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Geraint Davies: The amendment requires the Government to measure the number of mutuals and their share of the market. In so doing, it brings the Government to account. If there is no point to that, and if we want only what the hon. Member for Wycombe (Steve Baker) called “spontaneous order”, we would not have the Office for Budget Responsibility, and we might as well forget measuring and management. The amendment seeks to bring the Government to account, and should therefore be supported.
John Healey: There is a saying that what is measured matters, and if it matters, measure it. In many ways, that is the core of the argument being made by Opposition Members.
Sixteen per cent. of those who aspire to own their own home and who borrow to buy do so from building societies. Roughly one in six of us borrows our mortgage from a building society. That significant market share is gradually growing. That is why I have argued that building societies are the unsung success of British financial services. They are certainly unsung by a Government who promised to be their champion.
In my view, building societies are the quiet strength of British financial services, but it is time that that strength was properly supported by Government policy and action. Mutuals look at the coalition agreement and point to the words on the paper, but they cannot point to the action that followed. The amendment is designed to force the hand of the Minister, the Treasury and the Government. I am surprised that it finds any objection on the Government Benches, because it simply seeks to hold the Government to the promise they made
Mr William Cash (Stone) (Con): I have found this debate both curious and inconsequential in many respects. There has been a great deal of talk about the technicalities of achieving the objective, but not, as far as I can judge, a great deal about the reasons why mutual societies are so important. However, I share the view expressed by the right hon. Member for Wentworth and Dearne (John Healey) that the coalition agreement, of which I am not an uncritical observer, clearly stated that there should, in effect, be support for mutuals.
I declare an interest, because my family founded the Abbey National building society and the National Provident in the 1830s and later in the 19th century. The Abbey National is now Santander, and we need only look at what is happening in Spain to hope that there is some ring-fencing for its customers in the United Kingdom. The reason why mutuals are so important is the same reason why John Lewis is so important. It is the reason why the co-operative movement, which was founded in Rochdale—I do not apologise for also pointing out that that was where John Bright was born—is important. The Rochdale co-operative movement was the means whereby people could buy houses that they could not otherwise afford.
I have always been very much in favour of the right to buy, because having a property stake is important for individual responsibility. The great thing about the mutuals—and it still pertains, because they still exist, but need to be enhanced, improved, developed and encouraged—is that they enable people to come together in a proper and balanced relationship, with a sense of individual responsibility and, by co-operating together,
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to benefit each other and society as a whole in relation to the most fundamental aspects of property and insurance, without excessive profits, or indeed any real profits, for the people who put it together. That does not mean that I am against capitalism. Indeed, those who promoted mutual societies were invariably capitalists, and I count my own family in that number. William Cash founded the National Provident with the Lucas family, and the Cadburys were much involved in similar objectives. A raft of Quakers and other Dissenters were integral to the development of this incredibly important movement, which changed the face of society in the 19th century. We could do with that now.
Some five years ago, I wrote a letter to The Times, criticising aspects of the manner in which the banking system had given way to greed and self-indulgence. The Minister knows my views on the subject of the transfer of jurisdiction from the City to Brussels, including the point that legislation is no substitute for self-help. My hon. Friend the Member for Wycombe (Steve Baker) understands that better than anyone else. Indeed, Samuel Smiles, who wrote the famous book on self-help, was devoted to all these objectives because he knew that individual responsibility, operating within the framework of co-operatives and mutuals, would and should provide the kind of society that is worth living in. I put it as high as that, because to me this is a moral objective. We do not talk enough about morality. Law is no substitute for morality.
7.15 pm
Clause 47 enables the transfer of functions and it states:
“The Treasury may by order”—
“amend the legislation relating to mutual societies for any of the relevant purposes.”
It then sets out a whole list of functions, in a technical and somewhat boring manner, but there is no sense of the purpose that lies behind that, or the intentions and objectives, let alone any of the virtuous advantages that would come from increasing the degree and range of mutuals throughout the country, so that we could get away from the idea that the only way in which insurance or property ownership can be achieved is through technical, legal change. That will not change things. I would like to know from the Minister how all this ties in and how it is intended that the integrity objective—set out on page 17 of this enormously long Bill—will produce the results that are claimed for it in relation to the transfer of functions relating to mutuals.
In my judgment, mutuals do not need to be given the regulation, tight analysis and legal requirements set out for the purposes of restraining greed and self-indulgence by people who have no idea about markets and their virtues. Markets are virtuous. However, as I wrote during the Lloyd’s crisis, bad markets are bad for business. That is true. If the mutual system is really good, and is accompanied by protection for shareholders—I refer back to my Protection for Shareholders Bill which I have proposed over and over again since the 1980s; I sent a copy to the Prime Minister just the other day—they then have a stake and are able to restrain bad practice. That is how to do it, not by piling on more and more legislation, whether it is domestic and done under the
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aegis of the law of this land, or under the jurisdiction of Brussels. It does not make much difference, because law is no substitute for proper behaviour.
The problem of the last 40 or 50 years is that more and more legislation has been passed, as I said in my letter to The Times, which has narrowed the competence of those who are subject to it and increased its complexity to the point where there are literally acres of pages of legislation, most of which is completely impossible to understand for anybody except that unique bunch of people who happen to make a great deal of money from it in the City. I am not criticising them for taking advantage of that—law has always required interpretation —but I am certainly criticising successive Governments, including the Government who preceded this one, for piling on more and more complicated legislation, which requires the attention of an amendment of the kind before us tonight.
The amendment is permissive, but then the provision itself is permissive. Legislating to provide for amendment of other legislation in relation to mutuals will not necessarily be in any way improved by interpretation in the courts of the words
“the integrity objective is: protecting and enhancing the integrity of the UK financial system…The integrity of the UK financial system includes…its soundness, stability and resilience…its not being affected by behaviour that amounts to market abuse…the orderly operation of the financial markets, and…the transparency of the price formation process”.
This is legal jargon that will be interpreted by the courts. Will it make any difference, though, if mutuals are not fostered, developed and encouraged in line with what the coalition agreement originally stated? Will it produce the intended result—that people spontaneously and with moral purpose determine the new kind of society we move into?
Mr Thomas: Will the hon. Gentleman accept that one lesson regarding the regulation of building societies, friendly societies and other financial mutuals arising from the inquiry by the all-party group on building societies and financial mutuals, to which my hon. Friend the Member for Nottingham East (Chris Leslie) referred, was that regulators did not put enough time and effort into understanding the mutuals market and that this simple amendment will help to prevent a repeat of that scenario?
Mr Cash: It may well. It behoves the Government to take this kind of amendment very seriously, despite drafting imperfections. It is important to the integrity of our financial system and, above all else, the sense of individual ownership in a mutual context for this movement not merely to be nudged along but to be massively encouraged. The more people have a stake as a result of being in a mutual condition, the better society will be.
I am completely in favour of capitalism—that might disappoint Opposition Members—but each category of activity in financial markets requires its own remedy, and the mutual system is vital to ensuring that there is a proper balance in society and that those who, for one reason or another, cannot get on to the capitalist ladder in the way that some can have the benefit of mutuals and can share in the prosperity that others provide. I regard that as a very important objective.
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Even if the amendment is not perfect, the intention behind it is important. Wrapping the whole thing up in jargon—some of us are very familiar with jargon—will not solve the real problem in the way that mutual societies can. I hope, therefore, that the Minister will give careful attention to the objectives and purposes of mutuals, in the context of the amendment, and not simply say that the Opposition are talking nonsense or that the Opposition spokesmen are trying to be troublesome and criticise the coalition agreement. It is time we grew up, actually. By that I mean that instead of constantly talking about the Opposition as if they were simply trouble making and mischievous, we should recognise that in such matters we are trying to achieve something worth having.
Mr Cash: The Opposition spokesman says, “Hear, hear”, but I do not want to give him too much encouragement. We need to understand, however, that the objective behind the Opposition’s amendment is important, not because of party politics but because it is about having a stable, good and fair society. That is what we should all be seeking.
Mr Love: It is a great pleasure to follow the hon. Member for Stone (Mr Cash), whose strictures I shall try to address. First, however, I want to appeal to the Minister, who, I know, is personally sympathetic to mutuals: this will be a modest contribution that tries to reflect his own coalition manifesto commitment to foster diversity and promote mutuals. In answer to the hon. Member for Wycombe (Steve Baker), I say that the amendment seeks to do that by trying to measure the strength and complexity of the mutual movement using the regulator.
No one has said why we would want to foster diversity and promote mutuals. I want to address that question, because it goes to the crux of what the hon. Member for Stone talked about. First, members benefit greatly from membership of mutuals. The tables of the best savings rates or lowest mortgage rates are populated by mutuals, which provide basic but risk-averse financial services—exactly what the ordinary consumer is looking for. Of course, the reason they can provide such services is that they do not have any shareholders and, therefore, no demands for dividends each year, allowing them to deliver their services efficiently.
Perhaps even more importantly, mutuals provide a consumer benefit by offering a competitive spur in the marketplace. The hon. Member for Stone says he believes in capitalism. I believe in a market system, and competition is a very good spur, and that is exactly what the mutual movement provides. The reduction in the number of building societies has meant that they have not been able to provide a stronger spur, which provides another reason for the amendment.
Mutuals provide choice in financial services. Does someone want a mutual member benefit or to contribute to shareholder value? People will make that choice in all sorts of ways, for all sorts of reasons, but it is important in a marketplace to have choice. We are confident that people will choose mutuals, because all the studies and polling of consumers of financial service show that
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mutuals are more popular and, perhaps more importantly, more trusted than their plc rivals. That is a very important consideration.
Why move the amendment now, other than to reflect the coalition agreement? Currently, the marketplace is dominated by the plc model, which is unhealthy. We all know what happened in the lead-up to 2007 and 2008: heightened risk, and the search for yield followed by the credit crunch. I am not suggesting that the Government are not taking steps, including in this Bill and forthcoming legislation this Session, to address some of these problems. I am saying that there developed a monoculture—group-think—in which everybody thought exactly the same. We need to avoid that. This modest amendment will help us to do so.
The amendment will also address the danger of the one-size-fits-all attitude displayed in recent years by the regulator, who did not deal effectively with life funds for friendly societies and mutual insurers. At the heart of the ongoing dispute is the failure to understand the essential difference between a mutual and a plc. The amendment would go some way to address that. The regulator now admits that the Financial Services Compensation Scheme, which was introduced some years ago, got it wrong by basing what each organisation had to pay on deposits, discriminating directly against building societies. There was no understanding or empathy in the regulator to address the issue. The Minister will say to me, “But the FSA has now updated its regulatory role. It’s opened a department to deal with these specific matters.” That is all to be welcomed; however, I hope that the Government will welcome this amendment, which represents a small step towards creating greater understanding and trust in the regulator’s dealings on these matters.
7.30 pm
There is nothing sinister about this amendment. Yes, we couch it in terms of the manifesto commitment, but it is really about recognising that we need diversity in the marketplace, to avoid monocultures developing, to give choice to consumers and to create a competitive spur. If we can do all that, this amendment will provide some modest support in ensuring the continuation of the mutual movement in our country—a movement, it has to be said, that is small by international standards. Mutual insurers, along with what we would call building societies and credit unions, are much more prevalent in other marketplaces—including in the Netherlands, Germany, France and even the United States—than they are here. This modest amendment would go some way to addressing that and ensuring that the consumer—the member—got a fair deal in the marketplace.
John Hemming:
I think there are two issues in this debate. First, everybody agrees that mutuals are good. They are good in a number of ways, one of which is that “boring” is good in finance. We need more boring finance —we need things that will not double one day, fall by a half the next, and go bust by next Wednesday. We have had too much “interesting” stuff in finance; we need some more boring stuff. Building societies have always been relatively stable—nothing much has changed; things are gradual, with perhaps a few mergers. Some building societies have suffered as part of the financial problem,
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and in other countries some credit unions have suffered. I should declare what is perhaps a non-declarable interest, namely my membership of Citysave, Birmingham city council’s credit union.
I think there is a major role for such bodies—the hon. Member for Stone (Mr Cash) highlighted the issue of people having a stake in society. That is a very good thing, as is the fact that mutuals look to serve their depositors—often they will be depositors and borrowers. To that extent, I welcome the fact that the Opposition have raised this issue for discussion. The difficulty is that the amendment—it is a permissive amendment; it allows, for instance, the number of members of mutuals to be counted—is the sort of thing that would be done anyway. A mutual could be sent an e-mail saying, “How many members have you got?” It really does not require a statutory instrument to—[ Interruption. ] The hon. Member for Nottingham East (Chris Leslie) says from the Opposition Front Bench that the number of members of credit unions is not being tracked. However, the amendment does not require it to be tracked, as he knows.
Mark Durkan: The hon. Gentleman makes the point that this is a permissive amendment, but it is actually an amendment to a permissive clause, which anticipates that there may, for various reasons, be all sorts of changes. However, in transferring the functions relating to disparate types of mutuals and so on, surely it is right to suggest that someone should have regard to ensuring that mutuals as a sector are promoted and that somebody should measure what is happening. If those in the coalition are committed, why do they not want to be able to know or show what is happening?
