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The Prime Minister: My hon. Friend is entirely right. We have got to make sure that, in what we do, we help those who try to do the right thing, to save and to look after themselves and their families. The first thing that we have to do is keep control of inflation, keep the Bank of England independent and ensure that the Budget supports the tough approach on inflation, which is the worst thing for savers. The second thing that we can do is ensure that we do not discourage saving by having so many people reliant on a means test. That is why we are committed to linking the state pension back to earnings.
There are no easy ways of reducing the deficit. Some people believe that it can be got all from one area or all from another. I am afraid that it is going to be a difficult task. We will do everything we can to take the whole country with us. We will need to have a responsible debate about how we do it, but it has to be done for the good of our country.
Q15.  Luciana Berger (Liverpool, Wavertree) (Lab/ Co-op): In the past week, I have been contacted by students and parents in my constituency who are devastated to have been told that geography and politics courses at Liverpool John Moores university have been cancelled from September, giving them less than three months to make alternative arrangements. What assurances can the Prime Minister give my constituents that cuts to higher education will not affect students?
The Prime Minister: I welcome the hon. Lady to her place. The assurance I can give her is that we are going to increase the number of university places by 10,000 in the coming year, because we want to see higher education expand. The other assurance I can give her is that we are committed to the Browne review that the previous Government set up, on an all-party basis, to look at how we can ensure that higher education is affordable both for the young people going into higher education and for our country as a whole.
Q12.  Harriett Baldwin (West Worcestershire) (Con): Can I praise the Prime Minister for his staunch support of the NHS and its budget, and use this opportunity to invite him to Malvern to open, some time at his convenience this autumn, our brand-new community hospital?
The Prime Minister: I thank my hon. Friend -[Interruption.]
Mr Speaker: Order. It is not against the rules of the House for a Government Back Bencher to support the Government; it is not that odd.
The Prime Minister: Mr Speaker, we all remember you doing that very well. My hon. Friend's invitation is a kind one. The commitment that we have made to maintain health spending is very important. I want to see community hospitals and district general hospitals thrive under this Government.
Mr David Lammy (Tottenham) (Lab): May I invite the Prime Minister to take a trip with me next season from Seven Sisters tube station up to the Spurs ground at White Hart Lane? On that journey he will see a proliferation of betting shops. Will he give local authorities the power to deal with the saturation of betting shops, which are preying on working and poor people?
The Prime Minister: That is another great invitation this afternoon. I say to the right hon. Gentleman that there is a balance to strike. Some of the deregulation that took place was necessary in order not to have over-regulation of these sectors, but yes I think that there is a case for allowing local authorities greater latitude to decide on some of these things. We made that point in opposition, particularly on the issue of lap-dancing clubs, over which local authorities should be given more power and influence. The issue now seems to be being taken up more broadly by Labour Members.
Mr Alistair Darling (Edinburgh South West) (Lab) (Urgent Question): To ask the Chancellor of the Exchequer to set out his proposals for the future of financial services regulation and for the role of the Bank of England.
The Chancellor of the Exchequer (Mr George Osborne): In 1997, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), as Chancellor, established, without any consultation and without telling Parliament, the tripartite system to regulate the financial system. In doing so, he removed from the Bank of England its historical role in monitoring overall levels of debt in the economy. It is well known that the late Eddie George was deeply unhappy with that decision. It is also well known that the tripartite system that the right hon. Gentleman created, and that his successor as Chancellor sustained, failed spectacularly in its mission to ensure stability in the financial markets, and the failure of certain banks cost the taxpayer a vast amount of money. Indeed, British taxpayers funded the largest bank bail-out in the world, and it was only in Britain that depositors queued in the high street to get their money back.
The British people rightly ask how this new coalition Government will learn from the mistakes of their predecessor. The coalition agreement commits us to reforming the regulatory system for financial services in order to avoid a repeat of the financial crisis, and that is precisely what we will do. First, on the structure of regulation, our plan is to hand over to the Bank of England the responsibility for macro-prudential supervision, which should never have been taken away from it. The tools for macro-prudential supervision are the subject of ongoing international discussions. We are playing a full part in that process at European and G20 level, along with the Governor of the Bank and the chairman of the Financial Services Authority. It is already clear that the tools will include capital requirements that work against the cycle, rather than with it.
The coalition Government are also committed to handing to the Bank of England responsibility for the oversight of micro-prudential regulation. It is clear that the central bank needs to have a deeper understanding of what is going on in individual firms. My hon. Friend the Financial Secretary to the Treasury will give further details of the institutional arrangements in a parliamentary statement tomorrow. It is important that the institutions involved correctly follow their own internal procedures before those arrangements are made public, and the Governor of the Bank will be talking to the court of the Bank this afternoon.
