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Historically, the City of London has repeatedly benefited from arbitrage with Wall street, from the withholding tax under President Kennedy over 50 years ago, which precipitated the creation of the eurodollar and eurobond markets, right through to the “big bang” in the mid-1980s and the effects of Sarbanes-Oxley in 2002 in the aftermath of the Enron and WorldCom collapses. If the UK is to prevent its competitors from benefiting from unilateral action along the lines set out by Vickers, it must continue to press for international agreement on the future landscape of the financial services world.

There is, in my view, a danger that the UK and EU regulators will somehow look at the Bill’s ring-fencing as a panacea, and will sell it as such to the general public. Instead, in light of the pitfalls of the ring-fence options, it might prove more effective to look at an alternative dual system when it comes to ordinary deposit accounts. This would allow those who desire a risk-free place to store their money to place it in savings banks, while those happier to take a risk—unprotected, of course, by any Government guarantee—could have an account with a fractional reserve bank, as used to be the case in the UK until the mid-1980s.

Tighter regulation, newfangled restrictions and imploring banks to behave ethically as set out in this Bill and future legislation will no doubt do little to restore the City’s reputation for integrity. I fear that the spate of mis-selling scandals still has a hell of a long way to run, especially as, in fairness, 20:20 hindsight now deems that almost any novel financial product created and marketed by our banks since 2000 will be regarded as being mis-sold against consumers’ interests.

Mr Love: If I may characterise the hon. Gentleman’s argument, it seems to be that a race to the bottom in terms of regulatory cover will be to the advantage of the City of London. Many, however, including the witnesses who gave evidence to the parliamentary commission, have said that there should be a race to the top to provide safety and security, which will attract investors to London. Why does he not accept that argument?

Mark Field: I am afraid that the hon. Gentleman has mischaracterised what I was trying to say. What I would say is this: we do not know—we cannot be sure, so it is better to approach the problem by trying to organise international agreements rather than by “a race to the bottom”, as he puts it. I do not believe that either. Much of the evidence taken by the parliamentary commission has played an important part in ongoing thoughts about the whole landscape of international financial services for the future. It is wrong to mischaracterise what I said, but there are risks and, given the importance of the financial services industry, whether we like it or not, we need to ensure that we go into this with our eyes fully open.

If Governments of any political colour continue to take ultimate responsibility when consumers purchase products from our banks, a whole set of unhealthy and perverse incentives will continue to plague our financial services industry. It is imperative to remember that regulation is often the sworn enemy of competition—one of the other avowed goals in the Bill. Public confidence and ethical foundations will slowly and surely be restored in financial services only when the landscape becomes

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far more competitive. That means, in my view—whether we like it or not—that consumers of financial products need to take a far greater level of responsibility. No amount of banking reform or new regulation will otherwise create the conditions for free-flowing capital to build the successful businesses of the future, let alone restore the reputation of our nation’s most important invisible export, which is and remains financial and business services.

7.16 pm

Mr Michael Meacher (Oldham West and Royton) (Lab): We have had an interesting and thoughtful debate, which has concentrated on detail, but I think it is worth putting it into context. Despite the banks triggering, as we all know, the biggest economic crisis since the 1930s, with the Government having to provide nearly £1 trillion in loans, guarantees and asset protection schemes to ailing banks, it has taken five years to reach this point of proposing reform—and even then, by any standards, this Bill is woefully short of what is urgently needed to prevent a recurrence of financial collapse and to produce a safe and desirable finance sector. I have a lot of sympathy with my hon. Friend the Member for Bassetlaw (John Mann) when he said, “Is this it?”

First, the Bill’s central mechanism—ring-fencing between the investment and retail arms of the banks—is all too likely to be subverted by the Machiavellian skills of the City in regulatory arbitrage. The Minister mentioned that, but rather slithered over it, I thought, by saying that he had confidence that it would work. The only evidence he quoted in favour of that was the opinion of Sir John Vickers. Since it was his proposal, it is not surprising that he believes it will work. Historically, however, all the evidence is that Chinese walls will be circumvented.

