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Obviously, and this point applies as much to the right hon. Gentleman’s motion as to any other step, if there are criminal investigations or inquiries, any inquiry by this House will have to be managed in the light of that process—[Interruption.] Yes, it will have to be managed, because it must not interfere with that process. But, for the Government to support a motion for a judicial inquiry that cannot even get off the ground if criminal inquiries and investigations are taking place would be a rather odd thing for the Government to do, because such an inquiry could not happen.

The right hon. Gentleman has made a mistake in relation to the motion—

Madam Deputy Speaker (Dawn Primarolo): Order.

The Attorney-General: And if he listened carefully he would understand it.

Ed Balls rose—

Madam Deputy Speaker: Order, Mr Balls.

Order means order for Front Benchers on the Government side as well. I understand that the Attorney-General is trying to be helpful to the House, but he has made several interventions, they have all been too long and I hope that we can move on now with the debate.

Ed Balls rose

Chris Bryant: Will the shadow Chancellor allow me?

Ed Balls: Okay.

Chris Bryant: The Attorney-General is not right on that issue. It is far more dangerous to have a parliamentary inquiry, because article 9 of the Bill of Rights says that no court can impeach a proceeding in Parliament. Some witnesses who might want to evade justice might, therefore, choose to come to a parliamentary Committee to say things, so that they do not then get sued in court.

Ed Balls: I understand the points made by Members on both sides of the House.

Before I summarise, let me say to the Attorney-General that I have tried to listen very carefully to his contributions. There have been many of them, all have been helpful and constructive and they have helped us to understand the challenges that we face rather better than we had done on the basis of the Chancellor’s contributions in recent days.

Let me say also that, if at any point I misrepresent the right hon. and learned Gentleman, I will always in an honourable way correct the record in this House—not, as we now know, a standard of behaviour that we can expect from the Chancellor in this House.

To summarise, the argument goes as follows. Point one is that the Attorney-General does not believe that it is possible to have a proper, thorough investigation into all the details of the LIBOR market by the end of the year. I understand that; I hear his argument. Our argument is that a judge-led inquiry gives us a better chance of having an investigation into something legally sensitive than a parliamentary inquiry. If one is true and two is true, that means that the Government’s proposal for a parliamentary inquiry by the end of this year is defunct—dead, torpedoed, gone.

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That is why, rather than intervening again, the Attorney-General should speak to the Chancellor, call the Prime Minister—wherever he is—and say that they should withdraw these motions, get to the drawing board and come back with a plan that is baked rather than half baked. [Hon. Members: “Plan B!”] Plan B.

Mr Bernard Jenkin (Harwich and North Essex) (Con): A few moments ago, the right hon. Gentleman said that even if the House votes for establishing a Joint Committee, Her Majesty’s official Opposition will continue to press for a judicial inquiry. Will he clarify that? Does that mean that he will be discouraging Members from the Labour party, be they in either House, from co-operating with and taking part in a Joint Committee? Is he going to wreck it?

Ed Balls: I was going to come to the votes at this point. I have said that we will vote for our motion. I have said that if that fails, we will continue to press for a full public inquiry because we think that that is the only way to do this properly. The Attorney-General probably agrees with us on that matter now.

Tonight, the Leader of the Opposition and I will vote against the Government’s proposal for a limited parliamentary inquiry, for the reasons I have set out, as currently proposed. On the basis of the contributions we have now heard from the Government Front Bench, the inquiry is not even remotely up to the task ahead.

In answer to the question, put by the hon. Member for Harwich and North Essex (Mr Jenkin), about what we would do if we lost the second motion, on the basis of the debate so far and the Attorney-General’s comments, I say to all Members of the House, including the Liberal Democrats, that they should think hard, do the right thing, ignore the Whips and vote for the inquiry that will work.

Mr Jenkin rose—

Ed Balls: I am not going to give way because I have answered the hon. Gentleman’s question. [Hon. Members: “No!”] I have.

We want to win this vote for the British people. Set against the depths of malpractice that have now been revealed and the scale of the challenge that we face, our strong belief is that the Government’s decision to reject our call for an independent and judge-led public inquiry is a grave mistake. Only an independent and open public inquiry—not politicians investigating bankers—can rebuild trust. That is our view, and the view of many Opposition Members. The doubters have been persuaded by the Attorney-General. Members on the Government Benches should change their mind—withdraw the motion, do the right thing and let us sort this out once and for all.

2.48 pm

The Chancellor of the Exchequer (Mr George Osborne): Madam Deputy Speaker—[Interruption.]

Madam Deputy Speaker (Dawn Primarolo): Order. We are not going to get anywhere in this debate if Members on both sides of the Chamber continue to bawl at each other. It would be a very good idea if we could listen to the Chancellor and proceed with the debate. I am sure that he will be generous in giving way.

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Mr Osborne: I wish to speak to the motion in the name of the Prime Minister.

Today the House must come to a decision about how best to inquire into the LIBOR scandal that has shocked and angered our country and the failure of the culture and standards in banking that allowed it to flourish undetected for so many years. We have spent the last week, and indeed the last hour, arguing over whether a judge or the Members of this Parliament should conduct the inquiry.

Several hon. Members rose

Mr Osborne: Can I just say this before I give way to anyone? Let us bring the argument to an end today. Let us decide. To enable that decision to happen—and this is why, in Government time, the shadow Chancellor opened this debate—we have adopted a procedure without precedent, which is to allow two motions, one from the Opposition and one from the Government, to be debated today. I hope that although the argument has been a fierce one, and I have no doubt that the partisan attacks will continue—

Ed Balls rose

Mr Osborne: I will give way to the shadow Chancellor if he answers this question for me: if the House votes for a joint parliamentary inquiry, will the Labour party take part in it? If not, he will be blocking any inquiry into this banking scandal.

Ed Balls: My advice to the Chancellor, on the basis of the Attorney-General’s comments, is to stop the speech, withdraw the motion, and come back next week when he has done the homework. But my intervention is on the partisan tone. Let me ask him this: will he provide the evidence to substantiate the allegations—false allegations—that he made about me yesterday, or will he now withdraw and apologise for those false and untrue allegations? Has he the integrity to do so?

Mr Osborne: The right hon. Gentleman was the City Minister during the LIBOR scandal. We know, as I said in my interventions on him earlier, that, first, Baroness Vadera admits that she saw the report that was commissioned on the LIBOR rate; and secondly, that Bob Diamond said that Ministers in Whitehall were putting the bank under pressure through the Bank of England. If he is able to tell me—[Interruption.] I am answering his question. I have said that he has questions to answer. [Interruption.] That is precisely what I have said. I want to know the answer to this question: which Labour Ministers were involved?

Ed Balls: That is not what the Chancellor said. He said to The Spectator:

“They were clearly involved…That’s Ed Balls, by the way.”

Where is the evidence? He should either put up or shut up—present the evidence or apologise. That is his choice if he has any integrity in this House.

Mr Osborne: Let me say exactly what I said, and then the right hon. Gentleman can answer my question. I said, “They were clearly involved”, and we now have that from two sources—[Interruption.]

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Madam Deputy Speaker (Dawn Primarolo): Order. Mr Gwynne, I have already said that I do not expect people continually to shout across the Chamber. I know that people on all sides are angry about this, but we cannot have a debate if we cannot hear what is being said. I ask all Members, including those on the Government side, to bear in mind that our proceedings are being watched by people who are a darn sight angrier than people in this House.

Kevin Brennan (Cardiff West) (Lab): On a point of order, Madam Deputy Speaker. The best way to abate the anger in the Chamber and to have a calm and proper debate would be for the Chancellor simply to withdraw the accusation that he made against the shadow Chancellor.

Madam Deputy Speaker: Mr Brennan, you know full well that that is not a point of order; it is a point of debate and it is on the record. Perhaps now we can proceed. I call the Chancellor of the Exchequer.

Mr Osborne: I have never seen Labour Members and the shadow Chancellor so rattled about their time in office. We had one hour of an attempt by the former City Minister to defend his conduct when he was in office and these scandals happened, and we have still not had from him a simple apology for what he did—his failure of regulation. He should get up and say not, “We were all involved in this; there were Governments all over the world doing it”, but “I was the City Minister and I am sorry.”

Ed Balls: The Chancellor knows what I have said in the past. I have said that people from all parts of the House regret what happened. I have apologised to this House before. I have apologised to the House for the failures of regulation. I am asking the Chancellor to apologise now. He has impugned my integrity. He made the allegation in The Spectator and all over the newspapers that:

“They were clearly involved”

in the 2008 LIBOR scandal. He said:

“That’s Ed Balls, by the way.”

I was named. He has made an allegation, but he has no evidence because there is not any, because it is untrue. He knew that there was no evidence because he knew that it was untrue, and he said it anyway because that is the character of the man. I am saying to him that if he has any integrity, on this narrow point of his allegation, he should stand up now, withdraw the allegation and apologise. And he won’t.

Mr Osborne: The idea that I am going to take lessons in integrity from a man who smeared his way through 13 years of Labour government and who half the people who served with him think was a disgrace in his post is another thing entirely. Let him redeem himself today by not blocking an inquiry into what happened under the last Government. Take part in the inquiry. You are not prepared to do that.

Nadhim Zahawi: The shadow Chancellor is creating a smokescreen because the evidence is clear: Ministers in the previous Administration knew of a conversation that took place between Paul Tucker and Bob Diamond.

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They need to come clean—whether it is shadow Chancellor or the Leader of the Opposition—and answer the question: which Ministers knew about that conversation?

Mr Osborne: My hon. Friend is right that throughout this debate and over the past two days, not a single Labour Minister from the previous Government has come forward and told us who was involved. Who was involved? Answer the questions. One of you must know. Hands up, come on. One of you must know who was involved.

Several hon. Members rose

Mr Osborne: I will give way to the hon. Lady, then I will proceed.

Sheila Gilmore (Edinburgh East) (Lab): I want to take the Chancellor back to his comments a few moments ago in which he quoted something that had been said by Mr Diamond before the Treasury Committee. Is not part of the problem that that format does not get to the bottom of these issues? Statements of a general nature were made about some discussion that took place with certain Ministers. Do we not need a judicial inquiry?

Mr Osborne: I am very grateful that I took that intervention, because right at the end, the hon. Lady said that there were allegations that Ministers had been involved. As I said, it is extraordinary that they are all blaming each other. The people who were in the Treasury are blaming the people who were in No. 10, and the people who were in No. 10 are blaming the people who were in the Treasury. Why do they not take responsibility collectively for the absolute mess that they made of regulating our banks, including the LIBOR market, during their time in government?

Several hon. Members rose

Mr Osborne: I will take one more intervention and then move on.

Alec Shelbrooke (Elmet and Rothwell) (Con): Would my right hon. Friend like to speculate on why the Opposition may want the review to be pushed back? He might like to comment on the fact that at that time, the shadow Chancellor was the City Minister, the shadow Chief Secretary to the Treasury worked at the Bank of England and the Leader of the Opposition was ducking mobile phones in No. 10.

Mr Osborne: Of course, part of the Opposition’s problem is that they cannot admit their mistakes in office.

Several hon. Members rose

Mr Osborne: I have taken some interventions, and many Members want to take part in the debate. The shadow Chancellor spoke for an hour and I have been speaking for 10 minutes, so I will make some progress and then take some more interventions.

For all the fierce argument in the Chamber, let us at least acknowledge that the public are very angry about what happened and want to know how it was allowed to happen and how we can prevent it from happening in future. That is presumably an area of agreement between

5 July 2012 : Column 1131

us. We can also agree that what happened at Barclays bank was completely and utterly unacceptable and demonstrated the triumph of private greed over public good. The FSA report—

Several hon. Members rose

Mr Osborne: I will give way in a moment, but let me make this point.