The coalition Government will also deliver on their promise to establish an independent commission on banking. The previous Government would brook no debate about the future structure of the banks, the relationship between retail and investment banking, and the questions of how best to protect taxpayers and how to ensure greater competition in an industry that they actively sought to consolidate. The previous Prime Minister did not want anyone to challenge his opinions, but we cannot ignore this debate about the future of banking-indeed, I want Britain to lead it. We will therefore establish the commission on banking to investigate
those issues. It will be chaired by Sir John Vickers, who is a former chief economist at the Bank of England, was one of the first members of the Monetary Policy Committee and is a former chairman of the Office of Fair Trading. He is a man of unquestioned experience, integrity and independence who approaches this issue with an open mind. I am today placing in the Libraries of both Houses the terms of reference and we await the conclusions of the commission.
Unlike the last Government, this Government are prepared to confront the difficult challenges of the regulation and structure of the banks. We are prepared to learn the lessons of what went wrong, even if they were not.
Mr Darling: I am grateful to the Chancellor for that answer, and I wonder whether I might press him on a number of points. First, he says that the Bank of England will have responsibility for macro-prudential supervision, but he also says that the debate as to what macro-prudential supervision consists of is still up for grabs as it is still being debated internationally. When does he expect those discussions to be concluded?
The Chancellor also says that the Bank of England will have some responsibility for micro-supervision. It has been suggested in some quarters, for example, that the Bank of England, rather than the FSA, might have dealt with whether the Royal Bank of Scotland could take over ABN AMRO. Does he not realise that far from clarifying the situation, this is adding another complication? The risk is that we will have a dog's breakfast of a regulatory system in which no one knows who is making decisions and no one knows who is in charge. Does he not accept that at a time when there is still a great deal of uncertainty in the banking world and a great deal of turbulence, the last thing that we want is a situation in which it is not clear which organisation is responsible for precisely which activity? If both the Bank and the FSA are responsible for regulating institutions, that is bound to lead to confusion and inevitably runs the risk that mistakes will be made.
Will the Chancellor also tell us whether, in relation to the Bank of England's responsibility, he is planning any reform to the financial stability committee or any internal reforms so that a committee will advise the Governor? If that is the case, will the Governor be making those decisions or will a committee do so, perhaps on a wider basis? Will he also tell us whether or not Lord Turner, the chairman of the FSA, agrees with his proposals and whether he is now prepared to serve, in effect, as a deputy under the Governor of the Bank of England?
In relation to the proposal to break up banks, will the Chancellor explain how Northern Rock, which was a very simple retail bank on the face of it, would have been saved from collapse simply by virtue of the fact that it was a retail bank and not an investment bank? Will he also explain how his proposal would have made any difference to Lehman Brothers, which did not take a single retail deposit but was a complex investment bank that collapsed with calamitous consequences? Will he tell us, too, whether the commission that he proposes to set up will consider the break-up of British banks such as Barclays or HSBC? Will he tell us how the uncertainty that will inevitably be caused by the work of the commission will help to rebuild the financial stability that we want? At a time when there is that instability,
does he not think that it would be far better to keep the FSA working on what it is supposed to be doing-that is, the day-to-day supervision and regulation-bearing in mind that some small minor decisions are sometimes very important, especially if they are the wrong ones?
Is it not the case that the proposal was made in the first place because the right hon. Gentleman was looking before the election for a dividing line between him and the then Government? What we have today is something that has been cobbled together, that is ill thought out, that will add to uncertainty and that runs a grave risk that further mistakes will be made with catastrophic consequences in the future.
Mr Osborne: The dividing line is between a Government who want to learn the lessons of what went wrong and an Opposition who have no intention of learning from all the mistakes that they made in office. I find that striking.
The right hon. Gentleman talks about a dog's breakfast. What about the dog's breakfast of the tripartite system that allowed the Royal Bank of Scotland to fail and that allowed Northern Rock to fail? He was the Chancellor at the time and he completely failed to see the growing levels of debt in the economy. He and the institutions that were created by his predecessor completely failed to see what had gone wrong in individual institutions. The thing I find extraordinary-perhaps Opposition Members will reflect on this-is that their shadow Chancellor is setting them against reform of the regulation of banks and reform of the structure of the banking industry. That is what he has just done. What we are going to do is to have an open debate about the structure of banks. That debate is happening in the United States of America, in the newspapers of this country and in parliamentary debates here. The only place it was not happening was in the last Government under his chancellorship.
We think that the sensible approach, in order to resolve these issues-[Hon. Members: "Answer the question."] I am answering the questions-every single one of them. We think that the sensible approach is to set up an independent commission under Sir John Vickers to examine these issues and to take into account the different, strongly held views. For example, John McFall, who was the Chair of the Treasury Committee in the last Parliament, has in recent days put his name to a report that calls for structural reform of the banks. The shadow Chancellor might want to ignore his views, but I want to listen to them and to take them on board as part of an independent commission, and that is exactly what we are going to do.
When it comes to the international context, I think that all of that will enable us to lead the debate. Of course, we have to agree this at an international level, where some of the macro-prudential tools are. As the shadow Chancellor knows, there is a debate taking place in the G20. We hope, in the Seoul summit in November, to have come to firm conclusions on the capital, liquidity and leverage requirements. When we have come to those agreements and when we have international agreement on what those standards should be, we will need a regulatory system here, at home, that is fit for purpose, so that they can be implemented.
