deficit over four years are too little, too late. The UK's AAA credit rating must be put beyond doubt."
Is it not high time that the Chancellor produced a credible deficit reduction plan so that it could be reduced substantially over the lifetime of a single Parliament?
Mr. Darling: That is not quite what the Governor said, but I say to the hon. Gentleman that we are committed to halving the deficit over a four-year period, which means a sharp reduction in spending. We propose to do that once we believe that recovery is established, from 2011. The Governor made the point that to withdraw support prematurely would risk damaging the economy. I agree with the hon. Gentleman that it is important to have a firm, credible plan. What is quite clear, though, especially in the past few hours, is that the Opposition do not have a credible plan, or even a plan at all. It is quite obvious that they are living from one day to the next. Their proposals are a complete and utter shambles.
Mr. David Drew (Stroud) (Lab/Co-op): Is it not about time that we looked at the way in which that system works, with faceless individuals who seem to have the power of countries in their hands? Is it not about time we demanded transparency, so that those individuals have to answer for some of the decisions they make after scurrying around, briefing against countries? We want some transparency in the system.
Mr. Darling: Inevitably in markets, people say things for different reasons, but what is important is that people are left in no doubt that we have a firm proposal to reduce the deficit over a four-year period. When one looks at the pre-Budget report, one will see that the structural deficit, which begins to be reduced next year, comes down by something like two thirds over that period. That is an example of where we are prepared to act.
What undermines credibility is someone saying one week that they need to tear up our plans and that not doing so is moral cowardice, and then the hon. Member for Runnymede and Weybridge (Mr. Hammond), the shadow Chief Secretary, when asked about the proposals, saying, as he did yesterday, "I can't give you a specific figure now." When pushed, he said, "Well, it might be £1 billion," and then he says, "Of course, we don't have a detailed plan worked out." That is blindingly obvious. To coin a phrase, he can't go on like this.
Mr. Philip Hammond (Runnymede and Weybridge) (Con):
Could the Chancellor reassure the House that he and the Treasury fully understand the consequences of any downgrade of the UK's triple A credit rating? Apart from the impact on demand for new issues of gilts and the costs of funds, he will be aware that many holders of UK gilts are restricted to holding triple A assets, and therefore that a downgrade risks provoking wholesale disposals by them. Does he have an estimate of the proportion of UK gilts that are held by institutions
that hold only triple A rated assets? If he does not, will he ask the Debt Management Office to prepare one and have it available on Ministers' desks on 7 May?
Mr. Darling: The only rating that is being downgraded at the moment is the shadow Chancellor's. I put it to the shadow Chief Secretary that a week ago, the Leader of the Opposition said:
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