Let me deal with the Parliamentary Commission on Banking Standards. One has to ask, as has been asked a number of times already in this debate, why after five years of delay this Bill is being rushed through just a few months before the Government’s own appointed commission actually reports? The Tyrie banking commission has made it very clear that it strongly advocates electrification of the ring fence. The Chancellor initially rejected that until the commission’s chair, the highly respected hon. Member for Chichester (Mr Tyrie), and Lord Lawson threatened to table amendments to force the Chancellor’s hand to ensure that the full sanction of separation remained in the Bill. Finding his hand forced, the Chancellor then made the absolute minimum concession he could get away with, namely giving regulators the power to dismantle an individual bank that tried to undermine the ring fence, but not a more general power to apply full separation across the industry. Even after that, dubiety remains because the Bill does not say what precisely is to be ring-fenced. Savings, for example, can certainly be placed in a variety of exotic securities.

The Government have also succumbed to the banking lobby in permitting banks to locate simple derivative products within their retail operations. As my hon. Friend the Member for Nottingham East (Chris Leslie) pointed out, that can be, and indeed already has been, uncomfortably extended. The Government’s retreat can only have the effect of opening the door to other forms of speculative activity to nest inside retail banking.

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There are other uncertainties. Let me give just one example. Let us suppose that funds are transferred from a ring-fenced to a non-ring-fenced entity via a foreign subsidiary or affiliate in a place where there is no such separation. Is that a breach of the ring fence? How does anyone actually know? I presume that we will not rely on the good intentions of bankers.

The real problem with the Bill, however, is that it does not deal with the fundamental causes underlying the reckless and destructive banking that has done so much damage. It is preoccupied with investment banking, and it offers no relief from those suffering from the abuses in retail banking. As many people have mentioned, payment protection insurance, money-laundering, the fixing of endowment mortgages and interest rates, and pension mis-selling are just some of the rackets that have been run by retail banking. Nothing in the Bill offers any reform.

Many of those abuses, on not only the investment but the retail side, are fuelled by the incessant stock market demands for higher short-term returns, as well as the profit-related pay of executives and traders. Even when the European Union tried to limit the latter by means of bonus caps, the Chancellor went out of his way to stop it without managing to secure a single ally in any of the other 26 member states. I can only say that the banks certainly do not provide half the annual donations to the Tory party without expecting a very big return.

However, even more important than the ring fence and the ambiguities relating to the status of so-called simple derivatives, which are anything but simple—for example, there is the obvious question of whether currency hedges can be sold to small businesses from within the ring-fenced operations—is the leverage ratio. As has been mentioned, the Vickers recommendation was for capital of 4% with a lending ratio of 25:1. The Chancellor, in yet another very big concession to the banks, dropped that to 3%, opening up a 33:1 ratio. In its interim report published today, the Tyrie commission—rightly, in my view—rejected that as being wrong-headed and unnecessarily risky, precisely because of the excessive size of the finance sector in our economy, relative to the size of those in other economies and, indeed, absolutely. I think that that unwise concession ought to be overturned in both Houses.

This is not, I think, a great Clark-Javid Bill. It is a mini-Bill which, unforgivably in my view, entirely ignores the wider banking framework. The big four—and this, surely, is the background to the Bill—have let Britain down badly. We need to transform the whole banking culture, and end its present obsession with property, overseas speculation, offshoring and tax avoidance. By being too big to fail, the big four exacerbate moral hazard; because of their size and weight they choke competition and new entrants to the market; and they have manifestly failed to keep adequate funding flowing to business. They should be broken up, initially by a clean break between the investment and retail sides—on the basis of all the historical evidence, I think that a ring fence is highly unlikely to work—and beyond that by a wider restructuring.

What the country really needs is a national investment bank supported by a range of smaller specialist banks, focusing on infrastructure development, science and

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technology, small and medium-sized enterprises and a low-carbon economy—to mention only some—together with a regional spread of banks along the lines of the German Mittelstand. The other essential requirement is the regaining of public supervision of the money supply. As the Minister mentioned in his opening speech, the total gross lending of the banking sector has been about £7 trillion a year, five times as much as GDP. What the Minister did not say, however, is that only about 8% of that has gone towards productive investment. The banks have used their virtual monopoly over domestic credit creation—amounting to some 97%—largely to fuel successive property booms and speculative foreign ventures. That is a basic reason for the fact that the country now has a fast-rising and unsustainable deficit in traded goods, which last year amounted to more than £100 billion —7% of GDP.