We all agree that, in the words of the FSA, Barclays

“failed to conduct its business with due skill, care and diligence”,

failed to

“take reasonable care to organise and control its affairs responsibly and effectively”

and failed to

“observe proper standards of market conduct”.

We all agree that the misconduct of Barclays created the risk that

“confidence in or the stability of the UK financial system would be threatened.”

We can also agree—this is material to the point about whether there should be a judge-led inquiry or a parliamentary inquiry—that the FSA and the Department of Justice in the United States have done a very effective job in identifying what went wrong after the event. Sadly our regulators failed to see it coming, but the job afterwards has been effective. Now, I think we can all agree that we want the prosecuting authorities to see whether there are legal routes that they can take to bring proceedings against those involved. That is of course a matter for them. In this very partisan debate, that at least is a matter of consensus.

Mr Nigel Dodds (Belfast North) (DUP): The Chancellor referred to the public anger, which is palpable. Is not the choice of which type of inquiry should take place a matter of public confidence? The public want to see a judge-led independent inquiry.

Mr Osborne: We heard from the Attorney-General that a judge-led inquiry may, in his words, not even get off the ground. The idea that we cannot have a parliamentary inquiry is obvious nonsense, because yesterday the Treasury Committee questioned Bob Diamond on the LIBOR scandal. Of course it is entirely possible for a parliamentary inquiry to take place. Our motion will enable us to get an inquiry under way and assuage the anger of the people of Northern Ireland and the rest of the country.

Andrew Bridgen: I am very pleased that the shadow Chancellor has agreed to give evidence to the parliamentary Committee, where he can be held to account for his role in the LIBOR scandal. Does my right hon. Friend the Chancellor agree that others who were involved should be compelled to give evidence, including those who are currently absentee Members of the House?

Mr Osborne: Of course, all involved need to answer questions. The first thing that we are doing to address the immediate issues with the LIBOR—[Interruption.] There are very serious issues of financial stability that we in the House have to address—[Interruption.] When is the shadow Chancellor going to take some responsibility for his time in office? He takes none whatever.

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We have asked Martin Wheatley, the chief executive-designate of the Financial Conduct Authority, to review urgently what reforms are required to the framework for the setting and governing of LIBOR and other price-setting mechanisms in the financial markets.

Several hon. Members rose

Mr Osborne: I will give way in a moment, but let me explain what the FCA’s chief executive-designate will do. It is very important. He will work swiftly and report this summer, so that the Financial Services Bill, which is currently before Parliament, can if necessary be amended and the regulators can acquire the new powers that they need. Yesterday, he responded to the damning FSA report into the failure of RBS with plans for new sanctions for the directors of failed banks, including the possibility of criminal sanctions. I speak for hon. Members on both sides of the House when I say that, sadly, there is a stark difference between the powers available to the UK authorities and those available to their US counterparts. We need to correct that.

Mark Durkan (Foyle) (SDLP): Does the Chancellor accept that the Wheatley review can proceed to do its work and inform changes to the Financial Services Bill without prejudice to the inquiry that the Opposition seek in motion 2? The motion does not prevent the Wheatley review, so using the review as an argument against the motion is a red herring.

Mr Osborne: I was not using the Wheatley review as a reason not to have a public or parliamentary inquiry. I was merely explaining the review for the people out there who care what the Government are doing to regulate the financial markets and who want to hear what we are doing urgently to deal with the transparency and integrity of the LIBOR market.

Nic Dakin (Scunthorpe) (Lab): What does the Chancellor have to fear from a judge-led inquiry?

Mr Osborne: I was about to explain that a judge-led inquiry would not allow us to amend the law to deal with those problems in this Parliament. That is what I fear from a judge-led inquiry. It simply would not enable us to come to the kind of decisions we need to make in this Parliament. I shall set out exactly why later in my speech.

Mr David Ruffley (Bury St Edmunds) (Con): I support the Chancellor’s firm action in the past few days, but he should know that 12 months ago, the Serious Fraud Office declined to investigate whether LIBOR-rigging gave rise to a breach of the Theft Act and the Fraud Act 2006, and to the criminal offence of conspiracy to defraud. Instead, the SFO shuffled responsibility off to the FSA and the Office of Fair Trading. Will the Chancellor guarantee that, as part of his reforms, he will beef up the SFO so we have a serious prosecuting authority like the one in New York?

Mr Osborne: My hon. Friend makes a good point, and I agree absolutely with his instinct. We need to look at giving more criminal powers to our prosecuting bodies. One thing that Lord Turner has said is that,

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unfortunately, the FSA does not have the criminal powers it needs—




While the hon. Member for Islington South and Finsbury (Emily Thornberry) interrupts me from a sedentary position, let me say this: Lord Turner has said that it is a matter of regret that the FSA does not have those criminal powers available to it. That is precisely one of the things we need to look at this year to see whether we can amend the law this year. The second point I would make to address the point she makes from a sedentary position is that the SFO is completely independent of the Government of the day. It is actively looking at what criminal powers are available to it. The director of the SFO has said that he will be able to tell us how he will proceed by the end of the month. The hon. Lady wants to persuade me that the law unfortunately does not give us all the criminal sanctions we need to deal with financial crime in the way that we deal with crime on our high street, but I absolutely agree with her. The people responsible for that situation are Labour Members.

Elizabeth Truss: All hon. Members want wrongdoers in both the authorities and the banks rooted out, but does the Chancellor agree that we need swift action so we can attract investors to this country and start to build up our economy? Is not that what our constituents want to hear about?

Mr Osborne: My hon. Friend is absolutely right. This is not just about assuaging public anger; it is also about restoring any damage that has been done to the reputation of the City of London and ensuring that London remains the pre-eminent financial centre in the world.

Several hon. Members rose

Mr Osborne: I have already given way quite a lot. I shall make some progress and then give way again. I want to come to the heart of the issue dividing the House today: the question of whether we should have a public judge-led inquiry or a parliamentary inquiry. The Opposition have completely forgotten that one of the first things the Government did was to set up an independent inquiry under John Vickers—the independent commission on banking—that took evidence in public and comprised a panel of experts who came forward with proposals to ring-fence the retail banks and completely change the structure of banking. That was never proposed, let alone enacted, in 13 years of a Labour Government.

We have already had an independent inquiry into the structure of banking. The question, then, is what type of inquiry we should now have into the professional standards and culture in the banking industry. Let me explain why I think a public judge-led inquiry would be a mistake and why a parliamentary inquiry is the right approach. First, there is a general principle that judge-led inquiries be used when other forms of investigation have completely failed. Of course, everyone here has mentioned the Leveson inquiry, but that was set up because of the failure of police investigations. In Ireland, the Bloody Sunday inquiry was set up because of the community’s anxiety about the investigations into Bloody Sunday. No one here doubts that the Financial Services Authority and the US Justice Department have been

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effective in trying to find out what was happening on the trading floor of Barclays when these things took place. There is no question, therefore, of a failed investigation. We have had a detailed investigation, and now we have to act on its conclusions.

Several hon. Members rose

Mr Osborne: I will give way in a moment, when I have made my arguments about the public inquiry.

Secondly, judge-led public inquiries take an incredibly long time to conclude. I shall set out my evidence. In the motion, the Opposition want an inquiry established under the Inquiries Act 2005. There have been 14 inquiries under that Act, seven of which are still ongoing or have not been published because of criminal proceedings—remember, as we hear, there could be criminal proceedings in this case—and one of which was set up seven years ago and still has not been published.

The shortest inquiry established at the outset under the Act—into the tragic loss of life following the explosion at the ICL Plastics factory in Glasgow—took one year and five months. No other inquiry established from the outset under the Act has taken less than two years. Frankly, the idea that a widespread judge-led public inquiry into the culture and professional standards in Britain’s largest industry would take place much quicker than a public inquiry into an explosion at a plastics factory in Glasgow is fanciful. It leads me to believe that the Labour party wants to put off the moment when we actually investigate what happened.

Seema Malhotra (Feltham and Heston) (Lab/Co-op): The Hutton inquiry opened in August 2003 and reported in January 2004. Why does the Chancellor claim that an independent judicial inquiry would take too long?

Mr Osborne: The motion talks about an inquiry under the Inquiries Act, but all the inquiries that have taken place under that Act have taken longer than one year, and the only one that took less than two years was into the tragic explosion at the plastics factory in Glasgow. The idea, then, that we could have a full public judge-led inquiry, while criminal prosecutions are taking place, and that it could conclude inside 12 months is completely fanciful—and the Labour party knows it. And by the way—[Interruption.] Calm down. That presents the House with a serious decision, because if we do not have the results of a broader inquiry, we will not be able to amend the banking Bill, when it is introduced into Parliament next January, in order to change the law and adopt the conclusions of the inquiry. We have one of two choices, then. We can either delay the inquiry—[Hon. Members: “Hooray!] We can either delay the introduction of the Vickers Bill or, as I say, we will not be able to amend it in this Parliament.

Claire Perry (Devizes) (Con): The whole House will be aware that the banking industry employs 1 million people and contributes £60 billion in income in direct corporation tax, with employees contributing a further £25 billion in income tax. Banking is Britain’s biggest export industry and it has suffered enough as a result of the appalling regulatory regime and the failure of moral compass. Does the Chancellor agree that it is imperative that we sort this out and get on with the inquiry?

5 July 2012 : Column 1135

Mr Osborne: My hon. Friend is right. It is worth listening to what Richard Lambert—who used to employ the shadow Chancellor and whom the shadow Chancellor advised the then Chancellor to put on the Monetary Policy Committee—said:

“The last thing that is needed in this period of systemic fragility is the long period of regulatory uncertainty that a Leveson-style inquiry would make inevitable”.

That is something we have to bear in mind about an industry that employs millions of people across this country. As I say, if we have a public—

Several hon. Members rose

Mr Osborne: I will make further progress in my speech and then give way, but I am not giving way at the moment. If we—[Interruption.]

Mr Jenkin: On a point of order, Madam Deputy Speaker. I regret to say that I cannot hear the Chancellor of the Exchequer. Mr Speaker regularly reminds this House that we do not look very good to the public, and I think this might be a prime example.

Madam Deputy Speaker (Dawn Primarolo): I am eternally grateful for the help from the hon. Gentleman in reminding the House of what I have already said to the House, which is that if Members believe that this demonstrates the behaviour of the House at its very best on a serious matter, they are sorely mistaken, regrettably. However, each Member in this House is responsible for their own behaviour, and not me, thank goodness, so perhaps we can continue with the debate.

Mr Osborne: May I at least make this point to those on the Opposition Benches about the proposal in their motion to have a judge-led inquiry?

Steve Rotheram (Liverpool, Walton) (Lab): Will the Chancellor give way?

Mr Osborne: No, I am not going to give way; I am going to make this point.

If we go ahead with a judge-led inquiry, it will almost certainly take longer than the shortest inquiry that has ever taken place under the Inquiries Act 2005. Why? Because we are talking about an inquiry into the professional standards of the entire banking industry, which is a pretty big subject for an inquiry. Even if we assume that we could find a judge very quickly, that the inquiry was up and running at some point in the autumn, that took a year and a half—which is how long the inquiry in Glasgow took—and that the Government were allowed six to nine months to respond to the inquiry’s conclusions, have a White Paper and do the consultation required under Labour’s laws, that would make it impossible in this Parliament to make the changes to the law that might be required. This Parliament would be saying, “We are simply not able to change the law to deal with the scandal,” which would have happened almost a decade ago.

Several hon. Members rose

Mr Osborne: There is something else I want to say to the House. Of course we can act swiftly or follow the Opposition motion, which means delay, but there is a

5 July 2012 : Column 1136

broader point. A Joint Committee can summon people under oath and it can summon papers. I commit to giving it any resources it needs to do its job. It can sit in public, and we can get to the bottom of what happened. But there is this final point for the House to consider—




Madam Deputy Speaker: Order. If Members of the House think that constantly standing and holding out their arms will make the Chancellor give way, they might be wrong. I would be grateful if the Chancellor would indicate to the House whether he has any intention of taking further interventions. In that way, perhaps we can manage the debate in a more seemly fashion than we are doing at the moment.