John Hemming: The amendment does not compel anything to happen; it merely makes it possible, if the Government wish, to change the law if necessary—which it almost certainly is not—to measure the number of members of credit unions. The Opposition may be right that the figure is not being measured, although that would surprise me, as the industry bodies will almost certainly have total numbers of members. If we contacted the Council of Mortgage Lenders, for instance, and asked how many members the building societies in the council had, it would probably give us the answer. Getting the answer should not be that difficult; however, as the amendment does not compel the Government to do anything, it will have no effect if accepted.
I return to the point that we have to welcome the fact that the issue of mutuals is being kept on the agenda. I would be interested if any Opposition Member wanted to liaise with me over the coming months to see whether we could find the answers that the amendment makes it possible to find—which are probably possible to find anyway, if the Government wish to find them. Indeed, I would have thought that the Government would not be that averse to knowing what the market share was.
Chris Leslie: This is a very confusing speech. The hon. Gentleman is in an honoured position, speaking on behalf of the Liberal Democrats. They helped to write the coalition agreement, so he has a responsibility to say what progress is being made on the detailed proposals to promote mutuality. Do the Liberal Democrats agree with that objective, and, if so, what are they doing to achieve it?
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John Hemming: I think it is a good idea to encourage mutuality. There is no question about that. As for asking me, randomly, to answer such detailed questions on what the Government are doing, I must admit that I am not a Minister. This is, admittedly, a debate about mutualism, however, and I am quite happy to do a certain amount of research to see whether I can find the answers that the amendment would allow the Government to find—if they wished to do so by changing legislation, which almost certainly is not necessary.
That brings us to the nub of the problem with such an amendment. It would have almost no effect, because if the Government wanted to find out how many members the building societies had, they would simply ask the building societies, without going through the process of tabling a statutory instrument, whether through the permissive approach or whatever it may be.
On that basis, although we should welcome the fact that the issue of mutuals is being kept on the agenda, it would be better done by an amendment that had some effect.
Mark Durkan: I had not originally intended to speak to this amendment, as time is tight and we need to make progress. I have also dealt with some of the points in interventions.
The Government say that they are committed. This Bill gives them an opportunity to go a bit further on that commitment. That is what the amendment offers them. The Government have said that they want to encourage mutualisation. I have heard Ministers talk about the damage done by the rampant trend towards demutualisation in the past—they have blamed that on others, as well as perhaps accepting some blame on behalf of a previous Government. However, clause 47 is a permissive clause, and there is good cause for saying that if the Treasury amends legislation dealing with mutuals—let us remember that we are talking about industrial and provident societies, building societies, credit unions and friendly societies—and if it transfers functions to the FCA, the PRA or both, given that the clause provides that functions can be transferred between different bodies, the Treasury should, in making those arrangements and exercising those powers, have regard to ensuring that someone can measure the size of the mutual sector overall and show progress where that is relevant. That is what the amendment would provide for. Such information will be relevant for Parliament’s interests and purposes—I am sure that future Treasury Committees will want to know what is happening and who is responsible for measuring such things, rather than relying on the market players. The information will also be hugely important for consumers, because if, as the hon. Member for Stone (Mr Cash) said, we are to encourage more people to have confidence in this option, then the more people we can show are using it successfully, the better.
When the hon. Gentleman suggested that the mutual sector would, by its nature and character, not need detailed regulation and legislation, it occurred to me that he was going off in a different direction. Given the experience that some of us had with the Presbyterian Mutual Society and others, I can say that mutuals do need to be regulated by their nature, so that people can be sure that they are living up to the good name that they properly have. Consumers embrace mutuals on the
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basis of that confidence. They need to be able to rely on the fact that legislators have put in place a regulatory system to ensure that what they are getting is what they think they are getting.
Mr Cash: I would not want the hon. Gentleman to misunderstand what I meant. It is not that I do not think that there should be a degree of regulation. Rather, I am concerned about over-regulation to the point where the purposes of mutuals, as with so many other sectors of society, are sucked out by a vast amount of oppressive legislation, which is so bureaucratic and impossible for people to understand that they cannot see the wood for the trees. The whole objective of the mutual arrangement is that it is very much a personal relationship in a society to enable people to benefit one another.
Mark Durkan: I thank the hon. Gentleman for that clarification. That brings us to the point that we go through all this complicated legislation, with all this complicated jargon, to try to give consumers confidence that a regulatory regime is policing these matters for them, so that they know that the people they are entrusting with their money—their savings and so on—are performing to a due and proper standard. I would not want the House to create a situation where people felt that mutuals were, by their nature, less safe and less regulated, because non-mutuals would use that on a predatory basis in their marketing.
John Hemming: Let us come back again to the amendment. I noted, on the internet, a report from the Building Societies Association indicating that in 2011 the market share of the mutual building societies increased by 16%, which contrasts with growth of 3% and a figure of 7.7% in the whole market. So the coalition Government are obviously delivering on their promise to have a larger mutuals sector, and the information has already been measured.
Mark Durkan: The information may well be measured by that group of building societies. In terms of industrial and provident societies and others, surely it makes sense that the Treasury will want to make provision on who measures the different sectors or who measures them in aggregate terms as the mutual sector—this amendment would allow that. We must remember that, as the hon. Gentleman says, the amendment is entirely permissive, and it would be set in a clause that is permissive. The clause is meant to demonstrate the coalition’s commitment to mutuals.
Jonathan Evans (Cardiff North) (Con): May I apologise for the fact that I missed the beginning of this debate? The hon. Member for Nottingham East (Chris Leslie) spoke for the Opposition, and he knows that I chaired the mutuals inquiry to which he refers. Is the problem not the one outlined by the hon. Member for Edmonton (Mr Love): the amendment is modest? I do not think our inquiry was seeking that modest a response from the Government. We are looking for something that matches up to the commitment made in the coalition agreement, and what is being proposed is very much short of that.
Mark Durkan:
I thank the hon. Gentleman for that intervention, as it shows exactly why people should be worried. If the best argument that Government Members
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can make is that this amendment is modest and merely permissive, people should be worried that the Government are opposing and rejecting such a straightforward, common-sense amendment.
Geraint Davies: I shall be brief, Mr Deputy Speaker. The coalition Government say that they want to encourage diversity in the market and increase the proportion and number of mutuals, yet they refuse to agree with measuring the number of mutuals or their market share. Anybody who is serious about any policy should want to measure it in order to manage it and show that it has been successful; otherwise they come across as completely hollow. Given that we have the Office for Budget Responsibility and so on measuring important things such as outputs and economic performance, I cannot understand why we cannot include mutuals as part of that portfolio.
David Rutley: I understand the hon. Gentleman’s strength of opinion, but is he not aware that these data are readily available? We need only go to a market research firm or to researchers in the City to find that the data are readily available.
Geraint Davies: But as I have just said, if that is the case why do we need the OBR? We could go on the internet, like the hon. Member for Birmingham, Yardley (John Hemming) did, and then say, “I’ve got a figure from a reliable mate in the City.” This is completely absurd—
Geraint Davies: Here comes another absurd intervention.
John Hemming: Just for clarification, I looked up the BSA figure for the market share of mutuals, and it indicated that the market share was increasing. The BSA is not a friend of mine in the City, and the information is already being measured and reported on.
Geraint Davies: My point is that second-hand information is available in all sorts of marketplaces, but the Government make a great virtue of the OBR, and of other reliable and robust statistical sources, in order to measure the effectiveness of the outcomes of their policies.
Geraint Davies: I hope that this intervention is not just another repetition of the same thing.
John Hemming: It is difficult to see where the OBR comes into all this; it is not being handed the task of measuring things.
7.45 pm
Geraint Davies: This is about having the reliable and consistent measurement of data in order to measure the effectiveness of policies, rather than having to rely on looking at the website of whatever trade association we are talking about. That is the essence of this amendment and it is why I support it.
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The hon. Member for Stone (Mr Cash) mentioned the Rochdale pioneers, and I am glad that he did so. At that time, the idea of co-operation, co-operatives and mutuals was forged very much in the fire of unbridled capitalism and an economic Darwinism that I know some hon. Members would like to see return in the so-called “spontaneous order” of things. In that unbridled free market, the weaker members of society were being crushed, and a collective, mutual ownership emerged, through mutual societies and co-operatives, that enabled normal people to share risks, benefits and ownership, and to reinvest surpluses in their mutual. That is why those organisations grew, and I am very proud consistently to a have supported them.
One of the questions that arises is: why has there been a slight falling away of mutuals over the past few decades? Partly it has been because the Conservatives pushed demutualisation to get quick profits for their friends, who are involved in the capitalist system to make quick profits. Then, in 2008, we have this tsunami and suddenly people wake up in the debris of this chaos realising that some of the surviving organisations are mutuals, and they rightly ask why that is. The answer, of course, is that the focus of mutuals—their raison d’être—is not about just reaching out to maximise profitability and taking irresponsible risks; it is about delivering services for their members, who have equal shares. As a result, the time of mutuals is back.
This is a time of enormous global financial turmoil. We all know about the risks from the sovereign debt of Greece, Spain and elsewhere, and the knock-on impacts of that. We also face a great deal of risk from German banks and other financial institutions that do not have the inherent solidity and risk management of the co-operative system. If the Government are serious about this, now is the time to move forward. The coalition Government have said that they will move forward, but they cannot even be bothered to measure the market share and the number of mutuals. So how seriously can we take them? The answer, self-evidently, is: not seriously at all. The top management consultancy McKinsey has the mantra, “If you can’t measure it, you can’t manage it.” That company knows that that is self-evidently the case, but we are saying here, “We don’t really want to manage it. We won’t measure it. It does not really matter.” That is what is coming across, and it is a great shame that it is.
Labour Members are saying, “Let’s paint a picture of how things are changing. Let’s try to use that to make progress and to actively encourage credit unions, housing co-operatives and so on.” Such organisations tend, by their very nature, to be locally owned, with local benefits for local people. That contrasts with the situation described by the hon. Member for Stone, whereby a member of the Royal Bank of Scotland may find that Santander has suddenly sent them part of their bill, and they wonder why that is and whether there is a risk from the Spanish contagion, linked into the Greek risk. Somebody was mentioning that sort of situation to me the other day, and of course it arises because of the global nature of these organisations.
People want the security and assurance of knowing that they can go to local co-operatives and be offered loans if they save, whereas they would be excluded from high street banks, which would say, “You’re too poor. We can’t give you an overdraft”, but if people were in a
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credit union they could get one. A lot of this is about risk management and stability, but it is also about ethics. We know that mutuals—the Co-op in particular—are trying to promote fair trade, sustainability and so on. If we are serious about encouraging risk management, and a better and fairer future for all our communities with mutuals, we should be serious about pushing forward the top line of this amendment—that to manage it, we should measure it. I very much hope that the Minister will accept this modest amendment.
Mr Hoban: We have had a wide-ranging debate on mutuality, and it has acted as a peg for discussion. As is clear from this evening’s contributions, we all recognise the strength of the mutual sector, its importance in providing choice and diversity, and the benefits it brings. A couple of times, however, Opposition Members seemed to elevate mutuals into semi-religious institutions. Let us be realistic about some of the issues that mutuals faced during the crisis. Some mutuals had to be bailed out by others, and the first use by the previous Government of the special resolution regime was on the Dunfermline building society. A number of mutuals strayed from their core business model, which had consequences.
One hon. Member—I think it was the hon. Member for Harrow West (Mr Thomas), who is no longer in his place—referred to mutuals supporting their branch network. I recall that one of the first Adjournment debates I replied to as a Minister was as a consequence of Nationwide closing a number of branches in south-east London. All mutuals face commercial pressures, which needs to be acknowledged.
Geraint Davies: What the Minister says is true, but does he accept that there is a differential outcome and that, on balance, because of the lower-risk structure, the mutuals do better than conventional capitalist banks?
Mr Hoban: It depends on risk management and the business model that mutuals follow. There is a different set of constraints around building societies, which helps to ensure their stability, but that does not mean that they are immune from some of the mistakes that have caused failure in the past.
The clear intention of the Bill—we discussed this at length in Committee—is to ensure that regulation does not discriminate against mutuality, or indeed any other type of ownership, simply because it diverges from the norm of public or private ownership. I believe that the Bill delivers that result. For example, in clause 22, new section 138K requires the Prudential Regulatory Authority and Financial Conduct Authority to analyse the impact of the proposed rules on mutual societies. This will help to build up a base of impartial evidence to allow the regulators to continue to assess whether mutuals are being treated appropriately within the regulatory system. It is important that regulators think through very carefully the impact that their rules will have, particularly on mutuals.
Jonathan Evans: My hon. Friend will recall coming to our all-party group on insurance and financial services, when we asked him some questions on these issues. In fact, the regulator thinks that the Financial Services Authority has changed its processes in order to recognise the specific position of mutuals. What it is that the Government have changed, other than their even-handed approach?