Steve Baker: The right hon. Gentleman has raised a point that many people fail to appreciate: the banks lend money into existence and into housing, partly because they are encouraged to do so by the risk weightings in Basel. Does he agree that, at least in that respect, the money supply tripled because regulators encouraged banks to do it?

Mr Meacher: I do agree, and I know that the hon. Gentleman believes that banks have far too much power to create money out of nothing. He and I may not agree on exactly how that can be dealt with, but it certainly needs to be dealt with.

Frank Dobson: Does my right hon. Friend agree that one of the characteristics of our banking system is that the banks have invested more money in fancy offices in the City for themselves than in British manufacturing industry?

Mr Meacher: That is also true. My right hon. Friend listed some of the huge abuses that have been turned to the private benefit of the bankers and the people at the top, and that is another example.

Our balance of payments problem cannot be allowed to continue. That is integral to our future. If Britain is to achieve what we all want—a long-term recovery with stable growth and full employment—we need a lending system that prioritises manufacturing, construction and export promotion, and allocates credit in accordance with the national interest rather than the private interest of banking executives and traders. The Bill is concerned almost exclusively with limited regulation. All the historical evidence suggests that it is likely to be highly ineffective even on that score, but its real fault is that it does not even address the central issue in the financial sector, which is immensely important and crucial to Britain’s survival. This is a feeble Bill, and the next Government will have to introduce a proper Bill to achieve the necessary regulation.

7.28 pm

Steve Baker (Wycombe) (Con): One man has done more than any other to popularise the cause of banking reform. Astonishingly, he is not a member of the Government or a Member of the House of Commons; he is, incredibly, a minibus salesman in Burnley named Dave Fishwick.

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On these occasions I generally stand up and say something arcane, usually referring to literature from the 1930s, but today it is my pleasure to talk about the Channel 4 documentary “Bank of Dave”. Of course, Mr Fishwick has not been allowed to start a bank; he has had to start a savings and loans company. The documentary reveals just how difficult it is today to start a tiny little bank. But what does he do? He knows his depositors—his savers—and his borrowers; he goes out and personally shakes hands; and he understands the businesses into which he is lending. In the documentary, we can see what tiny sums are necessary to allow a small business to grow—just a few thousand pounds to buy a new oven. Yet he puts his own personal assets at risk to guarantee what he does. He knows his depositors and he wants to make sure they get their money back, so all the savings he accepts are underwritten out of his personal wealth. If you read his book, Mr Deputy Speaker, you will discover that he believes in 100% backing for demand deposits and would do so were he allowed to start a bank.

This is an incredible thing, because Dave Fishwick, working on little other than his basic entrepreneurial ability—his street-level ability to get business done—has come up with a model of banking that has overwhelming public support and that demonstrably can be seen to be serving those in his local community, be they savers or borrowers, those working in business or the elderly who cannot afford to lose their money. In addition, all this service to the community is personally underwritten by him. I have introduced a number of Bills in this House, one of which was the Financial Institutions (Reform) Bill. It would have made bank directors liable without limit for their commercial losses and put bank bonuses into a pool to be treated as capital for five years. That would realign incentives so that those operating banks would take sensible decisions, cease to be reckless, lend well and think about what they were doing for their customers. We are in the absurd situation where a simple, unsophisticated man running a corner shop in my constituency was subjected to a bank calling him—a bank that had specifically procured an Urdu speaker in order to obtain his trust—to sell him a sophisticated interest rate swap that he did not need. This is a bank that has been bailed out at taxpayer expense but is now paying bonuses. So we have that injustice, yet a man such as David Fishwick, who is doing the right thing and underwriting the commercial risk at his own expense, is not allowed to call himself a bank—it is disgraceful.

This Bill should help a man such as David Fishwick to serve his community by setting up a tiny bank. Three things about his approach make it feasible. The first is his personal guarantee. The second is his personal relationship with his customers. The third is that if he were to take demand deposits, he would put a 100% reserve on them. If that were also capped at a certain level of lending, it would be possible for that bank to exist as a bank with very little regulation. That business man, who just knows how to get good honest business done, would be able to get on and serve his community. That approach would answer so many of the points made in this debate.

Of course I cannot resist addressing the rest of the Bill’s provisions and some of the more arcane points, which I like so much to talk about.