Mr Osborne: I have taken many interventions, and I know that many people want to speak in the debate. That is why we will have a time limit on speeches. I want to say one final thing to the House. We are sent here to hold people to account on behalf of the public. What does it say about us if we fail to investigate? We talk about a lack of trust—

Ian Austin (Dudley North) (Lab): On a point of order, Madam Deputy Speaker. Is it in order for a Member of this House, outside the Chamber, to smear his opponents with utterly false allegations for which he has no evidence whatever, and then to refuse to substantiate or withdraw them when he gets here? It is a complete disgrace.

Madam Deputy Speaker: Mr Austin, I think you know that I am grateful for the fact that I am not responsible for what Members choose to say in the House. Each Member needs to reflect on the accusations and counter-accusations, whoever they are. That is not a point of order. It is a matter of debate, and Members are making their feelings felt very forcefully on that point.

Mr Osborne: Thank you, Madam Deputy Speaker. I think that we have learnt today that the Brownite cabal and all its tactics are alive and well in the Labour party, and that they have taken over the leadership of the party. All the things that brought the last Government into disrepute are being repeated by the Labour Opposition today.

Let me end by saying this. What does it say about Parliament if we fail to investigate ourselves? We talk about a lack of trust in politics, but why should the public have confidence in their politicians when we politicians do not have the confidence to investigate scandals such as this? We have in Parliament the skills, the expertise and the mandate to do the job. We were created to hold power to account. Let Parliament make its decision today, and let all parties abide by that decision. Let us set up the inquiry and hold finance to account, and let us get on with it.

3.22 pm

John Mann (Bassetlaw) (Lab): In quoting the proceedings of the Treasury Committee, the Chancellor failed to quote accurately. I happen to have the transcript of yesterday’s sitting here, and it is unambiguous. The

5 July 2012 : Column 1137

Tory vice-Chairman, the hon. Member for Sevenoaks (Michael Fallon), asked Mr Diamond the final question on this point. He said:

“I understand all that, but the effect of what you have written down here is that Ministers or officials were in effect asking you to fiddle your submission.”

Mr Diamond replied, in his final comment on this point:

“I didn’t believe that, no.”

He also said something that is of even more significance than the Chancellor’s smears, when it comes to the decision that has to be made. Diamond confirmed what we knew already from what the Financial Services Authority had said: he said that other banks were involved. One bank that has had to sack people is the largely state-owned Royal Bank of Scotland—the one that the Chancellor is primarily responsible for via a Government agency. There is no question but that what went on in Barclays was going on in—it has been suggested—at least 20 other investment banks, including the one that the Chancellor is predominantly responsible for: the Royal Bank of Scotland.

This scandal is therefore not restricted to Barclays. We know what a scandal Barclays is. I asked Mr Diamond 13 questions yesterday, and got no answers, other than his confirming that, as the man in charge of an investment bank, he asked no questions and carried out no analysis whatever of why the rates were different or whether there were any oddities in the rates that were being presented to the British Bankers Association by his bankers. He says he knew nothing, which is a little incongruous, but he did confirm that there were inter-bank issues here, as bankers from other banks were ringing Barclays and asking for favours—with the now infamous bottle of Bollinger being offered as a present in recompense.

The Royal Bank of Scotland is the Chancellor’s responsibility. Unfortunately, he failed to take interventions, including from myself; if he had allowed me to intervene I would have asked him directly what questions he has been asking about what has been happening over the last few months with the fiddling of the LIBOR rate within RBS—the bank for which, I repeat, he is predominantly responsible. In particular, I would have asked what the FSA is now telling the Chancellor about its inquiries. That is important because it will impact hugely on the nature of the investigation to be carried out. To suggest, as did the Chancellor—and the Prime Minister previously alluded to it—that this investigation could be confined solely to Barclays bank is clearly nonsense. What we are going to see, which we have not yet seen, is what the FSA has to say about these other banks—up to 20 of them. We are also going to see what comes out in the United States over the next six months—precisely while the inquiry, whether judicial or parliamentary, is ongoing.

The only thing of which we can be certain is that this is a moving feast. That creates a major dilemma for us, whichever way we choose to go. A judicial inquiry cannot be limited to a short period of a few months and guaranteed. If it comes out that what happened at RBS is comparable to Barclays, that presents an even bigger issue for us and for the Government to address. RBS is a huge British bank—one that the taxpayer has had to

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bail out and one largely owned by the taxpayer. The consequences for the Exchequer and the taxpayer will undoubtedly be even larger for RBS than for Barclays.

We do not know where the civil actions in the US are going to go or how quickly they will be carried out. That problem would afflict a judicial inquiry, however independent it was—and it would be independent—but it would afflict a parliamentary inquiry even more so. Who is going to sit on it, and for how long? That might sound like a small question to the outside world, but it is a major question. If the Chairman of the Treasury Committee or its members participate in the parliamentary inquiry, which would make some sense, it would effectively put the Treasury Committee out of action—perhaps for six months, but potentially for a year or 18 months—at a time when all these other major issues are before it.

That is the biggest reason why the joint inquiry will not work. It is simply not feasible for the Chair of the Treasury Committee to be effectively seconded for that period of time. However well resourced the Treasury Committee, its members will have to do two jobs simultaneously. The RBS question has not been answered in this context. I urge the House to consider it, because the issues are even bigger than for Barclays.

3.28 pm

Mr Andrew Tyrie (Chichester) (Con): The rigging of the LIBOR market is shocking. It is the worst case of City malpractice I can recall. The Chancellor proposed the idea of a Joint Committee to me in several phone calls over the weekend. It was an honour to be considered. None the less, I made clear right from the start what ingredients I viewed as required to make a success of it.

First, the Joint Committee’s terms of reference should be tightly drawn and forward looking. This cannot be a witch hunt. Having an exhaustive and inquisitorial committee of inquiry, whether it be within or outside Parliament, into the respective roles and responsibilities for mistakes of Ministers, civil servants, the Bank of England, regulators and commercial banks would do more for the history books than for the quality of legislation. The job of the Joint Committee must be to concentrate on how to get one part of the banking Bill into better shape, and in quick time. For that purpose it will need tightly drawn terms of reference, focused on improving standards and corporate governance in banking, and it can and should do the work quickly.

Secondly, as I said in that conversation, any committee of inquiry, particularly a parliamentary Committee, must have the support of the major parties across the House of Commons. It appears from what I am hearing here that it does not have that support at present.

Mr Watts: Is it not the case that any inquiry will have public support only if it is carried out on a cross-party basis? It is amazing that a Chancellor who seeks such co-operation from the Opposition should go out and the first thing that he does is tell lies about—

Hon. Members: Withdraw!

Madam Deputy Speaker (Dawn Primarolo): Order. Sit down, Mr Watts. I am on my feet.

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Mr Watts, you will have to rephrase that last bit. You will do it briefly, and then Mr Tyrie will continue his speech—and that includes withdrawing the accusation of lying.

Mr Watts: I will withdraw that comment, Madam Deputy Speaker. I will say that the Chancellor gives the impression that he did something that he did not do, and then refuses to apologise. How does he think that he can secure co-operation across the Benches when he does that?

Mr Tyrie: I shall not address the second part of the hon. Gentleman’s question, but the first part was absolutely right. I think it essential for us to have cross-party support for any inquiry of whatever type.

Let me now refer to a tiny bit of history. A hundred years ago, partisanship made a mockery of an attempt by a Select Committee to investigate the Marconi scandal. The Conservative Opposition killed any value that that inquiry might have supplied, and as a result Select Committees were written out of the piece for inquiries for nearly 100 years. I think it vital for Parliament that another clash of the Titans—which seems to be going on now—does not leave us in a position in which we, as Parliament, cannot subject this issue to an inquiry of any type.

Chris Bryant: May I raise the issue of the powers that a Select Committee has? One of the things that we have learnt from the Leveson inquiry and the whole phone hacking experience is that the powers of the House of Commons are very, very uncertain. We do not know whether, once we have taken evidence on oath, a perjury case can be brought against anyone who has lied to Parliament, or misled Parliament. We do not know whether we can force someone to come here. However, we do know that courts can do it, which is why we—why I—support a judge-led inquiry.

Mr Tyrie: I am confident that can be sorted out if there is co-operation between the Front Benches, if necessary by means of Standing Orders, or by a very swift change in the statute book.

Anna Soubry: Will my hon. Friend give way?

Mr Tyrie: I will not, if my hon. Friend will forgive me. I am going to get on with my speech now.

The third point that I made to the Chancellor was that while the participation of some very experienced peers could add considerable value, any Committee should be Commons-led, should be governed by Commons rules of procedure, and should draw on existing membership of the Treasury Committee.

The fourth point—which has been made again today—was that the Committee would need full technical support, not only from private sector expertise but from officials and the Bank of England, and some legal advice as well. The absence of all that is the main factor that would inhibit the Treasury Committee from doing this work at the speed that would be required to enable it to contribute to the banking Bill.

Public confidence in banking is now very low. That is bad for Britain in so many ways, but it is particularly unfair on the hundreds of thousands of hard-working

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and trustworthy people in the financial services industry who do great work for this country, and who, having done nothing wrong, have found themselves impugned by implication. It is not realistic to expect that, in a few months, a Committee of this type would be able to draw the sting of the public anger about banking, but I do believe it realistic to hope that its recommendations could, once implemented, reduce the likelihood of such things happening again. The Wheatley review is due to report in about six weeks. We need to make sure that those perpetrating disgraceful practices such as the rigging of markets face stiff penalties, including jail. It is the fact that so many people have got off scot-free that really sticks in the gullet of the electorate.

Over my time here I have done what I can to strengthen the role of Parliament. If colleagues across the House—and I mean right across the House, including the Front Benches—want me to do this work, I will do everything possible to make an inquiry of this type succeed in order to clear up this scandal.

3.35 pm

Clive Efford (Eltham) (Lab): The tone of this debate has been regrettable. It was, in effect, set by the article written in The Spectator by the Chancellor. It is clear that that article was written before Bob Diamond appeared before the Select Committee yesterday, so the evidence the Chancellor uses to back up what he says in it was given after it was published. He cannot produce any proof or evidence backing up the unfortunate accusation he has made.

The Government must understand that the public are very angry about what banks have been getting up to, and they are not going to be satisfied if a Select Committee or a Joint Committee is set up to investigate the matter. That is just not going to get to the bottom of the issues that have made the public extremely angry.

Mr Diamond was deputy chief executive of corporate investment and banking until 2010, and he had been in that role for three years. That is the division of banking that deals with this area of investment. The idea that when he became the chief executive of Barclays he had no understanding of how LIBOR is set, the negotiations between banks and some of the sharp practices employed, and that he would remain completely ignorant of them, is beyond belief. In my opinion, it is clear that he attempted to cover up his knowledge of that when he appeared before the Select Committee yesterday. That just goes to show that there is a great deal of background that needs to be investigated. A Select Committee or Joint Committee would not be able to do that.

When hybrid Committees investigate a planning issue, it takes an enormous amount of effort and time to trawl through all the evidence and come to a balanced judgment. I have some knowledge of the Crossrail hybrid Committee, as that project affected my constituency. The Committee took up an enormous amount of its members’ time and effort. In respect of this banking issue, in-depth investigations of the allegations and counter-allegations are required, and I am not sure whether a Committee of Members of this House, supported by House of Commons staff, will be able to undertake them with sufficient thoroughness to meet the level of public anger and concern.

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Bill Esterson (Sefton Central) (Lab): My hon. Friend is right. Does he agree that the partisan nature of the debate demonstrates why a parliamentary inquiry of any kind cannot do this job properly?