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Mr Hoban: The new duty in the Bill goes beyond what the FSA currently does. It imposes a requirement separately to identify the impact of regulation on mutuals. Let me continue my remarks and set out some of the other things we have done to promote mutuality. As I was saying, the regulatory principle of proportionality also bites in this regard. If the regulators are taking action that impacts on one type of firm more than another, it should be done on the basis that the action is necessary and proportionate.
Let me highlight a number of ways in which the Government are promoting mutuality outside of this Bill. In January this year, the relevant provisions of our Legislative Reform (Industrial and Provident Societies and Credit Unions) Order 2011 came into effect, allowing credit unions to grow faster and compete better by offering interest on deposits and admitting corporate bodies like local charities and firms as members.
My colleagues in the Department for Work and Pensions recently commissioned and published a report on enhancing the sustainability of the credit union sector. It looked at some of the initiatives undertaken by the previous Government, how they have helped the credit union sector and how best to take that work forward. Important recommendations were made to the Government that will help to enhance the sustainability of credit unions and ensure that if there is further public sector investment in them it will be used to expand their base and ensure that they are sustainable.
The capital requirements directive, CRD4, includes a capital instrument that is available for use by mutuals and building societies. That was not on the agenda when we came into office two years ago. It is a consequence of the work that this Government have done with their European partners to ensure that that instrument can enable building societies to issue capital instruments so that they can expand and deal with some of the challenges they face. A number of Members of the European Parliament, as well as the Government, have been working to ensure that within CRD4 a particular capital instrument is available for the Co-op, which, because of the nature of its ownership, falls outside the instrument that is available to building societies.
The Prime Minister announced earlier this year that we intend to bring forward a Bill to consolidate most legislation governing co-operatives and mutuals. The industry greeted the announcement of this Bill warmly, and I believe it is important to bring forward this consolidation. Ed Mayo, the secretary-general of Co-operatives UK, stressed the importance of bringing together a series of nearly 20 Bills or Acts of Parliament, which will make it easier and cheaper to establish co-operatives and remove some of the ambiguity in the sector. Co-operatives UK is looking forward to working with the Government to bring forward this consolidation Bill.
Mr Love: The Minister has already admitted that credit union deregulation goes back many years. I was frustrated by the lack of progress under the previous Government; it has taken us a long time to get here. As for a consolidation Bill, I asked the Secretary of State for Business, Innovation and Skills why it was not included in the Queen’s Speech, given that it is a relatively modest and non-controversial measure—yet the Government could not give enough priority to it. Is there not some concern—
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Mr Deputy Speaker (Mr Lindsay Hoyle): Order. The hon. Gentleman spoke earlier and interventions are meant to be short, not to be another speech.
Mr Hoban: Consolidating something like 18 pieces of legislation is not a simple task. It needs to be done properly and well, and we would need to do it in conjunction with the co-operative movement, as well as with the Law Commission. Other pieces of legislation need to be implemented before the introduction of the consolidation Bill. It represents an important step forward, which is why it has been welcomed by people like Ed Mayo as a way of making it easier to set up mutuals in the future.
In the Government’s response to the recommendations of the Independent Commission on Banking, we committed to assess whether the Building Societies Act 1986 should be updated in line with the reforms to the wider banking sector. We want to work with building societies to identify the barriers to their growth. We will shortly publish a paper, alongside the White Paper on ICB implementation, as a consequence of that work, to identify where the Building Societies Act 1986 needs to be amended to enable building societies to take advantage of the opportunities that are out there.
I believe that this Government have demonstrated a clear commitment to promote mutuality and to diversify the mutual sector. Our commitment takes its shape in many forms—whether it be the new capital instrument, the protection given to members of Northern Ireland’s credit unions, legislation to help to take forward and grow credit unions, or the increased public investment in credit unions that should flow from changes to the model on which they operate. That demonstrates the practical concrete steps that the Government are taking to strengthen the mutual sector.
The information requested by the amendment is clearly widely available, if my hon. Friend the Member for Birmingham, Yardley (John Hemming) can Google it in a minute, and it will be maintained and kept. I do not think that this requirement to provide information, placing additional burdens on the regulator and the sector, is necessary. Actions speak louder than words and they speak louder than data. What this Government have clearly done is bring forward a series of measures to strengthen the mutual sector, which will be to the benefit of all our constituents.
8 pm
Chris Leslie: “Actions speak louder than words”: that is the conclusion that the Minister reached when rebutting this modest amendment. Some Opposition Members said that it was too modest, and not strong enough. You cannot win when you are in opposition. Sometimes Opposition Members propose amendments and are told that they go much too far, but it seems that this amendment did not go far enough.
The aim of the amendment was simply to hold the Government to account in respect of their own promise in the coalition agreement to produce detailed proposals to promote mutuality. The Minister tried his very best. My hon. Friends could probably hear the sound of the barrel being scraped as he listed all the papers, reviews and consultations—half of which, by the way, had their genesis under the last Labour Government, or were thanks to the European Commission.
22 May 2012 : Column 1062
The Government’s commitment to mutuality is conspicuous by its absence. They have an embarrassing dearth of commitment to the mutual sector. The Minister must do far better than this. As my hon. Friends have said, it is no wonder that the Government do not want to measure the progress that is being made in any modest way. I think it is time that we held them to account.
Members in all parts of the Chamber care about the mutual sector. I greatly respect the work that is being done by the all-party group, and the commitment of others who believe that it is important for us to take the steps that are necessary to support the mutual and co-operative sector. All that we were trying to do was obtain from the Government some sense of how they were doing in relation to the coalition agreement, but the best that we have been able to secure is a scraped-together consolidation Bill that does some administrative tidying up. It is not good enough, and I therefore wish to press amendment 72 to a Division.
Question put,
That the amendment be made.
The House divided:
Ayes 218, Noes 271.
[8.1 pm
AYES
Abbott, Ms Diane
Abrahams, Debbie
Ainsworth, rh Mr Bob
Alexander, rh Mr Douglas
Alexander, Heidi
Anderson, Mr David
Ashworth, Jonathan
Austin, Ian
Bailey, Mr Adrian
Bain, Mr William
Balls, rh Ed
Banks, Gordon
Barron, rh Mr Kevin
Bayley, Hugh
Beckett, rh Margaret
Benn, rh Hilary
Benton, Mr Joe
Berger, Luciana
Betts, Mr Clive
Blears, rh Hazel
Blenkinsop, Tom
Blomfield, Paul
Blunkett, rh Mr David
Brennan, Kevin
Brown, Lyn
Brown, rh Mr Nicholas
Brown, Mr Russell
Bryant, Chris
Buck, Ms Karen
Burnham, rh Andy
Byrne, rh Mr Liam
Campbell, Mr Alan
Campbell, Mr Gregory
Campbell, Mr Ronnie
Caton, Martin
Chapman, Mrs Jenny
Clark, Katy
Clarke, rh Mr Tom
Clwyd, rh Ann
Coaker, Vernon
Coffey, Ann
Connarty, Michael
Cooper, Rosie
Corbyn, Jeremy
Crausby, Mr David
Creagh, Mary
Creasy, Stella
Cruddas, Jon
Cunningham, Alex
Cunningham, Mr Jim
Cunningham, Tony
Curran, Margaret
Dakin, Nic
Danczuk, Simon
David, Mr Wayne
Davidson, Mr Ian
Davies, Geraint
De Piero, Gloria
Denham, rh Mr John
Dobson, rh Frank
Docherty, Thomas
Dodds, rh Mr Nigel
Doran, Mr Frank
Dowd, Jim
Doyle, Gemma
Dromey, Jack
Durkan, Mark
Eagle, Ms Angela
Edwards, Jonathan
Efford, Clive
Elliott, Julie
Ellman, Mrs Louise
Engel, Natascha
Evans, Chris
Farrelly, Paul
Fitzpatrick, Jim
Flello, Robert
Flynn, Paul
Fovargue, Yvonne
Francis, Dr Hywel
Gardiner, Barry
Gilmore, Sheila
Glass, Pat
Glindon, Mrs Mary
Godsiff, Mr Roger
Goggins, rh Paul
Goodman, Helen
Green, Kate
Greenwood, Lilian
Griffith, Nia
Hamilton, Mr David
Hamilton, Fabian
Hanson, rh Mr David
Harman, rh Ms Harriet
Harris, Mr Tom
Havard, Mr Dai
Healey, rh John
Hermon, Lady
Heyes, David
Hilling, Julie
Hodge, rh Margaret
Hodgson, Mrs Sharon
Hoey, Kate
Hood, Mr Jim
Hopkins, Kelvin
Hosie, Stewart
Irranca-Davies, Huw
Jackson, Glenda
Jamieson, Cathy
Jarvis, Dan
Johnson, Diana
Jones, Helen
Jones, Mr Kevan
Jones, Susan Elan
Kaufman, rh Sir Gerald
Keeley, Barbara
Kendall, Liz
Lavery, Ian
Lazarowicz, Mark
Leslie, Chris
Lewis, Mr Ivan
Lloyd, Tony
Llwyd, rh Mr Elfyn
Long, Naomi
Love, Mr Andrew
Lucas, Caroline
Lucas, Ian
MacNeil, Mr Angus Brendan
MacShane, rh Mr Denis
Mactaggart, Fiona
Mahmood, Shabana
Malhotra, Seema
Mann, John
Marsden, Mr Gordon
McCann, Mr Michael
McCarthy, Kerry
McClymont, Gregg
McCrea, Dr William
McDonagh, Siobhain
McDonnell, John
McFadden, rh Mr Pat
McGovern, Jim
McGuire, rh Mrs Anne
McKechin, Ann
McKenzie, Mr Iain
McKinnell, Catherine
Meacher, rh Mr Michael
Mearns, Ian
Michael, rh Alun
Miliband, rh David
Miller, Andrew
Mitchell, Austin
Moon, Mrs Madeleine
Morden, Jessica
Morrice, Graeme
(Livingston)
Morris, Grahame M.