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Frank Dobson: The hon. Gentleman is fairly youthful, so he may not remember the time when most big banks had local bank managers and so had some of the characteristics of the Bank of Dave, in that there was someone local who knew the locality and its businesses. Many people now find that they apply to the bank and the algorithm says no.

Steve Baker: My bank manager is named Guy Birkby, and I am sure that he would not wish to be compared to Dave Fishwick because he is an employee of Handelsbanken. I moved my money to Handelsbanken specifically so that I could have a local bank manager who knows me. Indeed, when I ring the bank people recognise my voice and off we go, and that is a far better way to do business. This particular combination of personal relationship and personal liability—in Dave’s case, not Handelsbanken’s—is a way to re-establish trust. What are the other ways of doing that? They are unlimited liability, which I have discussed, trustee savings banks and mutuals. I am afraid that one of the big flaws of the big bang was that it encouraged this limited liability corporate form where nobody ends up taking the risk and it falls to the taxpayer—it is a disaster.

On ring-fencing, I very much share the comments made by the Father of the House, my right hon. Friend the Member for Louth and Horncastle (Sir Peter Tapsell). I am extremely sceptical that ring-fencing will work. I think that the efforts in the Bill are extremely brave, and of course I shall support it, but this is the last brave attempt to prop up the contemporary monetary orthodoxy. I shall come back to that subject after talking about depositor preference. When we combine the ring fence with the particular instance of taxpayer-funded compensation, there is a real problem that the same old incentives are being preserved. Commercial risk is being subsidised by the taxpayer and to deal with the consequences of having encouraged that reckless behaviour at taxpayer expense an attempt will then be made to regulate those risks away—it has not worked before and it will not work now.

On depositor preference, I have learnt through my last five or six years of working with academic economics that if there is one subject we cannot resolve it is who owns—or should own—the money in someone’s bank account and what the contractual obligations should be. In other words, if someone’s money is on demand and they can have it back any time, should there be a 100% reserve—it is their property and the bank is safekeeping it—or should it be the bank’s property which it can use to fund itself?

That question is extremely difficult to resolve, but I shall just cite a speech I have used before, in which the Earl of Caithness said:

“The current crisis, like previous ones, emanated from a base of judicial decisions. Prior to 1811, title to the money in depositors’ accounts belonged to the depositor. However, in that year, decisions in Carr v Carr and, in 1848, Foley v Hill gave legal status to the banking practice of removing depositors’ money from their accounts and lending it to others. Since then, title to depositors’ money has transferred from the depositor to the bank at the moment when the deposit is made.”—[Official Report, House of Lords, 5 February 2009; Vol. 707, c. 774-75.]

That goes very much to the point about the money creation process on which the right hon. Member for Oldham West and Royton (Mr Meacher) and I had an exchange. There was a time when this fractional reserve

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process created money, but that has now become meaningless, as banks are able to lend with almost no restraint. As I explained in my maiden speech, that is the fundamental reason for this massive boom-bust cycle.

I try never to have an idea of my own on these matters, so let me come back to what Irving Fisher wrote in 1935, when he brought forward a plan for 100% money. He said:

“The essence of the 100% plan is to make money independent of loans; that is, to divorce the process of creating and destroying money from the business of banking. A purely incidental result would be to make banking safer and more profitable; but by far the most important result would be the prevention of great booms and depressions by ending the chronic inflations and deflations which have ever been the curse of mankind and which have sprung largely from banking.”

So I return to David Fishwick, because he knows instinctively, as a business man, that if he takes somebody’s money on demand deposit he should 100% reserve it, in case they want it back.

By this point, I will have upset my friend Professor Kevin Dowd, who was a tutor to Andy Haldane at the Bank of England. I have had the privilege of meeting both of them to discuss these matters. Kevin is a free banker—he would believe in fractional reserves on demand deposits, without a shadow—but in his banking system there would be no limited liability and no taxpayer-funded deposit insurance, banks would issue their own notes and money, at bottom, would be gold. That commodity backing would limit the banks’ ability to create deposits.