Clive Efford: My hon. Friend anticipates another part of my speech. The processes in this House to set up Committees of this nature—with Government Whips selecting Committee members—will undermine the independence of any investigation. Unless this Committee is independent and the Government take their grubby little hands off it, its investigations will not satisfy the public at all.

Mr George Mudie (Leeds East) (Lab): Does my hon. Friend agree that a Government majority on such a Committee prevents any chance of equality or objectivity? Does he also agree that before the wind-up speeches, the Chancellor should be asked whether he will agree with the Whips that, as a minimum, there will be equality of representation on the Committee, in order to secure public support?

Clive Efford: My hon. Friend has made the point, and in the interests of brevity I will leave it there for the Government to comment on.

The Attorney-General is wrong to say that we cannot set up an inquiry such as the one the Opposition are calling for today while a criminal investigation is taking place. At least two criminal investigations are going on while the Leveson inquiry is taking place.

We have been here before. On 4 September 2010, the News of the World issued the following statement:

“We reject absolutely any suggestion there was a widespread culture of wrongdoing at the News of the World.”

We all know what that meant. The then editor of the News of the World, Colin Myler, told the Press Complaints Commission in August 2009 that

“Our internal inquiries have found no evidence of involvement by News of the World staff other than Clive Goodman in phone-message interception”.

Let us compare that with Mr Diamond’s comment in his letter accepting the invitation to appear before the Treasury Committee:

“This inappropriate conduct was limited to a small number of people relative to the size of Barclays trading operations, and the authorities found no evidence that anyone more senior than the immediate desk supervisors was aware of the requests by traders, at the time that they were made.”

We heard exactly the same sort of defences being made against the Leveson inquiry being set up, suggesting that this was a small matter that needed to be investigated. This is too deep an issue to investigate through a Joint Committee of this House or a Select Committee.

I am instinctively supportive of the idea that we should set up such Committees, but fundamental reform of this House of Commons would be required for us to carry out such an inquiry. Back Benchers would need to be able to conduct business independently of the Executive. We do not have the structures to deal with an issue such as this. We would also have to change the culture of this place. Back Benchers would have to have a duty to the public, rather than to our respective Front Benchers.

Mark Reckless (Rochester and Strood) (Con): Will the hon. Gentleman give way?

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Clive Efford: I have given way twice and I will not give way any more because of lack of time.

Fundamental change in this House would be required of the type that simply has not taken place. It is such fundamental reform that we need, rather than the messing about that we have with the House of Lords, which will go absolutely nowhere.

The inquiry that the Opposition are calling for today could establish what we need to do in order to legislate to clean up the setting of the LIBOR rate. That could be dealt with and expedited, but when it comes to the underlying issues and the people involved, we are talking about criminal activity. Let us remember that, at a time when taxpayers’ money was being poured into the banking system to prop it up, these people were acting in their own personal interest and to profit Barclays and other banks, and against the interests of the country. In fact, it could even be called treason. These people belong behind bars, and the inquiry that needs to take place here—[Interruption.] Millionaires’ row over there are giggling at that, but I can tell them that the public out there do not think it is funny. We need to have a proper investigation, independent of this House, that will satisfy the public.

3.43 pm

Mr David Davis (Haltemprice and Howden) (Con): I will start by declaring an interest. When I was the chairman of the Future of Banking Commission it was funded by the Consumer Association, which might have influenced my views on this matter.

May I start by commending the Chairman of the Treasury Committee, my hon. Friend the Member for Chichester (Mr Tyrie), for the tone of his speech? I agree that we should not let the smoke of political battle in this place come between us and rescuing one of the most important industries in the country. Members on both sides of the House should bear that point in mind.

The title of the debate and of both motions refers to the professional conduct of the business of banking. This is not just about LIBOR and the LIBOR scandal. If it stopped there, we could deal with it through two actions: a change to the procedure to make it transaction-based and audited, and the criminal prosecution of everybody involved. That would resolve the issue once and for all, but that is not as far as this goes.

We all know that the practice of banking in this country has become perverted by huge incentives, which have led bankers to behave in ways that do not serve the economic interests of the country or our national interests—indeed, they have had the opposite impact. Although the Chairman of the Select Committee rightly said that the inquiry would need to be tightly drawn, it will nevertheless go pretty far. I am quite certain, for example, that even if it is confined to banking, things such as the derivatives market will undergo a lot of investigation in the course of the Committee’s investigation. We must understand that this issue is much bigger than just LIBOR.

Secondly, we should take on board the fact that we are debating the superstructure of the inquiry when we should perhaps be talking about its engine room. What matters are the inquiry’s powers, whichever we have, and they do not need to be so different for a judicial inquiry and for a Select Committee inquiry. I am afraid

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that the hon. Member for Eltham (Clive Efford) was just plumb wrong about the status of Select Committees in this House and their powers. I speak as a past Public Accounts Committee Chairman who summoned bankers, rail operators, pharmacy companies and all sorts of companies that did not want to come, to give their documents or to give evidence. We did not take evidence on oath, but they did not want to give evidence to the Committee and were made to do so.

Bill Esterson: I want to ask the right hon. Gentleman about the relative skills of a parliamentary inquiry and a judge-led inquiry. Some people in this House have very deep skills, but not everybody does, but a judge-led inquiry would have the necessary skills to carry out the kind of deep inquiry that he rightly says is needed. Will he comment on that?

Mr Davis: Absolutely. The Select Committee on Culture, Media and Sport and its inability to reach a unanimous view has been held up as an example. In my entire time as PAC Chairman—and, I think, that of all the subsequent Chairmen—there was never anything other than a unanimous outcome, because of the factual basis of the inquiries. That is what this inquiry must have. It must rest on the facts, which is why the Committee will need forensic accountants, lawyers and investigating teams. It will, I think, need one change in the law. It will need protection for whistleblowers, as we do not have that, but the same would be true of a judge-led inquiry. That would open the inquiry up to its full extent.

Let me make one more point about judge-led inquiries—it goes back to the Leveson inquiry and is slightly embarrassing for those on my side of the House, but I shall make it anyway. Judge-led inquiries cannot work around a criminal investigation without paying attention to it, and that can cramp what they do. If Members did not see it, I recommend that they look back at the evidence given by Andy Coulson and Rebekah Brooks, both of whom were facing potential criminal charges. Those were wholly useless days at the Leveson inquiry because the QC involved had to tiptoe around the issues. That might apply to almost every witness who appears before this inquiry, thanks to the issues facing it, so we must bear it in mind that we cannot solve that with a judge. We will solve it through a different mechanism that either approach would have to use and that, frankly, would be in camera hearings with those witnesses. Although the conclusion will have to be wide, open, wide ranging, honest and transparent, that might not be possible for the evidence-taking.

Although a House inquiry will be faster than a judicial inquiry—there is no doubt about that, for the reasons the Chancellor has given—there is the simple problem that any inquiry will have trouble completing by Christmas.

Alison McGovern (Wirral South) (Lab): Will the right hon. Gentleman give way?

Mr Davis: I have taken one intervention and I cannot take any more.

Whatever the inquiry, it will take a long time, because it is a big issue, and it has to be got right. If it is got wrong and the inquiry is handled badly, and it turns out not to be well managed, it will do enormous damage to the City of London and the entire economy. If it is got

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right and it leaves the City of London with a reputation for clean and honest dealing it could be the single most important thing that happens under this Government.

3.50 pm

Stewart Hosie (Dundee East) (SNP): We need an investigation into LIBOR—there is no question about that. We need it because of the result of the FSA investigation into Barclays. The final notice on Barclays makes gruesome reading: LIBOR rates were manipulated for three and a half years, for which Barclays has been given a large fine. That means that there will be questions to the tripartite regulatory framework, and to the British Bankers Association, which is responsible for collating and calculating LIBORs. There will be questions of competence, action, oversight and omission for the Financial Standards Authority, the Bank of England and the Treasury.

This is an historic issue. We are already changing much or most of that, with the prudential regulation authority coming into being; the Financial Conduct Authority looking at the conduct of business; the recommendations of the Vickers commission being implemented; and the Basel III requirements being implemented to sit over what the banks do. The Chancellor has announced that the chief exec-designate of the FCA will be given responsibility for looking at the setting and management of LIBOR. We are looking at strengthening the Financial Services Bill and at criminal sanctions in relation to LIBOR, and we want to make recommendations quickly so that we can change, beef up and strengthen the as yet unseen banking reform Bill. That is all good stuff, but the problem—and it is a huge problem—is that our concerns are about more than simply technical changes, better supervision and the implementation of a criminal sanction regime in relation to LIBOR, however necessary those things are, and they are extremely necessary.

Yesterday, we heard quite extraordinary testimony from Bob Diamond, the ex-chief exec of Barclays, who told us that although LIBORs had been rigged for three and half a years, no one above the pay grade of desk supervisor knew anything about it. That is almost impossible, but it points to the fact that this is more than simply a technical problem—there is a deeper cultural problem.

The other problem is that this is not about Barclays at all. The media tell us that there may be 20 or more banks in the frame, even before we look at other financial institutions that may do similar things. This is a fast-moving story. The right hon. Member for Haltemprice and Howden (Mr Davis) spoke about derivatives: this is not really a LIBOR problem—it is a problem of derivative traders manipulating LIBOR. I am not sure, within the narrow remit of a Joint Committee, that we can do all the cultural stuff we need to do. It might also be the case—in fact, I am certain that it will be—that issues arise not necessarily about LIBOR or even related to it but, equally serious, as a result of investigations that are under way in other banks. We will of course want to deal with those issues in changes that we make, as they may have the same consequences in the real economy and cause the same deterioration of confidence in the banking industry as the LIBOR scandal.

Our political parties back the call for a judge-led inquiry. It is the right thing to do, because the issues are far wider and deeper than merely the technical ones.

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However—and I say this to my friends in the Labour party—if we fail to secure a judge-led inquiry we will not stand in the way of a joint parliamentary inquiry, because there is an absolute imperative to investigate LIBOR. Nevertheless—and I think that Labour Front Benchers were right on this—the calls for a wider inquiry into the culture that led to the problems at Barclays must be heard.

3.54 pm

John Thurso (Caithness, Sutherland and Easter Ross) (LD): It is a pleasure to follow the hon. Member for Dundee East (Stewart Hosie), a fellow member of the Treasury Committee. I am particularly grateful for his last point. I believe that there is an honest disagreement on the best route, but that there is far more consensus than members of the public who watched the early part of this afternoon’s debate might be given to think. There is a consensus both in the House and across the country that the LIBOR fixing is a scandal, that banking has yet again let down the country and that Parliament must take appropriate action to remedy that. There is also a consensus that further questions must be answered and advice taken to ensure that we take the right steps to remedy the banking industry for the longer term. Today’s debate should be about how to achieve that, and none of our constituents will be grateful if the result is a partisan deadlock while the bankers escape scot-free once again.

What do we actually need to know? First, we need to know all the facts relating to the LIBOR scandal. Secondly, we need to know how that has affected our constituents, both individuals and small and medium-sized enterprises, and how they can be compensated. Thirdly, and to my mind most importantly, we need to know whether banking as it now exists in the United Kingdom is fit for purpose and has the right model to deliver what society requires of it. How best are we to deal with that?

On the first point, with regard to Barclays we have all the facts relating to LIBOR. The report is comprehensive, as most people who have read it would admit, and, along with the US Justice Department’s report, gives us the facts we need. There will be new facts to come when the FSA reports on other banks, an important matter to which I will return. The FSA report on Barclays shows two things: traders fiddled for their own gain before the crash; and Barclays as an institution low-balled after the crash in order to protect itself. Both behaviours are unethical, and when I asked Mr Diamond about that yesterday he said, “Yes, they are unethical.” As I understand it, arrests may have been made and further arrests can be anticipated, so the facts are clear. What we need to know now is what we should do about it.