(Easington)
Mudie, Mr George
Munn, Meg
Murphy, rh Paul
Murray, Ian
Nandy, Lisa
Nash, Pamela
O'Donnell, Fiona
Onwurah, Chi
Osborne, Sandra
Owen, Albert
Pearce, Teresa
Perkins, Toby
Phillipson, Bridget
Raynsford, rh Mr Nick
Reed, Mr Jamie
Reeves, Rachel
Reynolds, Emma
Riordan, Mrs Linda
Robertson, John
Robinson, Mr Geoffrey
Rotheram, Steve
Roy, Mr Frank
Roy, Lindsay
Ruane, Chris
Ruddock, rh Dame Joan
Sarwar, Anas
Sharma, Mr Virendra
Sheerman, Mr Barry
Sheridan, Jim
Shuker, Gavin
Simpson, David
Skinner, Mr Dennis
Slaughter, Mr Andy
Smith, rh Mr Andrew
Smith, Angela
Smith, Nick
Smith, Owen
Straw, rh Mr Jack
Stringer, Graham
Stuart, Ms Gisela
Sutcliffe, Mr Gerry
Thomas, Mr Gareth
Timms, rh Stephen
Trickett, Jon
Turner, Karl
Twigg, Derek
Twigg, Stephen
Umunna, Mr Chuka
Vaz, Valerie
Walley, Joan
Watson, Mr Tom
Watts, Mr Dave
Weir, Mr Mike
Whiteford, Dr Eilidh
Williams, Hywel
Wilson, Phil
Winnick, Mr David
Winterton, rh Ms Rosie
Wishart, Pete
Wood, Mike
Wright, David
Wright, Mr Iain
Tellers for the Ayes:
Mark Hendrick and
Graham Jones
NOES
Adams, Nigel
Afriyie, Adam
Aldous, Peter
Amess, Mr David
Andrew, Stuart
Arbuthnot, rh Mr James
Bacon, Mr Richard
Baker, Norman
Baker, Steve
Baldry, Tony
Baldwin, Harriett
Barclay, Stephen
Barker, Gregory
Barwell, Gavin
Bebb, Guto
Beith, rh Sir Alan
Benyon, Richard
Beresford, Sir Paul
Berry, Jake
Bingham, Andrew
Binley, Mr Brian
Birtwistle, Gordon
Blackman, Bob
Blackwood, Nicola
Blunt, Mr Crispin
Boles, Nick
Bone, Mr Peter
Bottomley, Sir Peter
Bradley, Karen
Bray, Angie
Brazier, Mr Julian
Bridgen, Andrew
Brine, Steve
Brokenshire, James
Browne, Mr Jeremy
Bruce, Fiona
Bruce, rh Malcolm
Buckland, Mr Robert
Burley, Mr Aidan
Burns, Conor
Burns, rh Mr Simon
Burrowes, Mr David
Burstow, Paul
Burt, Lorely
Cable, rh Vince
Cairns, Alun
Campbell, rh Sir Menzies
Carmichael, rh Mr Alistair
Carmichael, Neil
Carswell, Mr Douglas
Chishti, Rehman
Clappison, Mr James
Clifton-Brown, Geoffrey
Coffey, Dr Thérèse
Collins, Damian
Colvile, Oliver
Crabb, Stephen
Crouch, Tracey
Davey, rh Mr Edward
Davies, Glyn
Djanogly, Mr Jonathan
Dorrell, rh Mr Stephen
Doyle-Price, Jackie
Drax, Richard
Dunne, Mr Philip
Ellis, Michael
Ellison, Jane
Elphicke, Charlie
Eustice, George
Evans, Graham
Evans, Jonathan
Evennett, Mr David
Featherstone, Lynne
Field, Mark
Fox, rh Dr Liam
Francois, rh Mr Mark
Freeman, George
Freer, Mike
Fullbrook, Lorraine
Gale, Sir Roger
Garnier, Mark
Gauke, Mr David
Gibb, Mr Nick
Gilbert, Stephen
Gillan, rh Mrs Cheryl
Glen, John
Goldsmith, Zac
Goodwill, Mr Robert
Gove, rh Michael
Graham, Richard
Grant, Mrs Helen
Grayling, rh Chris
Green, Damian
Grieve, rh Mr Dominic
Griffiths, Andrew
Gummer, Ben
Gyimah, Mr Sam
Halfon, Robert
Hammond, rh Mr Philip
Hammond, Stephen
Hancock, Matthew
Hancock, Mr Mike
Hands, Greg
Harper, Mr Mark
Harrington, Richard
Harris, Rebecca
Hart, Simon
Harvey, Nick
Haselhurst, rh Sir Alan
Heald, Oliver
Heath, Mr David
Heaton-Harris, Chris
Hemming, John
Henderson, Gordon
Hinds, Damian
Hoban, Mr Mark
Hollingbery, George
Hollobone, Mr Philip
Hopkins, Kris
Horwood, Martin
Howarth, Mr Gerald
Howell, John
Huhne, rh Chris
Hunt, rh Mr Jeremy
Hunter, Mark
Huppert, Dr Julian
Javid, Sajid
Jenkin, Mr Bernard
Johnson, Gareth
Jones, Andrew
Jones, Mr David
Jones, Mr Marcus
Kawczynski, Daniel
Kelly, Chris
Kennedy, rh Mr Charles
Kirby, Simon
Knight, rh Mr Greg
Kwarteng, Kwasi
Laing, Mrs Eleanor
Lamb, Norman
Lancaster, Mark
Latham, Pauline
Laws, rh Mr David
Leadsom, Andrea
Lee, Jessica
Lee, Dr Phillip
Leslie, Charlotte
Letwin, rh Mr Oliver
Lewis, Brandon
Liddell-Grainger, Mr Ian
Lilley, rh Mr Peter
Lord, Jonathan
Loughton, Tim
Luff, Peter
Lumley, Karen
Macleod, Mary
Main, Mrs Anne
Maude, rh Mr Francis
Maynard, Paul
McCartney, Jason
McCartney, Karl
McLoughlin, rh Mr Patrick
McPartland, Stephen
McVey, Esther
Mensch, Louise
Menzies, Mark
Mercer, Patrick
Metcalfe, Stephen
Miller, Maria
Mills, Nigel
Moore, rh Michael
Mordaunt, Penny
Morgan, Nicky
Morris, Anne Marie
Morris, David
Morris, James
Mosley, Stephen
Mowat, David
Munt, Tessa
Murray, Sheryll
Murrison, Dr Andrew
Neill, Robert
Newmark, Mr Brooks
Nokes, Caroline
Norman, Jesse
Nuttall, Mr David
O'Brien, Mr Stephen
Offord, Mr Matthew
Ollerenshaw, Eric
Opperman, Guy
Parish, Neil
Patel, Priti
Pawsey, Mark
Penning, Mike
Penrose, John
Perry, Claire
Phillips, Stephen
Pickles, rh Mr Eric
Pincher, Christopher
Poulter, Dr Daniel
Pritchard, Mark
Pugh, John
Raab, Mr Dominic
Randall, rh Mr John
Reckless, Mark
Redwood, rh Mr John
Rees-Mogg, Jacob
Reevell, Simon
Reid, Mr Alan
Rifkind, rh Sir Malcolm
Robathan, rh Mr Andrew
Rogerson, Dan
Rudd, Amber
Russell, Sir Bob
Rutley, David
Sandys, Laura
Scott, Mr Lee
Selous, Andrew
Shapps, rh Grant
Sharma, Alok
Shelbrooke, Alec
Simmonds, Mark
Simpson, Mr Keith
Skidmore, Chris
Smith, Miss Chloe
Smith, Henry
Smith, Julian
Smith, Sir Robert
Soubry, Anna
Spelman, rh Mrs Caroline
Spencer, Mr Mark
Stanley, rh Sir John
Stephenson, Andrew
Stevenson, John
Stewart, Bob
Stewart, Iain
Streeter, Mr Gary
Stride, Mel
Stuart, Mr Graham
Stunell, Andrew
Sturdy, Julian
Swayne, rh Mr Desmond
Swire, rh Mr Hugo
Syms, Mr Robert
Teather, Sarah
Thurso, John
Tomlinson, Justin
Truss, Elizabeth
Turner, Mr Andrew
Tyrie, Mr Andrew
Uppal, Paul
Vara, Mr Shailesh
Vickers, Martin
Villiers, rh Mrs Theresa
Walker, Mr Charles
Wallace, Mr Ben
Walter, Mr Robert
Watkinson, Angela
Webb, Steve
Wharton, James
Whittingdale, Mr John
Wiggin, Bill
Williams, Mr Mark
Williams, Stephen
Williamson, Gavin
Wilson, Mr Rob
Wollaston, Dr Sarah
Wright, Jeremy
Wright, Simon
Yeo, Mr Tim
Young, rh Sir George
Tellers for the Noes:
James Duddridge and
Jenny Willott
Question accordingly negatived.
22 May 2012 : Column 1063
22 May 2012 : Column 1064
22 May 2012 : Column 1065
More than three hours having elapsed since the commencement of proceedings on consideration, the debate was interrupted (Programme Order, 23 April).
The Deputy Speaker put forthwith the Question necessary for the disposal of the business to be concluded at that time (Standing Order No. 83E).
22 May 2012 : Column 1066
Amendment proposed: 10, page 136, line 22, leave out from ‘Bank’ to ‘on’ in line 23 and insert
‘must give the Treasury one or more reports’.
Amendment proposed: 11, page 165, line 21, at end insert—
‘() an order under section 91 (power to make further provision about regulation of consumer credit);’.
Amendments proposed: 13, page 240, line 8, leave out ‘are, or are not, to’ and insert ‘may, or may not,’.
Amendment 14, page 240, line 10, leave out ‘are, or are not, to’ and insert ‘may, or may not,’.
Amendments proposed: 15, page 288, line 18, at end insert—
(c) in paragraphs (c) and (d), for “notice of control” substitute “section 178 notice”.
‘(2A) In subsection (2)(b), for “notices of control” substitute “section 178 notices”.’.
Amendment 16, page 288, leave out lines 20 and 21 and insert—
‘(4A) “The appropriate regulator”—
(a) for the purposes of subsection (1)(a) and (b), is the regulator to which the application for permission under Part 4A is made;
(b) for the purposes of subsection (1)(c) and (d), is the appropriate regulator as defined in section 178(2A).
(4B) “Section 178 notice” means a notice given under section 178.”’.
Amendment 17, page 288, line 24, leave out sub-paragraphs (2) to (5) and insert—
(a) for “the Authority”, in the first place, substitute “a regulator”,
(b) in paragraph (a), for “subsections (7) to (9) of section 52 do” substitute “section 55X does”, and
(c) in paragraph (b), for “Authority” substitute “regulator”.
(a) for “the Authority”, in the first place, substitute “a regulator”,
(b) in paragraph (a), for “section 52(1) and (2)” substitute “subsections (1) to (3) of section 55V”, and
(c) in paragraph (b), for “Authority” substitute “regulator”.
(a) for “the Authority”, in the first place, substitute “a regulator”, and
(b) in paragraph (b), for “Authority” substitute “regulator”.’.
22 May 2012 : Column 1067
Amendments proposed: 18, page 315, line 22, after ‘this’ insert ‘Part of this’.
Amendment 19, page 316, line 11, leave out ‘the scheme’ and insert ‘a scheme under this paragraph’.
Amendment 20, page 316, line 18, after first ‘this’ insert ‘Part of this’.
Amendment 21, page 317, line 2, at end insert—
Interpretation
6 In this Part of this Schedule “the OFT” means the Office of Fair Trading.
Transfer schemes
7 (1) This paragraph applies if after the passing of this Act the Treasury make an order under section 22 of FSMA 2000 which has the effect that an activity—
(a) ceases to be an activity in respect of which a licence under section 21 of Consumer Credit Act 1974 is required or would be required but for the exemption conferred by subsection (2), (3) or (4) of that section or paragraph 15(3) of Schedule 3 to FSMA 2000, and
(b) becomes a regulated activity for the purposes of FSMA 2000.
(2) The OFT must make one or more schemes under this paragraph for the transfer of property, rights and liabilities of the OFT to the FCA.
(3) A scheme under this paragraph made by the OFT is not to be capable of coming into force unless it is approved by the Treasury and the Secretary of State.
(4) The OFT may not submit a scheme under this paragraph to the Treasury or the Secretary of State for their approval without the consent of the FCA.
(5) Sub-paragraph (6) applies if —
(a) the OFT fails, before such time as may be notified to it by the Treasury as the latest time for submission of a scheme under this paragraph in connection with an order falling within sub-paragraph (1), to submit such a scheme to the Treasury and the Secretary of State for their approval, or
(b) the Treasury or the Secretary of State decide not to approve a scheme that has been submitted to them by the OFT (either with or without modifications).
(6) Where this sub-paragraph applies, the Treasury may, with the approval of the Secretary of State, make a scheme under this paragraph for the transfer to the FCA of such of the OFT’s property, rights and liabilities as appear to the Treasury appropriate to be transferred to the FCA in consequence of the order falling within sub-paragraph (1).
(7) The property, rights and liabilities which are the subject of a scheme under this paragraph are transferred in accordance with the provisions of the scheme on such day as the scheme may specify.
(8) The OFT must provide the Treasury or the Secretary of State with all such information and other assistance as either of them may reasonably require for the purposes of, or otherwise in connection with, the exercise of any power conferred on the Treasury or the Secretary of State by this paragraph.
(9) In the following provisions of this Part of this Schedule a scheme under this paragraph is referred to as a “transfer scheme”.
8 The property, rights and liabilities that may be the subject of a transfer scheme include—
22 May 2012 : Column 1068
(a) any that would not otherwise be capable of being transferred or assigned, and
(b) rights and liabilities under a contract of employment.
(a) apportion, or provide for the apportionment of, property, rights and liabilities,
(b) define the property, rights and liabilities to be transferred by specifying them or by describing them (including describing them by reference to functions that are transferred by the order falling within paragraph 7(1));
(c) contain provision for the payment of compensation by the FCA to the OFT;
(d) contain provision for the payment of compensation by the OFT or the FCA to any person whose interests are adversely affected by the scheme;
(e) contain supplemental, incidental, transitional and consequential provision.
10 A transfer scheme which relates to rights and liabilities under a contract of employment must provide for the transfer to which the scheme relates to be treated as if it were a relevant transfer for the purposes of the Transfer of Undertakings (Protection of Employment) Regulations 2006.’.
Question put (single Question on amendments moved by a Minister of the Crown), That amendments 10, 11 and 13 to 21 be made—(Mr Hoban.)
Question accordingly agreed to.
Amendments 10, 11 and 13 to 21 agreed to.
8.15 pm
Mr Hoban: I beg to move, That the Bill be now read the Third time.
It is worth stepping back at this point to look at why this is such a crucial Bill and why we must get it right. The UK banking system is emerging from the most serious financial crisis in over 100 years. It was a global crisis, but in the UK it highlighted fundamental dangerous flaws in the existing tripartite system of regulation. That system was put in place by the previous Government and designed by the shadow Chancellor—a system that, because of its flaws, failed its first major test.
The Bill addresses the most serious weaknesses in the system. Currently, all responsibility for financial regulation rests with the Financial Services Authority, resulting in an unwieldy remit across prudential and conduct-of-business regulation. The conflicts and challenges involved in that dual mandate were highlighted in the recent FSA report on the failure of RBS. The Bank of England is responsible for financial stability, but it did not have the tools with which to effect change, and the Treasury has no clear remit in a crisis, in spite of the immense threat to public funds in such scenarios. The confusion and lack of clarity in respect of roles and responsibilities triggered the asking of this question: who is in charge? The system’s structural flaws were compounded by flaws in approach. The FSA’s focus on tick-box compliance in the run-up to the financial crisis meant that insufficient time and resource was dedicated to thoughtful and challenging analysis of risk.
The Bill gives a clearer mandate to the regulatory structure and ensures that the regulators are equipped with the powers they need to tackle the problems both of today and, crucially, of the future. The Bill gives the Bank, through the new Financial Policy Committee, a much clearer mandate to protect financial stability and
22 May 2012 : Column 1069
the ability to develop and use levers to fulfil that role. In Committee, we discussed at length the remit of the FPC and the tools that would be required, and I reconfirm what I said then: we will consult on the macro-prudential tools later this year, to ensure that there is full public discussion of them and their effects both in the outside world and here in Parliament.