Sir Peter Tapsell (Louth and Horncastle) (Con): As one of those who strongly opposed the introduction of the tripartite regulation of our financial institutions as soon as it was announced in 1997, may I congratulate the Chancellor on getting rid of the FSA, which has been a major contributor to the disasters in the economic sphere in recent years and which was regarded in the City, throughout the whole of its lifetime, as a thoroughly inefficient organisation?
Mr Osborne: To be fair to the FSA, it has been rather candid about the mistakes that were made when the shadow Chancellor was the Chancellor and when the former Prime Minister was the Chancellor. We have to learn from those mistakes. As I have told the House, we will set out the details of the institutional arrangements in a parliamentary statement tomorrow.
Rachel Reeves (Leeds West) (Lab): The Chancellor talks about breaking up the retail and investment banks, but the immediate challenge for the Government is the future of the nationalised banks. Will he consider turning the failed banks into mutuals that focus on long-term returns and not on short-term profits?
Mr Osborne: We need to take some time before coming to decisions on how to dispose of the bank shares that we own in the Royal Bank of Scotland and Lloyds, and the banks we own, such as Northern Rock, not least because at the moment the British taxpayer would make a substantial loss on many of those share purchases. However, we are prepared to consider lots of options. Sir John Vickers' commission is going to look at competition in the banking industry. It has become incredibly consolidated in the past couple of years and that is not necessarily the best thing for bank customers, as many of us will know from representing businesses that cannot get access to credit. It is sensible to look at what Sir John Vickers and his commission have to say about this.
Mr Andrew Tyrie (Chichester) (Con): Why was so much of this announced on this morning's "Today" programme rather than here? Who will chair the financial stability committee in a crisis? Will it be, as it should be, the Chancellor of the Exchequer?
Mr Osborne: There has been quite a lot of speculation, and as we will see in the coming days not all of it has been very accurate. I cannot account for the speculation, because it certainly has not been coming from my office. I am discovering that it is a feature of being in government that lots of people anticipate one's views before one expresses them.
I congratulate my hon. Friend on becoming Chair of the Treasury Committee and I hope to have the engagement of his Committee in this important debate over the next year. When it comes to the commitment of taxpayers' money, the elected Government, who are accountable to the House, will remain in charge.
Keith Vaz (Leicester East) (Lab):
The Chancellor will know that the FSA was created following the closure of BCCI on 5 July 1991, and the publication of the Bingham report. Nineteen years later, some of my constituents are still waiting for all their money back. I think the Chancellor knows that I am about to ask the same question I have asked every Treasury Minister over the
last 19 years, so in the spirit of open government, will he do something that the former Chancellor would not do and please publish the confidential parts of the Bingham report so that we can have a proper debate about the issue?
Mr Osborne: I think everyone would acknowledge the work the right hon. Gentleman has done on the issue, over many years, on behalf of his constituents and other people who were so badly affected by that scandal. I was of course present at the exchange between him and the shadow Chancellor about the publication of the secret Bingham report-if I can put it like that-and I have asked for urgent advice about that and for a copy of the report so that I, too, can read it.
Matthew Hancock (West Suffolk) (Con): In a similar exchange in a debate last week, did my right hon. Friend hear the shadow Chancellor say that the former Government did not understand the systemic risks in the banking system? Does he share my surprise that Members on the Labour Front Bench are no longer willing to engage in an argument about putting right the system of banking regulation that so spectacularly failed?
Mr Osborne: I am surprised, and I am not sure whether the shadow Chancellor is committing his party for the rest of this Parliament to be against reform of the structure of banking. I see quite a lot of heads shaking, so perhaps he is not. We shall wait and see. It is worth noting that on 8 June Lord Young of Norwood Green, a Minister at the Department for Business, Innovation and Skills in the last Government, referred to
"the tripartite relationship that was supposed to identify and regulate the systemic risk in British banking-a relationship that we all know failed somewhat spectacularly."-[ Official Report, House of Lords, 8 June 2010; Vol. 719, c. 630.]
Mr Andrew Love (Edmonton) (Lab/Co-op): Given the continuing difficulties in the banking sector, does the right hon. Gentleman accept that the proposals he is putting to the House today will lead to greater uncertainty and greater blight in the financial services sector, and make it more difficult for banks and financial institutions to recover?
Mr Osborne: No, I do not accept that. We cannot ignore in this House that a debate is raging not just in our country but across the world about the structure of the banking industry and the best way to regulate it. The hon. Gentleman may have decided that he has all the answers and the Labour party may have decided that the system it established 13 years ago was the right system and we should stick with it, but I think we should be more open. We should have a process that brings that debate to a conclusion. Tonight I am going to the Mansion House dinner, as I believe the shadow Chancellor is too. I have sat at Mansion House dinners as shadow Chancellor and listened as the Governor of the Bank of England said something completely different from what the Chancellor of the Exchequer said on the same occasion. We have to resolve the debate, so we have to set up a process that resolves it, and I believe that an independent commission in which everyone can engage, including Members of the House, is the right approach.
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