On the second point, which is about our constituents, the FSA has put forward a model for how it will redress the swap selling scandal, and it involves the financial services ombudsman. I suggest that that is a technical process that will be able to do the job, but that we should monitor it.

We come to the third and most important point: is banking delivering for society? What do we need from our banks, and not the investment banks, but those on the high street? We need a payments system that works.

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The RBS outage showed us that that is not always obvious. We need to have a safe home for deposits. Most importantly, we need a source of prudential lending for businesses. It should be a low-risk, low-return operation. It is clear that retail and investment banks have, and should have, separate cultures, so it is clear in my mind that they should be separated. We have had the Vickers recommendations, which represent the ring fence. I was prepared to accept that and would like it to be revisited as part of the inquiry.

There are a number of material points that we need to look at. I want to look at how best we can do that, because we need to get right the legislation when it goes through Parliament and the banking Bill that is to come. I happen to believe that a judge-led inquiry is not the best way to fulfil that objective, but I recognise fully that others take a different view. I believe that a parliamentary inquiry is up to the job, but only if the standard Committee procedure is improved. I believe that the Committee should have a QC, a legal team and, as the right hon. Member for Haltemprice and Howden (Mr Davis) suggested, forensic accountants. It should have the resources that the Chancellor has said he will put in so that the new bits of evidence can be properly assessed and the barrister can lead part of the questioning.

If today’s debate, therefore, leads us simply to an entrenched partisan position, nobody wins and the bankers get away again. It is essential that at the end of today’s debate we support an inquiry, whether it be parliamentary or judicial.

When some more facts come to light in respect of what the FSA is looking at, we may decide that a wider and deeper inquiry is needed. Let us cross that bridge when we come to it, but let us for now get on with the job of taking what we have and putting it into legislation, so that we end up delivering for our citizens banks that are fit for purpose.

4 pm

Mr Roger Godsiff (Birmingham, Hall Green) (Lab): I strongly support the proposal for a judicial inquiry. I am sure that under the hon. Member for Chichester (Mr Tyrie) a parliamentary inquiry will do its best, but I think that for the reasons that have been advanced today there is a need for a judicial inquiry, because as the hon. Member for Dundee East (Stewart Hosie) and the right hon. Member for Haltemprice and Howden (Mr Davis) have said, this issue goes way beyond fiddling the LIBOR rate. This is a much bigger issue, and it is the bigger issue that needs to be addressed.

Whether the inquiry is parliamentary or judicial, I have concerns about the continual emphasis on the need to do something about the culture and standards of banking, because it implies that if we change the people at the top of banking we will change the behaviour. Would that were the case. I do not believe that it is. There are of course many people who work in banks who do an excellent job. They work very hard, they do not get paid a great deal of money or share in massive bonuses, and they are as disgusted as we are by what has gone on, but even if the most pious, puritanical person is put in charge of a den of inequity, they will eventually be corrupted.

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That is what happens when someone is put on a trading floor, and I speak as somebody who worked in a bank. Many years ago I worked for Coutts, when it did what traditional retail banks did—what the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso) described, and what the general public want. But if somebody is put on a trading floor and deals in obscure derivatives and other financial products, they will be either corrupted by what goes on, crushed by their peers or, if he or she is very brave, turned into a whistleblower.

Of course, there is a culture in banking that needs to be looked at—the culture of remuneration and bonuses. However, it is not just banking that has a culture whereby somebody who is paid to do a job, such as a nurse, teacher or bank clerk, then expects to get a massive great bonus for doing it, irrespective of whether they do it well or badly. This is far removed from the lives of the general public because of the amounts of money being talked about. Bob Diamond has earned £100 million, and if he walks away the question is whether he will get £20 million. Twenty million pounds is way beyond what the vast majority of our constituents can expect to earn in a lifetime, even if we add in their pension pots, so we are talking about a surreal world as far as the wider public are concerned.

To be fair to the Business Secretary, he has said that the problem can be addressed through shareholder power. That is naïve, however, because the biggest shareholders of public companies are the institutions—and many of the people in those institutions sit on other boards, so it all becomes an incestuous circle. Different remuneration committees can consist of the same people. It all comes down to, “I’ll scratch your back if you scratch mine.”

If the Government were serious about making radical changes to the culture that I have just referred to, they could do worse than limit the number of directorships of publicly quoted companies that any one person can have. They could also change the rules so that the remuneration committees of all publicly quoted companies had a majority of small shareholders. That would really send shock waves across the institutions, but not the shareholders, who would welcome the opportunity.

Time is running out. We need to change not just the culture but the structure of banking. In 1986, the wild west came back—all the firewalls and protections put in place following the previous financial crisis in 1929 were swept away. We are all responsible in some part for that; we created the masters of the universe, who have not done us any favours. We have to go back to basics and reconstruct a banking system that is fit for purpose, serves the people and is not self-serving for a small minority.

4.6 pm

Mr Bernard Jenkin (Harwich and North Essex) (Con): The hon. Member for Birmingham, Hall Green (Mr Godsiff) has underlined the importance of having a banking system that commands public confidence. I do not know how serious the LIBOR scandal is in relation to the ability of the banks to support jobs and growth, which we so desperately need at the moment, but it is clearly a mortal blow to the reputation of the City so we need to deal with it effectively and quickly.

I say to Front Benchers on both sides in this debate that this has not been the finest hour of the House of Commons. We have not seen the finest, highest and

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most principled leadership from Front Benchers of either side. Many among the public will look at the debate and scoff at our self-importance and arrogance. The City itself will be in utter despair that Front Benchers should have chosen to use this opportunity to tear chunks out of each other instead of co-operating to find a solution on which they can agree.

No solution will work unless there is consensus. I say that with a very heavy heart, having great respect for the prodigious abilities of both my right hon. Friend the Chancellor and the shadow Chancellor, as well as for their public service in the House. But I really think that we have to do better. Anybody could have seen over the past few days that the debate would be a complete car crash, and so it has been. We must seek to extract something positive from it at the end of the day.

My hon. Friend the Member for Chichester (Mr Tyrie) raised the tone of the debate in a laudable manner. He referred to the Marconi scandal of 1912; this is its 100th anniversary, and I will say a few words about it soon if I have time. The parallels are chilling.

First, I shall say a brief word about the powers of Select Committees. The shadow Chancellor is completely wrong—we have the powers. There is some doubt about the manner of their exercise and how we might deal with contempt, but there is no doubt that we have the powers. As Chairman of a Select Committee, I have exercised them. People are in fear of them. It does the House no service for the shadow Chancellor to go around saying that we do not have powers. That undermines the authority of the House and it is not in the interests of the House.

Damian Collins: I am closely following my hon. Friend’s argument. Is not the Standards and Privileges Committee currently looking at the sanction for contempt of Parliament?

Mr Jenkin: Actually, it is the Liaison Committee on which I serve as a Select Committee Chairman. I am personally looking into the matter and will report to the Liaison Committee next week; that will be part of our report on the powers and effectiveness of Select Committees, which we hope to produce before the end of this term. It greatly ill serves the House to denigrate the powers of Select Committees.

I am going to support the Government motion. I am not in favour of a judicial inquiry; I think it would be completely dotty to plunge us into such a lengthy procedure. However, I want to sound some warnings about the dangers that might befall a parliamentary Select Committee inquiry as proposed in the Government motion. We must be mindful, not least, that if Ministers or ex-Ministers were to be called to give evidence to try to sort out the absurd row that we have seen this afternoon, the Committee could not possibly function. Indeed, it could not possibly function if Opposition Front Benchers were determined to undermine its authority and operation.

It was highly irresponsible of the shadow Chancellor to fail to answer my question or that of my right hon. Friend the Chancellor about whether the Opposition will go on non-speaks if the motion is carried. I commend the hon. Member for Dundee East (Stewart Hosie), who said that even if the Opposition lose the vote, Scottish National party Members will co-operate with the inquiry. How is the House meant to make a judgment

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about whether to vote for the motion unless we have a clear view from the shadow Chancellor?

My hon. Friend the Member for Chichester mentioned the Marconi scandal. That occurred when Ministers—Liberal Democrat Ministers, I hasten to add, just for fun—were accused of buying and selling shares for profit—

John Thurso: I want my hon. Friend to tell us all about the Marconi scandal, but we were Liberals then.

Mr Jenkin: I beg my hon. Friend’s pardon. Of course—rebranded to cleanse the history.

Lloyd George’s Government were deeply embroiled in what we would call an insider dealing scandal. A Select Committee was very contentiously set up. It divided on party lines, it divided on whether to call Ministers as witnesses, it divided into party groups during the questioning of witnesses, and it divided along party lines in the writing of the report. In fact, it produced three reports—the official report, the Chairman’s report, and a minority report. Interestingly, the introduction to the 23rd edition of “Erskine May” says:

“Such highly visible failure condemned their successors”—

Select Committees—

“to a very limited role for almost half a century.”

I place great faith in my hon. Friend the Member for Chichester that he will draw stumps on the exercise if there is any danger that the Joint Committee is going to collapse in such a welter of recrimination. First, it could not produce a decent report under such circumstances; and secondly, it would damage this House in a very serious manner.

I do not wish to give succour to Her Majesty’s Official Opposition, but I note that the consequence of the Marconi scandal was the passing of the Tribunals of Inquiry (Evidence) Act 1921 when, following a subsequent scandal that engulfed the Government, it was decided that there had to be an alternative means of conducting a judicial inquiry outside Parliament with a judge, and that is how that format came into being.

The report by the Salmon royal commission on tribunals and inquiries, which was produced in the 1960s and is still the bible of how tribunals and inquiries are conducted, said that it would be “a retrograde step” to resurrect the format of a judicial inquiry within Parliament. Among the drawbacks listed by Lord Salmon were that Committees were composed of Members representing the relative strength of parties in the House, that parliamentary Committees do not hear counsel—something that has been suggested today—that some of, if not all, their members will have no experience of taking evidence or cross-examining witnesses, and that witnesses might not enjoy the same absolute privilege as in a tribunal set up under the Act. Those are the dangers that we have to guard against when we vote for the motion.

As I say, I am going to support the motion, but I add one other caveat. I would be grateful if the Minister will confirm that the Government will not present any objection to providing the resources—the money—that the Joint Committee will need to carry out its functions. We cannot have this new Committee raiding the staff and resources of other Committees. I think that if the inquiry

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is confined to matters of policy and recommendations for legislation rather than trying to settle the internecine disputes that we have seen on the Floor of the House this afternoon, then it can function with the support of the Opposition, but if the Government want it to happen it must have the necessary resources, which may be substantial. I would also recommend recalling a senior Clerk who has recently retired instead of raiding a Clerk from another Committee, because otherwise all our work will be disrupted.

4.14 pm

Mr Michael Meacher (Oldham West and Royton) (Lab): The sole argument advanced today by the Chancellor as to why there should not be a thorough, comprehensive, judge-led inquiry is that it would not report quickly enough. Despite the enormous bluster and noise of this debate—I very much agree with the hon. Member for Harwich and North Essex (Mr Jenkin) about that—that argument has been overturned by the Leader of the Opposition’s proposal for a two-tier inquiry, with the section on LIBOR to report by the end of December and the second part, which is the more important part, to report within 12 months.

We have to answer the question that has not been answered: why are the Government so coy about a genuinely independent inquiry? Is it because of their fears over what a Leveson-style inquiry into banking might expose? After all, the City, which is a pretty hard-nosed institution, does not give half the Tory party’s total income to it year after year for nothing. It expects, and undoubtedly gets, a great deal in return. Is that why the scams that repeatedly tumble out of the City under the false pretence of financial innovation, such as the mis-selling of private pensions in the 1970s, which has not yet been mentioned, and the recent mis-selling of payment protection insurance and credit default swaps, have always been treated so lightly?