In response to questions about who should be the prudential regulator, and recognising the close synergy between macro-prudential regulation—the task of the new FPC—and micro-prudential regulation, we have established a new subsidiary of the Bank of England: the Prudential Regulatory Authority. The PRA will have a new emphasis on a judgment-led approach to regulation. We will ask it to act proactively and to look ahead at problems that may emerge. The PRA will be empowered to act to tackle problems before they emerge, rather than waiting to clean up afterwards.
Andrea Leadsom (South Northamptonshire) (Con): Does my hon. Friend agree that it is important that the PRA and the FPC consider the need for greater bank competition in the UK? Does he also agree that it is important that when the Bill moves into the other place consideration is given to any changes that might encourage greater competition through the new PRA?
Mr Hoban: The FPC’s remit does not cover the consideration of competition in the system. Its role is to consider stability and the threats to it. On the question of the Prudential Regulatory Authority, one of the challenges we need to accept is that, for a host of reasons, the failure of a bank is costly and expensive. We saw that in the UK with the response to the banking problems during the crisis, when a huge amount of public money was pumped into banks to prevent some of the problems that bank failure would create. Part of the responsibility for tackling the problem lies with the previous Government, who introduced living wills through recovery and resolution plans in the Banking Act 2009, work which is now being taken forward.
Of course, the Vickers report includes in its recommendations ways in which it will be easier to allow the orderly failure of a bank. Helping a bank to have an orderly failure where there is a problem will help to tackle the problem with barriers to entry. At the moment, the cost of failure is so high that the barriers to entry are proportionately higher. The regulators want to know that a bank is safe and to have huge confidence in that bank and they will require it to have high levels of capital because the cost of failure is so high. If we can tackle the barriers to exit from the banking sector, it will be easier to tackle the barriers to entry. That will help enormously in improving competition.
We have also given the Financial Conduct Authority an explicit objective of improving competition in markets. We have strengthened that objective, taking into account the work of the Treasury Committee and the representations of others, and I believe, as I think my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) does, that competition plays an important role in improving outcomes for consumers. That is why we see competition as one of the key new roles for the FCA, which will be a specialist regulator of conduct and will have strategic
22 May 2012 : Column 1070
objectives not just to promote competition but to focus on consumer protection and to ensure that markets function well and have integrity.
We have also listened to the widespread concerns about the regulation of consumer credit. The Bill gives us powers to transfer the responsibility for regulating consumer credit from the Office of Fair Trading to the FCA. That will bring significant benefits and will ensure that consumer credit is well regulated. The FCA has a wider range of penalties than the OFT and can take a wider range of enforcement action, which will help to reassure our constituents that we are tackling the issue of consumer credit properly and sensibly.
Mr Love: The Minister will recognise the continuing concerns about the powers given to the Governor of the Bank of England and, indeed, to the Bank. What changes is he likely to make to address the governance arrangements to ensure that those powers are used wisely?
Mr Hoban: The hon. Gentleman makes an important point. I emphasise that it is the Bank of England that is getting more powers, as I do not think we should be personalising matters in the context of who within the Bank will get more power. It is the institution that will get more power. We have taken steps in the Bill to increase the accountability and transparency of the Bank. It is very important, for example, that the FPC, in explaining its actions, uses the financial stability report to communicate the risks it identifies and what its responses should be. I expect that the FPC will be held to account by business, the banking sector and this House. That is important but, as I said on our first day on Report, the Treasury Committee has raised a number of issues—I pay tribute to the work of the Committee and its Chair in highlighting them—and we will return to them in the other place.
It is important to get the arrangements for the governance of the Bank right. I believe that accountability and transparency should be at the heart of the regulatory system, which applies not just to the regulators but to some of the tools that we have given to them, which I think will help. For example, at the moment no one knows when a financial promotion has been withdrawn at the direction of the regulator, but that information will now be made public, which will help consumers to know which financial services firms push the boundaries with promotions. That is why we want to see the publication of warning letters. I know that that is controversial, but it is right that consumers should know when enforcement action is being proceeded with and that that information should be in the public domain. The powers we are giving to the FCA to ban toxic products are also an important strengthening of that regime. In a range of areas, we are changing not only the structure of the regulatory organisation of this country but the approach. Transparency and accountability are part of that, as are the increase in competition and the new powers that we are giving to the FCA.
The process of scrutiny has been constructive, I think, and I pay tribute to the Treasury Committee for its work. We also had pre-legislative scrutiny of the Bill by a Joint Committee of both Houses chaired by my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley). As we have developed the Bill, the way in which we have listened to the arguments being made inside and outside Parliament has demonstrated that
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we listen carefully to what is said and will amend the legislation as appropriate. We passed a number of Government amendments on Report that reflected comments that were made—even those made by the hon. Member for Nottingham East (Chris Leslie). That just shows that we are prepared to listen. The fact that there has been such widespread support for the Bill in the Commons demonstrates that our aim to ensure that there is widespread consensus behind our reforms to the structure and approach of regulation was achieved through the consultation process we adopted. That consensus is important. It demonstrates confidence in our proposed changes and shows that this Bill should receive its Third Reading.
I hope that the Opposition are not going to oppose Third Reading. If they do, it will demonstrate that they have not learned the lesson of the past—[ Interruption. ] The deputy Opposition Chief Whip says, “You never know,” from a sedentary position, but if the Opposition vote against this Bill on Third Reading people will wonder whether they are so wedded to the constructs of the past that they cannot move on. People will think that they are so wedded to the system put in place by the shadow Chancellor that they cannot move on and that they cannot recognise the flaws in both its structure and approach. If they choose to vote in such a way, the world will know that they have not moved on and that they have not learned those lessons.
The Government have looked at the financial crisis and the reforms that must be made. The structure we are proposing today will help to deliver better outcomes for consumers and to strengthen and improve the resilience of the financial system in the future. I commend the Bill to the House.
8.28 pm
Chris Leslie: Let me start by thanking those of my colleagues who served on the Committee that considered the Bill, as well as the trade bodies, consumer groups and others who made representations about it. In particular, I thank members of the Treasury Committee for the time and attention they gave to trying to improve the legislation. I thank also the members of the pre-legislative scrutiny Committee, who did a phenomenal amount of work in the months ahead of the legislative process, albeit to make a series of recommendations that the Government then promptly ignored. However, we will come to that when the Bill goes to the other place. I pay tribute to my hon. Friend the Member for Foyle (Mark Durkan). His contributions were from a different political party but he made a very constructive contribution to the Committee. I also thank the officials and others who work hard behind the scenes on legislation such as this.
It is a shame that we have had such woefully insufficient time to debate this massive piece of legislation, which consists of more than 300 pages and hundreds of clauses. We tabled more than 200 amendments but the best we could get from the Government, even though they have nothing else going on in the Chamber—they are padding out the legislative process—is one and a half days, with three hours for the second day on Report. We ran out of time to debate some of the key, critical issues concerning how the Governor of the Bank of England and the Chancellor of the Exchequer would manage in a crisis, and we did not even get an opportunity to debate those
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crisis-management arrangements. However, I am glad that we extracted one major achievement from the Government and No. 10: when it comes to public funds, when there is a direction to the Bank of England from the Treasury, the Government will now require the Bank to report back on its progress on that direction. That is a positive change, which we did not get a chance to debate in discussions on the previous section of the Bill. I am grateful for the change.
When it comes to some of the other problems to do with crisis management, the Government are relying on a non-statutory memorandum of understanding between the Bank of England and the Treasury, which leaves gaping holes in knowing how things would work in a crisis. They say that there will be a temporary standing committee or an ad hoc committee but there is no sense of who will be on it or how it will be constructed. No advance thought is going into that and I worry that if we get into a crisis we might waste hours or even days figuring out how on earth to convene this ad hoc committee.
Similarly, there are serious difficulties to do with whether the heads of the new regulators and bodies that the Bill creates will have a direct line of communication with the Treasury or whether everything will have to be filtered through the Governor of the Bank of England, in whom enormous new powers will be vested under this legislation. There is an irony in that yesterday or the day before the Bank conceded—this was dragged out of it—that it ought perhaps to have minor reviews and partial inquiries into what went on in parts of the financial crisis. We still have not had a fundamental review by the Bank of England about its role in the crisis, and that is a great shame. It should be big enough and have the humility to undertake the review that the Treasury and even the FSA have undertaken. It is time that the Bank also opened up and looked inwardly and seriously at its own capabilities.
There are positive aspects to this legislation. We agree with the concept of prudential regulation and we wait to see the detail. The Minister said that he is going to consult on some of the macro-prudential tools. It is very important that we get right the concept of the greater systemic overview of the system—the eagle-eye view that needs to be taken rather than getting too bogged down in the detail of firm by firm, company by company regulation—but the theory needs to be translated properly into practice. That is where the devil is in the detail. In a number of respects, the Bill falls short and could have done with massive improvement. The Opposition tried their best to make recommendations, including many of those made by the pre-legislative scrutiny Committee and the Treasury Committee. I sometimes see the Minister as—I will not call him an irresistible force—an immovable object resisting time and again attempts to improve the Bill.
We need more transparency and accountability for the regulators that the Minister is creating. The degree to which the new Financial Conduct Authority will publish its minutes is still unclear—we need a firmer commitment from the Government on that—and as I have said, the crisis management memorandum of understanding is still insufficient. There is a severe risk that costs that firms pay in their levies to the new regulators will be duplicated and that there will be inefficiency in the expense of splitting the regulator and
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having two new regulators. We know that the PRA is already in aggrandising mode, securing beautiful new offices in Moorgate right next door to Threadneedle street because, apparently, Canary Wharf is far too far away. It is about 12 or 13 minutes on the tube, but apparently that is a major problem. So millions more pounds are to be spent on those offices in Moorgate, and the Government have resisted attempts to bring about greater efficiencies by means of the Bill.
The key aspect that is missing is proper attention to the necessary parliamentary scrutiny of those macro-prudential tools. Many of our constituents would baulk at that phrase and ask what on earth it means. It is about the regulator and the Bank of England deciding, for example, that the minimum repayments on their credit card may need to change at a moment’s notice. The Governor of the Bank of England will have the power to say, “I’m sorry, we’ve got a particular issue coming on, so instead of paying back 2% a month, you’ve got to pay back 10% a month on your credit card.” The Governor of the Bank of England will have the power to intervene on business lending, on the terms and duration of loans, and possibly even on the cost of those loans, and will be able to do that at a moment’s notice.
We have a bit of a debate about whether loan-to-value ratios and loan-to-income ratios on mortgages will also be in the hands of the Governor. Interestingly, one of the deputy governors has said, “This is a bit too hot to handle. Maybe this is for the Treasury, which is accountable to do that.” The point is that there are phenomenal powers invested in the Bank of England, and we need that thread of accountability to come back to Parliament at some point. This is why we have suggested that there should be a super-affirmative process, rather than a rubber-stamping statutory instrument Committee which many Members have attended and where they know orders go through on the nod with a formal vote.
I detect some cynicism on the part of the Government Whips, but of course they want to nod these things through. We should give Parliament a proper opportunity to consider the impact of those phenomenal powers on our constituents and on the economy. I hope that in the other place the Government will think again about the need to improve the parliamentary scrutiny of the new powers.
When it comes to consumers, the Bill has not properly addressed what we wanted to see, particularly the powers of the Financial Conduct Authority. There has been no movement on compulsory financial education. The Money Advice Service, which is the body tasked with trying to improve the financial literacy of the population, will not be adequately focused in statute on the most deprived in society and those who are most financially excluded. We saw the Government rebut attempts today to give the FCA a proper mandate on the regulation of high cost credit. The Government refused to give the FCA a proper role to take account of social investment, charity finance and other needs. We know they have a chip on their shoulder about charities and philanthropy generally, but it is a shame that they did not recognise those needs in the Bill.
There are a number of consumer aspects, whether debt management plans, helping customers plan ahead for their mortgage finances, or giving firms a fiduciary
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duty to have regard to the best interests of consumers, on which the Bill should have been improved. We have spoken separately about how the corporate culture in the financial services sector could have been improved. Today we tried to press the Government on improving the stewardship, the corporate governance arrangements and the actions of remuneration committees in reining in some of the excessive bonuses and pay packets.
It is with particular reference to the impact on the economy that I close my remarks on Third Reading. A powerful new committee is created in the Bill—the Financial Policy Committee, which will make the decisions about macro-prudential tools. It will be under no proactive obligation to have regard to growth and employment in this country. We may well see a mismatch between the obligations under which the Monetary Policy Committee remains: it must have regard to the growth and employment objectives of the Government, but the FPC does not mirror that obligation on the MPC. It is told, “Don’t do anything to harm growth”, but it is not given an obligation to have regard to the Government’s proactive—we hope—strategy on growth. Maybe that is because they do not quite understand what the growth agenda ought to be, or they do not know how to get there. They cannot see why that is important. In addition to that general obligation, it is also important that there should be an assessment of the impact of each of the macro-prudential tools on the economy—on growth and employment—but the Government have neglected to do that. Also, there was not a sufficient duty placed on the Bank of England to take care of public funds. Those are some of our concerns.