Is that why the Vickers recommendations, which were already weak since the City will always get around Chinese walls by regulatory arbitrage, have been watered down further through the lobbying of the banks? The crucial rise in capital ratios was initially set at 4%, which is certainly the minimum that is necessary. That was reduced by the Chancellor to 3% and even that feeble reform has been postponed, almost unbelievably, until 2019.

Richard Fuller (Bedford) (Con): I appreciated the right hon. Gentleman’s support for my efforts in January to secure a Back-Bench debate on criminal prosecutions in financial services. He asked why Government Members want a parliamentary inquiry. Does he not accept that our constituents have a visceral attitude towards the misdeeds in the financial services sector, and that one problem with a judicial inquiry is that it is the equivalent of a snooze button and the people disengage? A parliamentary inquiry would not suffer that fate.

Mr Meacher: I think the exact opposite is true. The Leveson inquiry has aroused and maintained intense public interest. Yesterday’s Treasury Committee sitting showed what happens on such occasions. Unfortunately, it became very personalised about what each Member had been saying and drew attention to the degree to which Bob Diamond was not put under serious threat. There are therefore very good reasons for a judge-led inquiry.

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Is the close political-financial nexus that exists in this country the reason why the demands of Germany and France for a financial transactions tax have been swept so cavalierly under the carpet by the Prime Minister and the Chancellor? Is that why the pressure from Germany and the US to wind down the egregious tax avoidance that is largely centred on Britain’s Crown dependencies has been flatly rejected by the Government at the behest of the City?

Why are the complex derivatives that lay at the heart of the crash in 2008-09 being retained by the Government within the ring fence? Why has the incestuous relationship between the credit rating agencies and those whose creditworthiness they are supposed to be assessing been left untouched by the Government, when it allowed junk derivatives to be sold around the world with a triple A rating? What is the answer to all these questions? I think that they are very significant. Why has the colossal scandal of tax avoidance on the industrial scale of £42 billion a year, in which the City is so intimately involved, been ignored so unscrupulously?

I shall give an example. The Government set up the Aaronson group to consider the issue, led by a lawyer who has always represented the tax avoidance industry and never Her Majesty’s Revenue and Customs. On the first page of its report last November, that group said that a general anti-avoidance rule was not necessary. It produced the preposterous proposal that if there were such a rule, HMRC would have to seek the permission of an external body before it could be used. It gets worse, because there would have to be a majority of tax avoidance industry representatives on that body. Not surprisingly, the Government have accepted those recommendations in full. That shows the inordinate lengths to which they will go to protect the City by appearing to do something but in reality elaborately constructing a paper aeroplane in the sure knowledge that it will not fly. Those are just some of the reasons, and I believe a lot more remain hidden, why the Government do not want a judge-led inquiry at any price. They are exactly the same reasons why a systematic, wide-ranging inquiry is now so necessary.

I agree with many Members that in the last analysis, this is not about personalities or even about the corrupted culture of banking. It is much more about the deeply flawed structure and role of banking in Britain. The banks are far too big, and the big five control up to 90% of the money supply, which is far too much. We need smaller, more specialised banks that focus on key areas such as infrastructure, relational banking like that in the German mittelstand, the knowledge, science and research and development industries, the green economy, small and medium-sized enterprises and all the rest.

Above all, we need to regain public control of the money supply, which was privatised as a result of deregulation in the 1990s, so that—this is the crucial point—the nation’s financial resources are focused not on the banks’ interests of profiteering from overseas speculation, tax havens and property, in which they specialise most of all, but on the national interest of putting the nation’s resources primarily into industry, manufacturing and export. That is why the whole House should unite behind the Opposition’s motion.

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4.22 pm

Mark Reckless (Rochester and Strood) (Con): In 1993, I joined Warburg’s as UK economist. One of the first things I recall is visiting the chairman of the bank, Sir David Scholey, in his office with my entry cohort. He said to us that what the bank had that mattered most was its reputation, that capital would always flow to good ideas and that if we did not have great amounts of capital, that was not a problem because we had our client relationships. He said that we must always remember to put our clients’ interests first, never our own.

My first boss was George Magnus, the chief economist at Warburg’s, who is still active. I remember him saying to me that we should never talk our book, and that we were there to be objective. He said that we should never be particularly proud if we got something right or concerned if we got something wrong, but that we should be proud of the integrity of our way of thinking. When I was given a bonus, I expressed gratitude. The culture had not yet become that we should look upset in the hope of more next time.

Only when I went to do an MBA at Columbia university in New York did I realise that the fact that I had become a rated analyst was of personal value to me and that I could perhaps have gone to another bank and got more money. When I came back from America, the position here had changed. We had the regulatory system of the FSA, and I was more involved in advising retail banks.

One case that I worked on for a substantial time was that of a retail bank merging with an insurance firm. It was clear to me that to treat customers fairly in merging the compliance function, as I was tasked to do, we had to focus on how that insurer might sell products to the bank’s customers. There was nothing wrong with that per se—that, along with stripping out cost, was the rationale for the merger—but it clearly brought risks, and we needed a function that would stop inappropriate sales to customers for whom they were not correct. Yet the main issues in dealing with the FSA were a turf war between the bank and the insurance regulator and a vast amount of time spent on box-ticking compliance. The question is not just whether the system is over-regulated or under-regulated, it is about the quality of the regulation.

I then became a lawyer—I am both a qualified barrister and a solicitor—when I worked on bank recapitalisations and FSA litigation. I served as a judicial assistant to the vice-president of the Court of Appeal. The motion asks for a judge-led inquiry. I have enormous respect for our senior judiciary, but they have almost entirely been judges and lawyers—they have not worked in financial services industries and are not, as hon. Members are, representative of wider society.

On LIBOR, two separate things happened with Barclays. First, there was market abuse—we will see what happens in respect of other banks. Because the two mid-quartiles of LIBOR were measured, it was thought there could be no gain by giving a low or high response, but there was collusion by so many players that there was market abuse, and the FSA was asleep on the job.

I would encourage hon. Members to think about the second Barclays aspect in terms of the perspective of the time. The British Bankers Association says that LIBOR

“is not necessarily based on actual transactions”.

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Banks are asked a question:

“At what rate could you borrow funds, were you to do so by asking for and then accepting inter-bank offers in a reasonable market size”?

We should note that the question refers to “offers” rather than “an offer”, but the BBA goes on to say:

“Therefore, submissions are based upon the lowest perceived rate at which a bank could”

borrow. It also says that “reasonable market size” is not defined and that

“it would have to be constantly monitored and in the current conditions would have to be changed very frequently.”

Whitehall was therefore using Barclays reports for a purpose for which they were not designed. It was looking not at LIBOR, but at one particular bank’s reports, which were quite possibly compiled by a junior person, in an incredibly difficult market position. Therefore, if Barclays reported a higher rate than other banks, it might be that it had different perceptions of “reasonable market size”, or it might not ask the offered rates because the market had frozen. Which banks were asked and how are those considerations to be reported? The banks are not being asked: “What are your bid and offer rates?” They are being asked: “What do you perceive one of your competitors might offer you were you to ask?” In the context of the financial crisis, that is potentially different from the market abuse I have described.

We should also consider the UK in the international context. We have a huge banking industry in this country. If a regulator says that much of it is socially useless, people might reply, “Yes, but the employment and prosperity of many people in the country depend on it.” How do we clear it up so we can offer a market and export our financial services to the world sustainably and in a way that will keep our reputation? Hon. Members can rail and bash the bankers for the bust we are suffering—that is quite fair and proper—but we must accept that the bankers also gave us our boom. Our borrowing and extra spending was based on candyfloss, and on a boom that the bankers created. They are as responsible for what we enjoyed in the boom as they are for the bust.

Mr Jenkin: Is my hon. Friend saying that wrong regulation rather than under-regulation robs the system of discipline, and that we want a more capitalist, self-disciplined system rather than more bad regulation?

Mark Reckless: Elements of such regulation have been backed, but we must look at the quality of regulation. We can have a market system in which people are clear what the regulation is, or a system in which the Government run regulation and bail everyone out, making the taxpayer responsible. We were betwixt those two separate models. Some parts of the market but not others were regulated, and people put stress and reliance on LIBOR that it was never designed for, which led to much of the problem.

We cannot take what the regulators say as Gospel. Many say that Barclays accepted that the Bank of England and Paul Tucker had not told it to lower the rate. Barclays was let off tens of millions in fines because the regulators agreed that, but the regulators have a vested interest—people might ask why they were

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asleep on the job in the earlier phase, and what LIBOR was doing in 2008-09. Hon. Members should consider what reliance Ministers or officials at that time put on LIBOR—we should ask what LIBOR said about Barclays, why the Government were trying to push Barclays into a bail-out it was trying to resist, and why there was such reliance on that rate.

Mr Jenkin: My hon. Friend is making a very interesting speech. Is he saying that because it was widely known that the Government were prepared to rescue the banks, the self-discipline that liability for bankruptcy provides in a banking system was abandoned and the whole market was distorted?

Mark Reckless: For the calculation of LIBOR, I wonder whether it had been abandoned for RBS and Lloyds HBOS—as it became—while Barclays continued operating in a market context. The BBA now says that banks have to quote on the basis of an unsecured, unregulated, non-Government-supported rate, but I do not know whether that was the definition it gave at the time. That would have been a concern.

In conclusion, Members of Parliament, representing their constituents, have the necessary range of experience to have a reckoning, as a society and a nation, with what has happened with our banks, to assess the costs, as well as the benefits that we enjoyed, and to consider how to move on and put the matter behind us. I know, from my experience on the Home Affairs Committee, that we can have a non-partisan Committee that can reach across. We have people with the necessary experience and independence of mind. We can get together a group of people to come up with a report that downplays partisanship, to find out what went wrong and to learn the lessons for the future.

4.31 pm

Austin Mitchell (Great Grimsby) (Lab): It is good that the debate has come to a calmer and more sensible level. The start demonstrated exactly why the House is incapable of conducting an impartial inquiry. With that degree of partiality and the petty debating points made by the Chancellor, it would be impossible to conduct a serious inquiry into banking.

Let us remember that we are talking not about who said what to whom in 2008, but about the professional standards of bankers. The Government have made a big mistake in trying to shift the blame for the LIBOR manipulation on to my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown) and the previous Labour Government. It is inconceivable that a system of manipulation that lasted five years and which Bob Diamond—the man paid £20 million a year to know what was happening in his company—did not know about could have been caused by a word on the telephone from my right hon. Friend, my right hon. Friend the Member for Morley and Outwood (Ed Balls) or anybody else.

We have so far been silent on the real cause of these difficulties and manipulations. I refer to the problem of deregulation, which has made all this possible. The deregulation here—the big bang—was followed in the United States by the repeal of Glass-Steagall under Bill Clinton. That was the 1937 legislation that wisely enforced the separation of the utility, trading arms and the

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merchant-banking, casino-gambling arms of the banks. It made distinct entities of them. After its repeal, banks here and there began to come together, with the trading arms subordinated to the gambling-casino, merchant-banking activities, and that set the tone and the ethics.

The result was the end of the old neighbourhood banking system of friendly bank managers in cupboards advising us on what to do with our money and providing money for mortgages and small businesses. All that went, and we had the spectacle of the kind of gambling made possible by all these inventive processes, such as the slicing and dicing, and parcelling out of debt, securitisation, derivative gambling—a form of gambling without gambling tax—sub-prime mortgages and now LIBOR manipulation.

All those practices were made possible by the new ethics of the merchant banks. A new greed entered banking, and the only ethic at the top was greed. If people such as merchant bankers have too much power, it follows that they will abuse it. It follows that if they have too much power, they have to be regulated. It was the repeal of regulation and the passion of both parties—the Tories were more passionately anti-regulation than we were, but we still deregulated too much—that created the opportunity for this to break out into the mess that it did.