The Bill does not properly fit with the European level of supervision for financial services. There is the sense that it was dreamt up on the back of a cigarette packet by the Chancellor in opposition, when he wondered how the previous administration, the FSA, could be blamed for all the ills of the global financial crisis. But he forgot to recognise that most of the financial regulations in this country come from Brussels, the EU and Commissioner Barnier, on that conveyor belt as it throws out all the directives and regulations. The regulators that we are creating in this legislation are merely there to transpose a lot of the decisions taken in Brussels. That is essentially their function. The Bill does not properly recognise how our regulators should fit with the European decisions and those realities. We should be framing legislation not just to influence those European decisions, but to steer those decisions. The Government still have not addressed that point properly.
David Mowat: The hon. Gentleman makes the point that the twin peaks structure that we are implementing here does not fit with the European sectoral structure. Is it the Opposition’s position that we should have had a sectoral rather than a twin peaks Bill?
Chris Leslie:
I am pointing out that there is a fundamental mismatch. We know that the supervisory authorities have gone for a thematic approach and the Government have gone for a twin peaks approach. Then there is this bizarre committee or secretariat in between to try and be an interlocutor. It is a tremendous spaghetti, diluting our influence on those supervisory decisions. We can already see that the Government have had to cave in on a number of ways in which the European Banking Authority
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can overrule many of the capital requirement arrangements. Perhaps that is the result of a deeper weakness in the Government’s diplomatic stance.
I am not saying that the Bill cannot be salvaged. There are ways in which it falls short, but there is still time for the Government to listen. The Bill is deficient, but it can be improved, and I hope that the noble lords in the other place will take the opportunity to do so. We agree with the concept of prudential regulation. There is virtue in some of the theory in the legislation. But it is because of the way in which the Government are yet again incompetently putting that theory into practice that we have our doubts. We will not oppose Third Reading, but I hope that the other place, perhaps with the more time that they have under the rules, will do a serious job and pick up on some of the issues that the Government, by timetabling the Bill in such a draconian way, failed to give the House of Commons the proper opportunity to do.
8.43 pm
Mr Andrew Tyrie (Chichester) (Con): I much agree with the sentiment of the remarks of the hon. Member for Nottingham East (Chris Leslie) a moment ago, and I will elucidate a little on some of the points that I think their lordships might want to look at. The Bill is the most important overhaul of financial regulation ever undertaken in this country, and it has implications for the health of the whole economy and affects everybody—every citizen, every business up and down the land. Along with the forthcoming banking reform Bill, it will change the landscape of our financial services industry, in which we lead the world in many areas and on which so many jobs in the UK depend.
The legislation certainly leaves this place in better shape than it might have done, which I think has something to do with the number of amendments that have been tabled and arguments that have been listened to by Ministers. Sometimes those arguments have come from those on the Opposition Front Bench, sometimes from the Public Bill Committee, sometimes from the Joint Committee, and sometimes from the Treasury Committee, which I chair. On that, I would like particularly to thank my colleagues with whom I work on the Committee who have been so helpful and generated so many ideas, helping put together the succession of reports that we have put out. They have, to some degree, influenced the shape of this Bill.
None the less, it is the Treasury Committee’s considered conclusion that the Bill is still defective in a number of respects. On the first day on Report, the Committee proposed a new clause to make the court more transparent and to require it to act more like a proper board. The Bank must have a board that is capable of assessing the institution’s performance, but it is explicitly prohibited from doing so at present. In view of the Minister’s favourable response to that new clause in the debate a few weeks ago, I look forward to seeing movement on the issue in another place. A number of other defects remain in the Bill, a few of which I will list in a moment.
It is important to put on the record one or two other points. Right from the beginning, the Government made decisions about the reform and the timing of the Bill
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that, in my view, have made the legislative process more complex and difficult than it could have been. For a start, we should have had a new Bill, something on which the Governor of the Bank of England and the Treasury Select Committee wholly agree. The complexity of the Bill could turn out to make it a lawyers’ charter—I only hope not.
Then there is the rush to get all this done quickly. After all, the horse has bolted. We have just had a most serious financial crisis; a crisis of the sort that we might have hoped the legislative framework would have protected us from. We now seem to be legislating to what can only be described as an arbitrary timetable in order to get the Bill through by the end of the year. Neither I nor the Committee have heard a good reason why we cannot take a few more months to get the legislation right. That meant that the Bill was produced without taking into account a number of views, including that of the Treasury Select Committee, on the shape of the Financial Conduct Authority. Some of the Bill’s current weaknesses owe something to the fact that not enough attention was paid to those views. We must therefore depend on the other place to get the legislation right.
I will briefly summarise a number of areas to which the Treasury Select Committee has drawn attention and which I hope the other place will look at. First, I have already mentioned the new clause that my colleagues and I proposed for improving accountability, and I am glad that there has been Government movement on that.
As I said on Report, all proposals to improve accountability, both of the Bank to its board and to Parliament, should be judged against two criteria. First, does the proposal hold out the prospect of improving the performance of the institution, meaning the quality of public policy decisions that the Bank will take, and secondly, does the proposal help secure public consent for the decisions? That is particularly important in a powerful body that is remote from the citizenry, such as the Bank of England. On both criteria, and particularly the second, the appointment and dismissal of the Governor would benefit from a parliamentary veto. The Treasury Committee’s second point is that the independence, authority and, in a sense, legitimacy of the Governor’s decisions will be enhanced if there is a parliamentary veto, through the Committee, over the appointment and dismissal of the Governor.
Thirdly, the Financial Policy Committee and the court should publish full minutes. The Government’s proposed compromise, that a so-called record be published, simply will not do and will not be enough to satisfy the Treasury Committee. We will inevitably end up demanding the full minutes and, one way or another, will persist until we get them.
Fourthly, the Chancellor needs a general power to direct the Bank of England in a crisis when public funds are at stake, not the rather strictly circumscribed powers the Bill currently contains. The Government picked up part of the proposal that the Committee made in our report on the need for some kind of limited power of direction for the Chancellor over the Bank in a crisis in order to deal with the problem to which the previous Chancellor has alluded, not least in his rather graphic memoirs of that period. The measure that the Government are proposing to put on the statute book might deal
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with the current crisis, which we have had over the past few years, but it might not put at the Chancellor’s disposal the right tools in some future crisis.
Fifthly, there needs to be enhanced scrutiny of the secondary legislation that will accompany the Bank of England’s macro-prudential tools. The hon. Member for Nottingham East referred to exactly that when he talked about the need for a super-affirmative procedure, and the Treasury Committee agrees: we must have something that provides for full debate and time to consider the proposals, except in case of emergencies.
Sixthly, the MPC and the FPC should both have a majority of external members. We on the Treasury Committee think that, in the longer term, this is essential in order to guard against group-think on those committees.
Seventhly, the Lords needs to look again at the Financial Conduct Authority’s objectives. The FCA would work better if it focused on a single set of objectives. Midway through the process, the Government added to the proposals what they describe as overarching strategic objectives, but the Treasury Committee concluded that they add nothing to the operational objectives in the Bill and might, indeed, take something away by creating confusion.
Eighthly—but by no means last, and certainly not least, although I probably will end on this point—the Financial Conduct Authority’s accountability mechanisms need strengthening. The FCA should publish its minutes, its chief executive should be subject to pre-appointment scrutiny and it should review its own performance without the need for the Treasury Committee to force it to do so. The Committee managed to get the Financial Services Authority to review the collapse of RBS, but it was hard work persuading it to do so.
The Financial Conduct Authority has been the poor relation throughout this process of parliamentary scrutiny, and regrettably the legislation carries over into the new body many flaws—the box-ticking culture, the burdensome problems of regulation, its cost and some of the regulation’s apparent pointlessness—in existing FSA practice, so I very much hope that their lordships get their teeth into that problem.
Overall, therefore, this legislation is a big step forward from the legislative framework that was in place at the time of the crash, but much more could be done to improve it further. It really could be so much better, and there is still time to do something about it. Let us hope that, when it comes back from the other place, that work has been done.
8.53 pm
Mark Durkan: It is a privilege to follow the hon. Member for Chichester (Mr Tyrie), the Chair of the Treasury Committee. Like him, I recognise that the Bill represents an improvement but that it is capable of being improved further in a number of respects. He has touched on some issues, such as the balance of membership on the MPC and the FPC, which we addressed in Committee, and the future accountability of the new regulatory players.
There are deficiencies, and the hon. Gentleman at the very end of his remarks touched on what for some Members in Committee was a difficulty: when we put
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forward many amendments, we were told by the Minister that they were not necessary or were redundant, because the FSA was already doing what they proposed. For quite a lot of the time in Committee, we appeared to be told that the new regulatory regime was essentially going to be “Continuity FSA”, and that we could take it for granted that every good and acceptable thing that it was doing would carry on regardless. It was very much “Carry on FSA” throughout large parts of the debate in Committee.
Like other hon. Members, I recognise the deficiencies in the Bill. As I stressed in Committee, it has significant holes in its provisions for compelling consumer interests, which the hon. Member for Nottingham East (Chris Leslie) touched on. The Government rejected key amendments to the provisions on consumer credit, and the related but very distinct issue of debt management, that would have given the Bill more meaning and relevance to people and offered them a bit more of a promise. Instead, the Government are merely saying, “We will attend to these things in future, and there is enough future-proofing in the Bill to allow us to amend it for all sorts of reasons and purposes.” They rejected, as they have again today, amendments that would have coloured in how those amending powers could be used—in particular, they rejected the amendments that would have indicated where the regulators were meant to reflect on certain matters and to advise on where regulation may need to change.
The hon. Members for Nottingham East and for Chichester emphasised the importance of parliamentary oversight and reporting. The need for crisis provisions may not be far away in the current circumstances, and we require clarity about that. After the next crisis, when there is confusion about who is responsible and which bit of furniture is meant to support which particular aspect, people will not accept that hon. Members did not know about these issues, because we are the authors of this legislation. As the hon. Member for Chichester said, it is a pity that the Bill, instead of having its own full sweep of provisions, tends to rely on going in and out of various bits and pieces of all sorts of other legislation, which are bumping into each other and not connecting very well. It is a bit like that Johnny Cash song, “One Piece at a Time”.
Jim Shannon (Strangford) (DUP): Sing it!
Mark Durkan: No, I will absolutely resist the idea of singing it. The only people who ask me to sing are bouncers, because it helps them to clear the premises.
Another deficiency relates to stewardship and the fiduciary duties of institutional investors and fund managers. Again, the Government assiduously resisted straightforward amendments in that respect. I cannot understand why they would refuse to have in a Bill principles that they say are reflected in common law. If this about consolidating legislation and making sure that there are no ambiguities in future, it would have made sense to include such provisions.
There is another serious gap in relation to consolidated oversight, and I hope that the Lords will pick up on that. The Bill provides for consolidated oversight in relation to regulated authorities where the parent holding company is itself a financial institution and a regulated authority, but not where it is not. That gives rise to the
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whole question of the “Tescofication” of banking services. While the Bill provides that there can be changes in future, it does not specify where they might happen. The Government resisted amendments that would have coloured in the responsibility for considering where changes might be needed and, in particular, ensured that the new regulators did that.
On a more regional level, there is particular interest in Northern Ireland about the progress of the Bill and its associated measures because of the change to the regulation of credit unions. I hope that the Minister is aware that there is still deep disappointment among those in the credit union movement in Northern Ireland about the impact of the new regulations, which will take them back from where they should be and diminish their existing capacity to make sound investment choices. They look forward to being able to offer more services. Although that will be possible under regulation by the FSA and, in future, the PFA, they are disappointed that the price for that, from the first day of the new regulatory system, is that they will be restricted in making the sensible, prudential investment decisions for their members that they have been making very successfully.
8.59 pm
David Mowat: The Whips have asked me to be brief, and I will.
The Chairman of the Treasury Committee, my hon. Friend the Member for Chichester (Mr Tyrie), listed eight issues. I am pleased to say that he did not get to the one that I wish to raise, which is the area in which the Bill could be improved. That is international regulation.
The Bill is very strong on the national position. There are bail-ins, capital buffers and ring fences—the whole macro-prudential suite. In fact, there is a whiff of over-regulation in the ring fence. There is not such a whiff, however, in how we are going to deal with the international issues that confront us. If there is another crisis, it will not occur in a national bank, and I say that to whoever is in charge when the next crisis arrives.
I was on the Joint Committee on the draft Bill and listened to the risk managers from Barclays Capital, Goldman Sachs and J. P. Morgan, and it struck me that their outlook was entirely global. They have global IT systems and global profit and loss accounts, and they manage risk and divvy up bonuses globally. To the extent that the national position matters to them at all, it is because they have to produce accounts, often three, four, five or six months later, so that they can pay taxes and satisfy statutory requirements.
We must consider the issue of risk arbitrage, but what we need to do is not just about that. The regulatory structure must follow the structure of entities such as
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those that I mentioned. The Bill is national in its outlook, which was why I probed the hon. Member for Nottingham East (Chris Leslie) on his point about Europe. Perhaps it has to have such an outlook, but that leaves us a big issue to consider.
It is instructive to consider the two big things that have gone wrong in the past year, while the Bill has been going through the House. They have been at MF Global and, more recently, J. P. Morgan. I do not believe that much of what is in the Bill would have had any effect on either situation. MF Global had a £40 billion balance sheet, and it would not have been regulated by the FPC. The case of J. P. Morgan is even more interesting. It lost £2 billion—in fact, yesterday it was suggested that it may have been £4 billion. Even if there were another nought on the end of that, I am not sure the situation would have been picked up under the Bill, but it would have started to get serious. That loss occurred in London, but only because that happened to be where J. P. Morgan put its risk management function. It could have been anywhere.
When we design a regulatory structure, it has to mirror the organisation of the bodies that it is regulating, or it is just irrelevant. I am concerned that too much of what is in the Bill is irrelevant to where the risks will emerge in the next decade or two. I want to give three examples of potential problems. The first is one of co-ordination. We have heard the point about twin-peaks regulation versus sector-based structures. The situation is not brilliant, but there is a committee to fix it and we will do our best.
The second potential problem is ambiguity. We talk about judgment-based regulation in the UK, whereas the Europeans talk about rule-based regulation. Those two methods will be regulating the same entities, and possibly the same departments of those entities. How will that be sorted out? Where ambiguity exists risk exists, because things always go wrong on the boundaries.
The third potential problem is one of international risk management. In my judgment, there is nothing more important than how the college of regulators works.
9.3 pm
Four hours having elapsed since the commencement of proceedings on consideration, the debate was interrupted (Programme Order, 23 April ).
The Deputy Speaker put forthwith the Question already proposed from the Chair (Standing Order No. 83E), That the Bill be now read the Third time.
Bill accordingly read the Third time and passed.
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Civil Aviation Bill
9.3 pm
The Minister of State, Department for Transport (Mrs Theresa Villiers): I beg to move, That the Bill be now read the Third time.
Throughout the consideration of the Bill, the debate has been informed and constructive. I thank all Members who have taken part, including Opposition Front Benchers such as the hon. Member for Poplar and Limehouse (Jim Fitzpatrick), the shadow aviation Minister. We have also been assisted by the excellent report prepared by the Select Committee on Transport. I reiterate the thanks that I have given to the Committee and its Chair for their work on pre-legislative scrutiny.
The Bill has enjoyed considerable cross-party support at every stage in its passage through the House, and its key elements have been broadly welcomed by airports, airlines and a number of other stakeholders. That reflects the efforts made not just by this Government but by our predecessors in office to listen to the industry’s concerns and respond effectively to them to put together a balanced reform package.
In the year of the London Olympics and the diamond jubilee, we are reminded once again of the crucial role that the aviation industry plays in bringing millions of tourists to this country. That is just one element of its wider contribution to the UK economy. The Bill will modernise the framework for the economic regulation of airports, greatly improve transparency and accountability and put the passenger interest right at the heart of the new regulatory system. There is widespread agreement that the current one-size-fits-all regulatory regime is inflexible and outdated. The system proposed in the Bill will deliver more effective protection for passengers and a lower regulatory cost for industry.
At the heart of our proposals is a new primary duty to further the interests of passengers and freight owners. The Bill will also enable the Civil Aviation Authority to tailor measures to each individual airport, allowing it more flexibility to target intervention in the most proportionate way.
With a strong emphasis on the price control process, the current rules leave the CAA with very limited options if problems occur between five-yearly reviews. The new licence system in the Bill will allow for real-time regulation, empowering the CAA to act swiftly if an airport is failing its customers on, for example, service quality, winter resilience, volcanic ash or any challenges that it is not yet possible to foresee.
Clause 1(3) and (4) require the CAA to carry out its economic regulation functions in a transparent, accountable, proportionate and consistent way. To respond to points made in earlier debates, we are strengthening the scrutiny to which the CAA is subject by giving a new accounting direction to the regulator, requiring it to include an efficiency statement in its annual report, which will be subject to validation by its external auditors.
The primary duty to passengers, which is so pivotal to the Bill, will provide greater certainty and clarity for airport operators, which in turn will encourage long-term investment in the improved facilities that passengers
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want. A shift to more independent economic regulation also removes risks associated with political interference, which is why it is a common feature of modern regulatory regimes.
The Bill will also make the CAA’s decisions more accountable than they have ever been by introducing a new appeals process. The Government worked hard with both airlines and airports to come up with an appeals system that gives effective redress to airlines without turning the new regulatory regime into a two-tier system, which would have dragged the Competition Commission or the Competition Appeal Tribunal into everyday CAA decision making. The result of that work is that the Bill provides appeal rights to both airlines and airport operators that are significantly more effective than existing remedies. However, not just businesses benefit from greater transparency and clarity. The Government believe that providing the right information for consumers can sometimes achieve better results than traditional regulatory intervention, so the Bill will give the CAA new functions on collecting and publishing information on issues such as service quality to help consumers to make informed decisions on competing operators in the aviation sector.
The Bill contains important security provisions—keeping people safe and secure when they travel is paramount. The Secretary of State is responsible for aviation security policy and for giving security directions. That will not change under the new approach we are advocating, but the Government believe that giving the experts in aviation operations a greater say in how security is delivered will improve our ability to guard against the very real threats we face.
The CAA has valuable experience not just of regulation generally, but of safety management systems that ensure that risks are controlled as effectively and efficiently as possible. We believe that that track record on safety will assist the CAA in overseeing the delivery of the new security management systems, which are an important element of the move to an outcome-focused, risk-based approach to security, which has been debated extensively during the Bill’s passage through Parliament.
I am also convinced that vesting those regulatory functions for security in the CAA will benefit the aviation industry, because it will henceforth be able to deal with a single regulatory body rather than the current two bodies. Moreover, we expect that the complementary measure—the introduction of an outcomes-focused, risk-based approach to security—will enable security checks to be integrated more closely into the general business of the airport. That should open the way to more cost-effective and more passenger-friendly ways of delivering security outcomes.
Plans for the proposed move of responsibilities in relation to security regulation to the CAA are already being developed. The Department for Transport is in discussions with the Department’s staff who are likely to be affected and with their trade union representatives, because we are keen that as many employees as possible stay in post when their jobs transfer to the CAA, taking their skills and valuable experience with them.
Julie Hilling (Bolton West) (Lab):
The Minister said that the Department has had conversations with the staff and their representatives. Can she give us any more information about that, because—as she will be well
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aware—one of the concerns we raised during the passage of the Bill was about the loss of expertise if staff did not follow their jobs to the CAA?
Mrs Villiers: We are in discussions with both the CAA about the practicalities of the move and with those Department for Transport staff whose posts we expect to move. At the moment, we are not able to give them all the answers on all the issues, partly because the Bill has not passed as yet, but also because issues such as pensions are under review both in the civil service and in the context of the CAA. But we are very conscious of the need to try to provide as much visibility and information as possible, and we are working to do that, although it will take time to work through certain issues.
On environmental matters, the Opposition tabled an amendment on Report—it was extensively debated—that would have imposed a supplementary environmental duty in relation to the CAA’s airport economic regulation functions. I understand the motivation for such an amendment, as I said on Report and in Committee, but I believe that its aim is already provided for in the Bill, which already allows the CAA to approve reasonable investment in measures that mitigate environmental impact. No doubt the discussion on whether further clarification on that point is needed on the face of the Bill will continue in the other place in the same constructive and thoughtful way that it has in this House.
I must emphasise, however, that the Bill already includes important new information provisions to help us address the environmental impact of aviation. The Bill gives the CAA powers to collect and publish information about the environmental effects of civil aviation. Not only could that be used to give more information to communities affected by aircraft noise—hon. Members know how significant an issue that is for many people—but it will ensure that passengers have better information about the environmental impact of their travel choices than is currently available. We believe that improving transparency will help us to harness consumer power in pushing for progress towards cleaner and quieter planes.
Some have called for more on the environment to be included in the Bill, but to be effective, environmental measures need to be applied proportionately across the whole sector and not just focused on those airports that happen to be subject to economic regulation. So separately from our efforts contained in the Bill to reform economic regulation, a number of initiatives are under way to deliver cross-sectoral action on the environmental impact of aviation. Adding aviation to the European emissions trading system is expected to deliver carbon savings across Europe of some 480 million tonnes in the period to 2020. Both NATS and the CAA have a strong focus on reducing fuel burn and addressing noise in their work on improving airspace management, and the Government will soon publish a consultation on a sustainable framework for aviation. We are clear that aviation should be able to grow, but it must also play its part in delivering our environmental goals and protecting the quality of life of local communities affected by aircraft noise and other local impacts.
Julie Hilling: The Minister said that the consultation document will be published “soon”. During the passage of the Bill, we have talked about future legislation that would enable environmental concerns to be addressed, so can she tell me what “soon” means in this context?
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Mrs Villiers: We will publish the consultation in the summer alongside a call for evidence on maintaining the UK’s hub capacity.
Last, but definitely not least, the Bill will grant the Government the power to extend ATOL protection to flight-inclusive holidays sold by airlines and those sold on an agent for the consumer basis. Extending the ATOL scheme has received strong support in the House and has the long-term support of the Transport Committee. If the Bill is adopted, we would expect to consult next year on whether the new powers should be exercised.
In conclusion, by establishing a single, clear, primary duty to passengers as the overriding principle of economic regulation, the Bill will incentivise investment in our airports by providing greater clarity and certainty for airport operators and investors; put passengers’ interests at the forefront of the regulatory regime; give the CAA far more effective powers to intervene swiftly if an airport fails its customers; and open the way for a further extension of the ATOL scheme, which for nearly 40 years has provided financial protection and peace of mind for millions of holidaymakers. I urge the House to support the Bill.
9.15 pm
Jim Fitzpatrick (Poplar and Limehouse) (Lab): I begin by thanking all my colleagues who sat on the Bill Committee for their support, assistance and advice, as well as those who helped on Report, outside stakeholders who sent submissions and/or gave evidence and the Transport Committee for its scrutiny of the Bill.
We welcome and support the Bill. On Second Reading, my hon. Friend the Member for Garston and Halewood (Maria Eagle) said that we would support the Bill. That was no surprise. Much of it was drafted when we were in government, so there was a legacy. However, the timing of its arrival was a bit of a surprise, so the Transport Committee scrutiny was a little dislocated. Indeed, the Government’s response to the Select Committee was published only last Friday. It is good that it is out, but it demonstrates that there were surprises in the timing.
Not only was the arrival and timing a surprise but the inclusion of the security clauses, which were not in the original Bill, was not expected. Also, importantly from our point of view, the environmental protection measures, which were in the original draft Bill and mentioned in the Department for Transport press releases announcing the publication of the Bill, surprisingly did not appear in the Bill. That was a disappointment to the Opposition, and I shall return to it.
I do not want to appear too critical, however, although it might come across that way in due course, because, as I said, we support the Bill. In Committee, the Minister was as courteous as usual, although she and the Government did not accept a single amendment—she did so quite politely—even when she was injured and might have been a bit more vulnerable. The fact that Ministers did not accept any amendments was a matter of considerable disappointment to us, particularly given that we had the support of many stakeholders and recommendations from the Transport Committee.
The Minister has well covered two of the obviously key elements of the Bill—putting the passenger at the core of the CAA and updating the industry’s economic regulation. However, a number of other issues were
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raised in Committee, highlighting the strengths and weaknesses of the Bill, and I wish briefly to refer to some of them. We had a good discussion on security and the outcomes-focused, risk-based system. We support those arrangements, but, as my hon. Friend the Member for Bolton West (Julie Hilling) said, we were concerned about the arrangements for staff transfers and the certainty of their entitlements on wages, conditions, pensions and redundancy agreements. The staff side raised concerns that members of staff might be worried and often not accept or apply for transfers. The potential haemorrhaging of staff in such a sensitive area was of concern to the whole Committee, so it was good to hear the Minister provide additional reassurances before and after my hon. Friend’s intervention.
The Minister mentioned the ATOL reforms, which we all support, despite the delays. We will do what we can to help the Secretary of State and the Minister of State introduce and enact the reforms, because that is what we all want. Recent pronouncements have perhaps pointed towards more complications arising, which is obviously frustrating not only to the Department and the Government, but to all concerned.
Let me turn to the opportunities that were missed. On the environment, we proposed a duty, as the Minister mentioned. We also suggested including environmental aspects in the licensing conditions for Heathrow, which we think would be reflected right across the industry. On the passenger experience, we proposed that the responsibility for producing welfare plans should be a matter for the licensing arrangements for Heathrow, given the experiences in recent years of passengers being stranded, with all the difficulties that we have seen, heard about and, in some instances, experienced. It is interesting that the indicative licence produced for the Civil Aviation Authority suggested that the licence that it will produce for Heathrow ought to contain passenger welfare elements. We think that the Government could have given a firmer steer by referring to that in the Bill, which would have helped. We also made various suggestions about the efficiency and scrutiny of the Civil Aviation Authority, although I will return to those presently.