We have had a whole series of manipulations. I came across another one in 1992, when a young American trader with American Express bank came to me and said that points were being skimmed off foreign exchange transactions. Points that should have gone to the owner of the fund—the customer—were being taken by the dealers for themselves. We are talking about only a couple of points—one or two points—but added up over a long period, it came to huge sums of money, given the enormous numbers of transfers being made. Everybody pooh-poohed it. I took that trader to Eddie George, the Governor of the Bank of England, who told him, “No, it wouldn’t happen here. We’ve inspected the bank. Nothing like this is going on,” but it just was not true. It was going on, and now in America there is a lawsuit against New York Mellon bank for £2 billion that was skimmed off by traders in foreign exchange transactions. If that is going on in the States, it is going on here, and the only way to deal with it is through quite simple regulation to require time-stamping of all trading transactions.

Similarly, the ethics of the banks can be dealt with more effectively not, as Vickers puts it, by ring-fencing their two functions, but by driving them apart totally. That way, the neighbourhood banks—the local banks, the trading banks—can return to their old priority of serving the customer, the locality and local businesses, providing money for them and their transactions, while the merchant banking can continue its gambling elsewhere, I hope in a way that is more restricted by legislation and less prone to simple cheating. That is the only way to deal with these issues.

In conclusion, we have heard a lot of arguments about whether we should have a judge-led inquiry or a parliamentary inquiry. A parliamentary inquiry would be nice—it would allow us to play Perry Mason for a while and get a few headlines—but ultimately people will not have faith in it, because the Government have a majority and we have seen how they would react to the situation already. There is therefore no point in setting

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up an inquiry that people will not have faith in. We need a full and fair inquiry—a judge-led inquiry—to know what is going on and to tell the people.

4.37 pm

Priti Patel (Witham) (Con): Many good and relevant points have been made from the Government Benches already, so I want to make just three brief points.

In any debate on the banking sector, it is vital to remember the importance of financial services to the UK economy. I say that as someone who represents a constituency in Essex. Thousands of my constituents work in the City of London, and I can assure the House that they are not criminals. They are not the type of bankers who should be vilified; they are, of course, hard-working, law-abiding, tax-paying individuals, who help to contribute to that £100 billion to the UK economy and that £63 billion in taxes to the Exchequer. We should remember that we are world leaders in financial services, and it is wrong to vilify the entire sector for the sins of the few. It is because the overwhelming majority of City workers, including those from Essex, take such great pride in their work that the scandals currently rocking the financial sector are so damaging, not just to them and their jobs, but to the reputation of UK plc and our financial services sector full stop.

That is why it is important for us all to consider seriously the professional standards of the financial sector and the banking industry in a sober and considered way in this House. Today’s debate has been incredibly lively, as well as quite partisan, but I would like to pay tribute to my hon. Friend the Member for Chichester (Mr Tyrie), the Chair of the Treasury Committee, for bringing sanity back to the debate. As my hon. Friend the Member for Harwich and North Essex (Mr Jenkin) said, although many issues need to be addressed right now, we have to look at the role of Parliament, the role of Select Committees and the ability of parliamentarians to scrutinise these issues in the right and proper way.

I think we would all agree that any criminality or wrongdoing that has hampered the fair functioning of the financial markets thus far must be fully investigated. Those who are found guilty should face stern punishment. In my view, there should be an unprecedented crackdown on those who lied and cheated, but we should not be demonising everybody in the City. It is our job as legislators to review what has gone wrong, to examine the wrongdoing, and, where possible, to legislate to reduce the prospect of serious misdeeds ever happening again. That is why a parliamentary inquiry led by a Joint Committee of both Houses is the most appropriate way to proceed. We have heard arguments in favour of that option today.

We have also heard about the abilities of parliamentarians. We have been elected to this House not only because of our backgrounds and our judgments. We have been elected to bring our experience to the fore, to articulate and to challenge, to be advocates and to be significant interrogators. We have heard evidence of hubris today, but it is important that we get on with the job. We need to find out why the regulatory system is broken. Vested interests have been mentioned on a number of occasions. We now need to get on with the job and fix this in the shortest possible time frame.

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Nobody should be playing at party politics now. If we do that, it will take longer to clean up the City and even longer to bring in new regulations and laws. On that basis, I welcome the inquiry. It is incumbent on us all to get on and repair the damage that was done in the past by all those who have been involved in bad legislation and bad regulation. We need to restore the reputation of our financial services sector.

4.41 pm

Mr Russell Brown (Dumfries and Galloway) (Lab): I suspect that we are concentrating on how we can improve the system for businesses, rather than for the banks. I want to concentrate on some of the activity that has been drawn to my attention by my constituents. Small businesses are hurting at the moment, and some of them are reluctant to come forward because they are embarrassed at finding themselves in such a fiasco. Those people are running businesses that are in severe financial difficulties because of the activities of the banks.

To a certain extent, I agree with the Chair of the Select Committee, the hon. Member for Chichester (Mr Tyrie), and others who said that the vast majority of people who work in the finance and banking sector are decent, hard-working people. Many are not on particularly large incomes. Talk of the bonus culture tends to concentrate on the Bob Diamonds of this world, but many of those people on low incomes depend on their bonuses to get by. There is no doubt, however, that the business is full of wide boys and spivs.

I have seen e-mails spanning a period of time involving a company called Guardian Care Homes. That company has been successful in some of its prosecutions. For Bob Diamond to say that he did not really know what was going on in his organisation is complete and utter nonsense. For two months, The Daily Telegraph trailed the activities involving Guardian Care Homes.

I also want to mention an issue that was drawn to my attention some 18 months ago. I spoke to the Chairman of the Select Committee—I am sorry that he is no longer in his place—one evening after a Division, and expressed my serious concern to him about the sale of hedges and swaps. According to my inquiries, Barclays appears, a number of years ago, to have set up a specific section to target and home in on leisure facilities, caravan sites and the like. In July 2005, one of my constituents was approached by Barclays and asked whether he would go back to banking with it. He was offered a loan, as well as two swaps to protect him against fluctuations in interest rates. Over a short period of time, the value of his assets climbed. The bank then approached him and asked him to consider some of its hedges.

I want to thank the Financial Secretary to the Treasury, who is in his place, for providing some of the FSA’s findings on these matters over the past couple of days. The manner in which some of these banks have been operating is absolutely unbelievable. If I could not see it in writing myself or hear what constituents were saying, I would not have believed it, as there has been 100% hedging of some of the loans offered.

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This time last week, I met another constituent who also operates in the leisure and caravan sector. He is a partner in two small businesses, running two caravan sites in my constituency and two in a neighbouring constituency. His bank—not Barclays bank, incidentally—pulled him in and encouraged him to have a look at another three caravan sites that were on the market. The guy was not that keen, but he went away and considered the proposal, and came back to the bank to say, “Yes, I might be interested in a loan.” He was offered the loan, but only on the basis that he took out more swaps.

That sort of activity has been going on, but I really do not know how many people out there have been caught up in it. It is interesting to note that the Financial Services Authority’s letter to Financial Secretary says:

“During the period 2001 to date, banks sold around 28,000 interest rate protection products to customers.”

What does that mean? How big is the scale of this? That is particularly important if compensation has to be paid. There is a serious concern that if compensation is paid, it could bring banks down. When it comes to protection, people are looking for answers.

Sheila Gilmore: Does my hon. Friend agree that it is not just businesses, but some individuals who have been led into over-borrowing and so forth? These people have been affected, and it appears from polls reported today that 55% of them think there should be an independent judicial inquiry to get to the bottom of these issues.

Mr Brown: Let me tackle that quickly. Yes, during the last couple of days, I have received more than 30 e-mails from constituents, saying that they want a proper inquiry. Here we are in this Chamber, but we all have to stand outwith it. What will people have witnessed here this afternoon? Partisanship. I understand that we can all get dragged into it, but I have to say that people have no faith in this place. On both sides of this House, we see ex-bankers and ex-financial advisers. Quite honestly, Madam Deputy Speaker, if you were to ask me, “Would you trust these people?”, my answer would have to be no. [Interruption.] If we seek a genuine answer, this problem needs to be tackled by being placed in the hands of someone else. [Interruption.] Conservative Members should calm down. I have listened to the hon. Member for Rochester and Strood (Mark Reckless), who used to be in the business, and to others. It could be due to my ignorance, but I have to say that financiers and bankers could be from another planet. They know the ins and outs, but as the FSA has said, when the issues are complex, it hides what is going on.

David Mowat (Warrington South) (Con): I was neither a banker nor a financial adviser in a previous life, but given the hon. Gentleman’s points, it seems to me likely that amendments will be required to the Financial Services Bill, so should we not proceed with that as quickly as possible? Can he think of a better way of getting into a position to action that than setting up a Joint Committee that can identify the requisite amendments and get them ready for January? That seems to me to be the point the hon. Gentleman is making.

Mr Brown: The point I am making is that the people of this country will have faith only if this matter is dealt with in a truly independent manner. That means it needs to be done through a judicial system.

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The local business man who initially approached me had four businesses operating in four different parts of the country. The bank put so much of a squeeze on him as he chopped and changed these swaps and hedges that it ended up forcing this guy to sell three of his businesses, one after another, to repay it. I highlight to the Government Front-Bench team that the bank has now moved in administrators on the basis that the man owes it £1.4 million. That debt includes a charge of £900,000 as a break fee or cancellation for those swaps and hedges. That is a phenomenal charge; it is just breathtaking. There has now been an admission of mis-selling. I have tried to contact the administrators to say, “Back off, you’re taking this business down”, and I wonder how many others out there are in a similar position.

I say to Ministers that it is important for us to put the system right, as a House, as an Opposition and as a Government. We need to stamp on banks now to get them to stop some of the activity in which they are engaged. They are taking businesses to the wall, administrators are running rife, and we sit back and just allow it to happen. That is not acceptable.

Several hon. Members rose

Madam Deputy Speaker (Dawn Primarolo): I shall call the last speaker now. The winding-up speeches must start at 4.55 pm, so I ask that speaker to resume his seat then.

4.50 pm

David Rutley (Macclesfield) (Con): Many years ago, when I was at business school with my hon. Friend the Member for Bedford (Richard Fuller), I took a summer job in Wall street. I shall never forget the occasion on which I was interviewed by a certain individual who sat with his feet up on his desk, wearing big red braces, smoking a huge cigar, and chewing gum. The interview was for a job in leveraged buy-outs. Before even introducing himself, that individual said to me, “David, how greedy are you?” I do not remember what my response was, but in my head it was pretty clear: “Not greedy enough to take this job.”

My interest in investment banking evaporated pretty quickly after that experience of outrageous behaviour and outrageous remarks. Behaviour of that kind on the part of a few bankers has led to investment banking in particular, but banking across the board to some extent, being given a very bad review by many of our constituents, and it has failed to build the trust that is so badly needed.

I went on to spend most of my career in retail, much of it at Asda, building its financial services business. There was a stark difference between supermarkets and banks when it came to levels of trust—and that was back in 2002; I hate to think what the difference is nowadays. Every day the supermarkets had to go out and compete for the right to earn the trust and loyalty of their customers, so that they would shop there every week. The lifetime value of those shopping baskets was vital. The supermarkets knew that if they captured that loyalty, it would lead to profits on the bottom line. In banking, by contrast, the focus is so much on short-term profit that the banks lose sight of the customer side of the equation. That was brought home to me starkly when I spent a couple of years working for Barclays before the election, trying to address some of the effects of the credit crunch on its business.

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My work in retail financial services highlighted the need for change, and also how difficult it is to bring it about: to break with accepted norms, and to move on from rules of the game that people have previously regarded as being quite acceptable. The LIBOR-fixing scandal has highlighted the desperate need for root-and-branch change in investment banking. That change is needed, and it is needed sooner rather than later.