There are two additional areas that the other place will want to take account of: one was mentioned in Committee, whereas the other was not. The first is the honesty and accuracy of ticket prices, particularly from the bucket airlines, and the hidden surcharges. The CAA could clearly play a role in addressing that, and I am sure that the issue will be raised in the other place. The other issue, raised most recently, is the suggestion that certain passengers should be able to fast-track themselves through security and immigration for a price, which has caused quite a bit of consternation among passengers generally. Given that the suggestion has been made since Report, I suspect that the other place will want to see how things could be obviated to ensure fairness for everybody going through our airports.
Let me look briefly at the three areas I have mentioned. On the environment, we had a bit of banter with the Government about their mantra, which we hear all too frequently, of wanting to be the greenest Government ever. We obviously had quite a bit of disagreement about whether the Bill reinforces that claim. Indeed, the Minister for shipping, who is in his place, and I had a
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discussion this afternoon about this being the greenest Government ever in terms of environmental protection. However, I do not think that Mr Deputy Speaker—
[
Interruption
]
—if he was paying attention—will let me go there. [Hon. Members: “Ooh!”] My apologies, Mr Deputy Speaker: I wanted to ensure that you did not allow me to stray, because, seeing the hon. Gentleman in his place, I could easily have gone down that cul-de-sac.
On reporting and giving information to passengers, clauses 83 and 84, which we covered extensively, are welcome. However, we thought that there ought to be a duty on the Civil Aviation Authority, as there is on every other economic regulator, to take account of the environment. Reading between the lines, I am not sure whether the Minister’s comment that she expects the matter to be raised in the other place was perhaps an indication of more openness from the Government or that they might be prepared to look at this again.
One element of licensing to do with the environment that was raised by a number of my hon. Friends concerns protection for neighbourhoods, planning permissions and the rest of it. We think that including that in the licence would give communities greater strength and the certainty that airports and the aviation industry would take account of the sensitivities mentioned by the Minister of State.
The last thing we suggested—which the Government did not think it was appropriate to pick up—was the requirement for ticketing to show the environmental impacts of different modes of travel, thereby helping passengers to make decisions based in part, perhaps, on the difference between the environmental impact of going by air and the impact of travelling by rail or coach. I will be surprised if that suggestion is not examined further in the other place.
On the passenger experience, the reporting, information gathering and publishing will, again, be welcomed. However, as I have said, we think that the welfare plans should have been included in the licence, and that represents a missed opportunity by the Government.
Mrs Villiers: I feel that I ought to reiterate the reassurance I gave in Committee and on Report. We, too, are very supportive of a focus on passenger welfare plans. We just do not believe that the content of the licence should be hard-coded in legislation. We believe that the best approach is to give the independent, expert regulator the responsibility to decide what licence conditions are appropriate.
Jim Fitzpatrick: I fully accept that; we have a disagreement over whether this ought to be in the licence. We think that putting this in the Bill would strengthen the requirement and give a much clearer indication to the regulator that the Government expected it to look at this as a key area, particularly given the experience in recent years. We are talking about a difference in emphasis, rather than a difference in principle, because we all want passengers to be better protected against the vagaries of the weather or other factors detrimentally affecting them.
Labour Members raised the whole question of the information on queuing times, and not just in baggage-handling areas. The key area where we disagreed was on whether immigration queues could or should be counted and measured, with information given to the public.
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Obviously, the Government’s position is that immigration and the immigration service, the UK Border Agency and the UK Border Force are the responsibility of the Home Office, and therefore it is not appropriate to deal with them in this Bill. However, given the further recent confusion over what the queuing time actually is, particularly at Heathrow, and given the disagreements on measuring between the airports and the immigration service, we think that the CAA could have played a very constructive role in that area, authoritatively collating the evidence and publishing it. As with a number of the other amendments that we failed with, I am sure that the Lords will wish to return to that.
On CAA efficiency and National Audit Office scrutiny, we again agree to differ, but at least the Minister did come up with a proposal to strengthen the scrutiny, which, in some way, addressed the concerns we were raising. Obviously, we will monitor how the proposal works in effect. We hope that it will give greater reassurance to the airlines and other customers that the CAA will operate as we would all wish.
In conclusion, this was a good Bill in draft and, in essence, it remains a good Bill, but there is still much room for it to be even better. We hope that the other place will be able to make the improvements that we were, sadly, unable to make.
9.27 pm
Henry Smith (Crawley) (Con): It was a pleasure to speak on Second Reading and an honour to serve on the Public Bill Committee earlier this year. As I said on those occasions, and it is worth repeating now, the airport and airline industry has changed significantly in the more than a quarter of a century since this area of legislation was significantly addressed. Since the British Airports Authority—latterly known as BAA—was privatised in 1986, London’s largest airports, Heathrow, Gatwick and Stansted, have been subject to the same economic regulatory regime designed to ensure that they did not abuse their monopoly position. The prices that Gatwick airport, which you will know is in my constituency, Mr Deputy Speaker, charges airport passengers are currently capped by the CAA, which sets them in accordance with Competition Commission recommendations. The revenues from those prices often appear listed on passenger tickets simply as “airport charges”, but of course they are used to pay for things such as runways, airfield facilities, terminal security, baggage systems and future development. Price caps are normally reviewed every five years. The Bill rightly reforms this process.
Gatwick airport supports the Bill’s key principles, which herald a more flexible regulatory system that better reflects the way in which today’s aviation sector operates. Nevertheless, Ministers should recognise the relationship between the economic regulation of London’s airports and the Government’s priority of attracting new direct routes to emerging economies, which will help to grow the UK economy. My right hon. Friend the Prime Minister recently acknowledged that, under new ownership, Gatwick is emerging as a business airport, competing with Heathrow. Indeed, the airport’s operators have established new routes to countries such as China, Vietnam, South Korea and Hong Kong. Such progress shows that Gatwick can compete to provide direct links to those emerging economies, fulfilling the ambition it has of being a gateway to Asia.
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Graham Stringer (Blackley and Broughton) (Lab): My point probably applies more to Heathrow than it does to Gatwick, which is obviously the hon. Gentleman’s main interest, but does he agree that the decision of COMAC—the Commercial Aircraft Corporation of China—to locate in Paris rather than in London, mainly for airport capacity reasons, shows that the Government’s aviation policy has failed because it is essentially an anti-aviation and anti-business policy?
Henry Smith: I would not accept that the Government’s aviation policy is either anti-aviation or anti-growth, as shown by the fact that we are now on Third Reading of a Bill that will produce greater flexibility in this sector—vital for a trading nation such as ourselves. I believe the Government should be congratulated by hon. Members on both sides of the House on that achievement.
Returning to my principal interest of Gatwick airport—I am the local Member of Parliament—I believe that it can grow by a further 11 million through-passengers than the current market share shows. The airport’s overall market share is only about a quarter of the total. Gatwick is not a monopoly, so it does not need to be economically regulated. The market should be allowed to work. Deregulation would allow Gatwick the flexibility to invest with pace in new infrastructure to accommodate developments such as the new A380 aircraft and undertake much-needed investment in areas such as the border zone. Through deregulation, Gatwick can emerge fully in line with the views expressed by my right hon. Friend the Prime Minister as an airport that can fairly compete with Heathrow and others. As an economically regulated airport, Gatwick cannot invest flexibly or price services according to what individual customers want or what the market will support.
The Bill outlines a series of tests that must be met for an airport to be regulated. These aim to determine whether an airport has substantial market power and, if so, whether there is a risk of abuse of that position, which existing competition law is insufficient to control. An airport that meets the market power test requires from the CAA a licence to operate, which may include a price cap on what can be charged to carry passengers.
With Gatwick being sold by BAA two and a half years ago and now separately owned and operated, I very much agree with the Transport Select Committee’s findings:
“Given the greater degree of competition that now exists between airports in the south east of England…the CAA should undertake its economic regulatory duties with a relatively light touch.”
Several members of the Public Bill Committee expressed a similar view. On Report, my hon. Friend the Member for Rochester and Strood (Mark Reckless) said, correctly in my opinion:
“If Gatwick feels that it should invest significant sums of money in better terminal facilities in order to service the A380s and…allow the sorts of routes to high-growth markets in Asia that we so strongly support, I see no strong reason why it should be prevented from doing so and charging what the market will bear. I believe that that could be to the benefit of the consumer.”—[Official Report, 25 April 2012; Vol. 543, c. 1031.]
Similarly, in Committee my hon. Friend the Member for Amber Valley (Nigel Mills), whom I am pleased to see in the Chamber, noted that the CAA started
“from a position that… airports are regulated, and appears to want to keep them that way…. we should regulate airports only
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where there is a definite need to do so, and where there is a real advantage to the user, rather than looking to regulate unless we can find a way out of it.”
––
[
Official Report, Civil Aviation Public Bill Committee,
28 February 2012; c. 153.]
There is clear evidence that Gatwick is now competing with other London area airports. Airlines and passengers are moving between those competing airports in the south-east, and airlines are choosing Gatwick in preference to other airports to establish brand-new routes to countries that are key trading partners. Any legal test should reflect those trends, and there should be no risk of presumption towards regulation.
The correct threshold for economic regulation of any company, including an airport, involves the application of the legal concept of dominance, which is well established in both European Union and United Kingdom competition law. It is used, for example, to determine whether telecom network operators should be subject to economic regulation in all EU member countries. Any test for market power should also be one of dominance. That would ensure a consistent approach to assessing whether there is a need to regulate in line with the regulation of other industries.
I welcome this updating of legislation for the air industry. I believe that it gives us an opportunity to enhance our gift as an innovative aviation and trading nation, and to grow the economic prosperity and employment that we need.
9.36 pm
Mrs Louise Ellman (Liverpool, Riverside) (Lab/Co-op): I am pleased to be able to speak in the debate because this is an important Bill that reflects the significance of aviation to our economy. I am glad that there is so much agreement on the essentials, and I am pleased that the Select Committee on Transport was able to consider aspects of the Bill not once but twice, given some rather curious timing which my hon. Friend the Member for Poplar and Limehouse (Jim Fitzpatrick) described as “dislocated”. I have not heard that word used before in connection with consideration of a Bill, but perhaps it is indeed relevant.
We conducted pre-legislative scrutiny, but the parliamentary debate on the Bill began within about two days of the publication of our report. We then considered separately the proposals for reform of ATOL holiday insurance, when we had fuller information about the Government’s plans. In both our inquiries we generally supported the Bill, but we sought a number of changes and made a number of criticisms, some but not all of which have been taken up. I want now to refer to some of the concerns that we raised, which have been reflected in other parts of the debate on the Bill.
The Bill’s focus on passenger experience and welfare is greatly welcomed, but it is important for that work to be conducted efficiently and effectively, particularly when it comes to the production of information about different experiences in different airports. When we were considering the Bill, concerns were expressed by a number of airports—especially regional airports—which were suffering as a consequence of the current economic hardships, and were worried about the increased cost that could result from the new regulation for which the Bill provides. It is important for the light-touch regulation to be effective,
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producing correct and appropriate information that can benefit passengers by enabling them to decide how they wish to travel.
How to deal with adverse weather conditions has exercised the House for a long time. Although the Bill does address the issue, we were disappointed to note that its proposals were not strong enough to ensure that all airports would draw up proper plans to deal with bad weather. We were told that the CAA would deal with the matter, but, although we are glad that it has been highlighted to a greater extent, we still feel that sufficient emphasis has not been placed on it in all instances.
Our greatest concern, which has been vindicated by events since the publication of our report, was the need for much more effective co-ordination and working together by the Department for Transport and the Home Office. Our report addressed immigration queues—and, indeed, if we are interested in questions of passenger experience, we should note that among travellers’ greatest concerns are baggage handling and queues at immigration. However, such queues are controlled by the Home Office through the UK Border Agency. We expressed concerns about a lack of co-operation, and subsequent events have reinforced that point. It is unclear how much co-ordination there is between the Department for Transport and the Home Office on how to deal with queues such as those at immigration and passport control. I hope that will be addressed once the Bill is enacted.
Security is a linked area of concern. There has been a change in aviation security policy—a move to an outcome-focused, risk-based approach—and a split in responsibility for security between the Department for Transport and the Civil Aviation Authority acting on behalf of the airports. There is concern about how that division of responsibilities will operate while ensuring we maintain the highest standards of security in the most cost-effective manner. More thought needs to be given to how that is to be achieved. We also raised concerns about staffing and the initial proposals to move staffing from the Department to the CAA. We wondered whether expertise would be lost. The Department has addressed that in its response to our report, but concerns remain.
Holiday insurance and ATOL reform are long-standing issues. The Committee has looked at that for many years, both in the previous Parliament and this one. The ATOL scheme was introduced in the 1970s. At that time it fitted the way most people went on holiday, which was on conventional package holidays. The situation has changed dramatically, however. Before the changes that came into force a few weeks ago, only about 50% of people going on holiday were covered by ATOL, and there was a £42 million deficit in the scheme. We support the Government’s proposed changes, such as the extension of what constitutes a package holiday—or, rather, a qualifying holiday—the introduction of flight-plus and requiring tour companies and transport operators to provide a certificate where ATOL is in force, giving clearer information to the traveller about what is covered by the insurance.