It is hard to believe that it is five years since the collapse of Lehman Brothers, and five years since we saw the queues outside Northern Rock. The public expect change, and they expect it quickly. It is for that reason—the need for urgent action—that I support the call for a parliamentary inquiry. We cannot wait until 2015 or 2016 to secure the answers and, more important, the solutions. A properly resourced parliamentary inquiry with full access to papers, officials and Ministers, with evidence given under oath, could make much-needed progress.

Mr Cash: Does my hon. Friend agree that we could also adopt the system applied to hybrid and private Bills, with a cross-examination carried out by a fully forensic Queen’s Counsel, so that we could get to the root of what is really going on? Could we not have specialist advisers on the Committee as well?

David Rutley: I am not familiar with that approach. As a former member of the Treasury Committee, however, I should like to say that I have worked with my hon. Friend the Member for Chichester (Mr Tyrie), and that I have a huge amount of respect for his knowledge and experience in Treasury-related matters, and also for his independence of mind and personal integrity.

Richard Graham (Gloucester) (Con): Does my hon. Friend agree that what our constituents really want is a recognition of what went wrong, swift action to prevent this from happening again, and then work to restore trust in this sector, which is so important to the country? As Lord O’Donnell said, the public will not want us to kick this into the long grass.

David Rutley: I completely agree. It is so important that we drive for urgent action that I hope Opposition Members will reconsider their stated position and vote with us this evening in support of a parliamentary-led—

Madam Deputy Speaker (Dawn Primarolo): Order. I asked the hon. Gentleman to conclude his remarks by 4.55 pm and that is now the time. The winding-up speeches will now start.

4.55 pm

Ms Angela Eagle (Wallasey) (Lab): Today’s debate—especially the beginning of it—makes the case more eloquently than I ever could for a forensic, judge-led inquiry, free from charges of partisan political game-playing of the type in which the Prime Minister and, even more disgracefully, the Chancellor have engaged since last Monday. Anyone genuinely wishing for cross-party agreement on the approach to be taken in an inquiry into this incredibly important industry would not have conducted themselves as they have since last Monday. However, since then we have had a more nuanced and calm debate, which I was not expecting after the beginning we had. I am glad that temperatures have cooled.

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As I said last week when news of the LIBOR fixing scandal first broke, the potentially criminal behaviour that has been uncovered at Barclays is truly shocking. We also know that other banks are certainly involved, and that investigations are currently being conducted by regulators across three continents. This should not be an occasion for petty party-political points scoring, therefore; it should be a matter of the utmost concern on both sides of the House. Our constituents want us to concentrate on getting to the bottom of this and putting it right, and that is what this debate should be about.

Today, we have a choice between a Government motion proposing a tightly drawn, limited parliamentary inquiry and a motion, supported by all the Opposition parties, proposing an independent, forensic, two-part, judge-led inquiry, with the first part reporting by the end of 2012 on the scandal surrounding LIBOR, and the second part reporting within a year, looking at the wider issues of culture and practices in the banking industry.

The House must today consider whether the scale of misconduct in the banking industry justifies a judicial inquiry, rather than a quick parliamentary examination. In deciding which approach is more appropriate, we need to consider the following questions. Are there issues of culture and practices across the industry that need to be forensically examined? Does the scale of misconduct in the banking industry threaten the future prosperity of the UK if problems are brushed under the carpet and the situation quickly returns to business as usual? Is the culture of multi-million pound bonuses for bankers as a reward for high-risk, complex trading—a culture that took root in the 1980s—something we should worry about? A moment’s consideration reveals that the answer to all those questions is yes.

Mark Reckless rose

Ms Eagle: I will give way to the hon. Gentleman, but I ask him to remember that I only have 10 minutes.

Mark Reckless: The Opposition motion says we need a judge to examine forensically the culture of banking. Is the culture of banking really susceptible to legal analysis in that way?

Ms Eagle: With expert advice, certainly. That is therefore the approach we must choose.

The banking industry does not want a judicial inquiry; it wants—a multi-billion pound—business as usual. We saw that in its response to the Vickers commission on reform. Top banking executives lobbied hard to protect the status quo, and the Chancellor caved in, but the British people want a judicial inquiry, because they are sick to death of bankers taking mega-bonuses while refusing to lend to small business—we have heard about some instances of that—or to support struggling households. They are angry that greed and irresponsibility in the banking sector led to the credit crunch and they are angry about the real suffering it has inflicted. They want change, not the status quo. They do not want business as usual.

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Alun Cairns (Vale of Glamorgan) (Con): I am grateful to the hon. Lady for giving way. Does she recognise the anger among the public, which warrants swift action? We will completely lose their confidence if we wait years before legislative changes are brought about. Does she not recognise that the public demand immediate action?

Ms Eagle: The public demand action that will be effective, and that is calm and considered.

A year ago, this House had to decide the best way to get to the bottom of practices in the media. The House made the right choice then. It decided that a judicial inquiry was the best way to get to the truth, to get to the bottom of what had gone on, and to produce recommendations on how culture and practices could be improved. In that instance, the Prime Minister said that the best way of getting to the truth was

“a judge-led inquiry with Ministers answering questions under oath where all the documents have to be revealed and the whole thing is pursued properly by a team of barristers who are expert at finding out the facts”.—[Official Report, 30 April 2012; Vol. 543, c. 1251.]

I am frankly baffled about why the Prime Minister thinks that the best way to get to the bottom of what went on at News International is a judicial inquiry, but the best way to get at what has happened in banking is anything but. It is the wrong choice. Why is the Prime Minister doing what the banking industry, rather than the country, wants him to do?

Let us consider the two options before us today: a parliamentary inquiry or a judge-led inquiry. The Inquiries Act 2005 requires the panel to be independent. This is especially important when there are allegations of the involvement of Whitehall and the Bank of England. The Act ensures transparency and guarantees due legal process. Its enforcement powers are clear and set out in statute, and it can draw upon expert skills and resources to complete its task.

In its 2004-05 report, the Public Administration Committee observed that Committees are not ideally suited to conducting specialised investigations into particular events because of perceptions of partisanship—we have had a little bit of that today—and the limits of ongoing co-operation which could reasonably be expected from Government, and because their evidence-taking procedures are not well suited to drawing out the truth from witnesses. I agree with that assessment. Because of the extraordinary tone adopted by the Prime Minister and the Chancellor, this inquiry has already been poisoned by political partisanship—a point recognised, to his credit, by the hon. Member for Chichester (Mr Tyrie).

A parliamentary inquiry would be dependent on support from Treasury officials who are answerable to obviously partisan Ministers. The rules for parliamentary Committees are in a state of flux; they are obscure and potentially difficult to enforce. A judicial inquiry, as the Prime Minister has said, would have a team of barristers and experts in their field to get at the truth. It is for those reasons that the House rightly chose to set up the Leveson inquiry. Although the Culture, Media and Sport Committee did a good job in examining conduct at News International, it had some obvious limitations. First, the Committee’s powers were insufficient to get at the truth, a matter that is currently being considered by the Standards and Privileges Committee. Secondly, the Culture, Media and Sport Committee was unable to

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agree a unanimous report and split on party lines, diluting its effect. A judicial inquiry would command widespread public support because of the requirement on those involved to act in a non-partisan way. This House made the right choice in opting for a forensic, judge-led inquiry. It should do so again today.

The Prime Minister has made the wrong choice. The Government first opposed holding any inquiry at all.

Sarah Newton (Truro and Falmouth) (Con): Will the hon. Lady give way?

Ms Eagle: No, because there is only a minute left.

With no consultation with Opposition parties, the Prime Minister announced a tightly drawn parliamentary inquiry. He first opposed a parliamentary vote, only then to give way. Over the last three days, on every day, at every stage, the Prime Minister has made the wrong choice.

This inquiry will have a Government majority, so far as we can see, because the Prime Minister’s guiding principle has been partisan interest, not the national interest. From day one, the Prime Minister, the Chancellor and their parliamentary outriders—we have heard from some of them today—have smeared their way around this issue with innuendo and noise, in order to cover up and make it as partisan as possible.

The Government had a choice this week, but they made the wrong one. They have rejected an independent inquiry to get to the truth of what has gone on in the banking industry when we could have had all-party agreement. They have rejected the opportunity to work on a cross-party basis and instead have sought to maximise narrow partisan interests. The result was the start of our debate today. The Government have rejected the opportunity to begin the work to reshape our banking industry so that it plays a positive role in Britain’s economic future and trust is restored, but I hope that Government Members will see sense and join us in the Lobby today. These issues are too important to be dealt with as the Government suggest and the British public will not be satisfied with anything less than a full, forensic and judge-led inquiry.

5.5 pm

The Leader of the House of Commons (Sir George Young): The debate got off to a difficult start and those watching it might have been driven to the conclusion that this was not the forum for a rational debate about the ethics and conduct of banking. Of course, the Government motion proposes a joint parliamentary inquiry, and those who have served on Select Committees and Joint Committees know that such inquiries are conducted in a far calmer atmosphere than the rather heated beginning of our debate, particularly if they are tempered by the presence of those from another place. My hon. Friend the Member for Harwich and North Essex (Mr Jenkin) made that point in his compelling speech.

I hope that Opposition Members read, if they did not listen to, the speech from my hon. Friend the Member for Chichester (Mr Tyrie), who has said that he is ready to serve as Chair of the Committee if it goes ahead. He made it absolutely clear that he was not interested in a witch hunt, that his inquiry would be forward looking,

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that the objective would be to get banking in better shape quickly and that he wanted a broad-based inquiry including participation from Opposition Members. I hope that Opposition Members will be reassured by his speech.

My hon. Friend also asked for an assurance about resources from the Treasury. In his statement on Monday, my right hon. Friend the Chancellor made it clear that the Treasury would be happy to give resources to the Committee.

Mr Andrew Love (Edmonton) (Lab/Co-op): Will the Leader of the House give way?

Sir George Young: Let me make a little more progress.

I am also grateful to my right hon. Friend the Member for Haltemprice and Howden (Mr Davis). In a thoughtful speech, he made the point that the gap between the two forms of inquiry was narrower than many had implied, particularly so far as powers were concerned. He also reinforced the imperative of reaching a unanimous conclusion, which often happens with Select Committees of the House. Indeed, he drew on his own experience on the Public Accounts Committee. My right hon. Friend cast some doubt on the December target, but my hon. Friend the Member for Chichester seemed content with it.

I hope that Opposition Members will listen to what the hon. Member for Dundee East (Stewart Hosie) said. He is a signatory to motion 2 on the Order Paper and made it clear that if that motion was not carried he would not oppose motion 3. That is the right approach if we are to resolve the issue this afternoon.

I am grateful, too, to my hon. Friend the Member for Caithness, Sutherland and Easter Ross (John Thurso), who made the point that the gap between the two sides was not quite as wide as the rhetoric at the beginning of our debate implied. He underlined the urgency of making progress, particularly if we are to catch the legislative train that is going through the House in this Session.

The right hon. Member for Oldham West and Royton (Mr Meacher) asked why the Government were against the inquiry proposed by the Opposition. My right hon. Friend the Chancellor set out in his speech the timetable for public inquiries and that was one reason why we did not think that that was the right way forward.

My hon. Friend the Member for Rochester and Strood (Mark Reckless) made an interesting speech explaining the difference in culture that had occurred in the City, a point also made by my hon. Friend the Member for Macclesfield (David Rutley), who was put off a career in the City by being asked the question, “How greedy are you?” One only has to look at him to realise that the answer is not at all, as he has the figure of a pipe-cleaner.

My hon. Friend the Member for Witham (Priti Patel) spoke on behalf of the thousands of people who work in banking who were not responsible in any way for what has occurred but whose reputations are now tarnished by the actions of a minority. She spoke on behalf of the hard-working majority in our banking services and supported the parliamentary inquiry.