There is also a problem in our banking system with accounting, which is another area where I have introduced a Bill. Since I did so, significant progress has, thank goodness, been made on one aspect—loan loss provisioning, which Members can refer to in the media. However, there is another problem with international financial reporting standards accounting for banks, which is mark-to-market accounting. We have heard today the story of how banks have securitised lending and sold it. In a chronically inflationary banking system where banks lent money into existence and, as we heard from another hon. Member, were encouraged to make bad loans—they were creating money to make bad loans into property—they of course wanted to get this off their books. So they wrapped it up in a bond, insured it with a derivative and sold it. They did not even have to sell it. They just took this instrument, moved it from one accounting book to another and they could then immediately mark its value to market. What does that mean in plain terms? It means that one can take 30 years of cash flows, unrealised, from mortgages not yet paid, and by marking them to market within a bond, around a vehicle that is all these mortgages securitised, one can take bad loans—loans that probably will not be repaid—and take it all as profit in capital today. You can pay yourself a massive bonus out of cash not realised—out of capital.

If hon. Members and the Minister wish to know more about how this works, I hope that they will look at my colleague Gordon Kerr’s book, “The Law of Opposites: Illusory profits in the financial sector”. Gordon has spent many years engineering financial products. In a sense, he is a dissident banker gone good. In that book, he explains how those accounting problems, combined with easy money, create so many of the problems that are, as Fisher said, the curse of mankind today.

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At bottom, there will ultimately turn out to be two banking reforms that we should adopt. As I have said before—this is particularly the case for the question of the status of demand deposits, gold as the ultimate backing to money and so on—we will find in the end that the Bill is an honourable and brave attempt to prop up a contemporary monetary orthodoxy that is failing. This is the end of the post-Bretton Woods monetary order through which we have been living. We were told that it was a banking crisis. We learned a little later that it was a debt crisis. In a minute, people will realise that what we use as money is debt, that what the banks deal in is debt and that the vast majority of the money in our accounts was created by somebody else taking a loan. When that is accepted, we will discover that this is a monetary crisis. We will then find that there are two plausible ways to reform money and banking.

We could have 100% reserves on demand deposits and the preservation of state control over money and banking—that is, paper money, fiat money, the central banks planning interest rates, taxpayer backing and so on. That is the sort of plan advocated by my friend Jesús Huerta de Soto as a route to what we really should do, which is get the state out of money and banking. We should have a free banking system, as proposed by my friend Professor Kevin Dowd. He has brought forward a plan called “two days, two weeks, two months”, which would return us to a free banking system backed by gold within that time scale. It would not need regulation and it would be just and moral because people would take responsibility for the things they did.

This is not the first time that a monetary order has come to an end. By some calculations, in the 20th century there were about eight global monetary orders. The thing that is remarkable about the post-Bretton Woods order is not that it is ending but that it has lasted so long. I am afraid that I agree that this Bill is not enough, but it makes some progress and I hope that it will be the last attempt to prop up a contemporary banking system that cannot last.

7.41 pm

Kelvin Hopkins (Luton North) (Lab): That was a fascinating speech by my good friend the hon. Member for Wycombe (Steve Baker). I cannot compete with his erudition; I have a much smaller speech on a smaller issue.

In 1983, I stood for Parliament on a manifesto that called for the public ownership of large sections of the banking system. It is an irony that large sections of it are now in public ownership, having been put there by people who profoundly disagree with and disbelieve in that process, but who were forced to do so or to let the system collapse. That is interesting. I certainly wish to see public ownership go further, as well as public regulation and accountability, as the risk in banking is being underwritten not by the borrowers but by the Government, by the state and by the citizen, and if risk is not and cannot be transferred, the ownership and accountability should be in public hands as well.

During the Minister’s opening speech, I mentioned audit and the appalling failures of the audit industry during the banking crisis. The hon. Member for Chichester (Mr Tyrie) said that more needs to be done, and much more certainly needs to be done. I hope that some component of the Bill, when it is amended, might deal with audit.

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There is a need for radical reform of the rules governing audit. The Financial Reporting Council is undertaking a consultation on the new rules that will compel auditors to write what is called a commentary, flagging problems, risks or disagreements with management at audited companies and institutions in clear and comprehensible language so that shareholders can understand. That will be seen as controversial by company management, but will be welcomed by shareholders and, by the same token, by bank depositors and customers.

We should of course remind ourselves that auditors, above all, represent shareholders—or at least they should. In reality, however, they are taken on by managers so power is effectively in the hands of managers and shareholders, or bank depositors, and customers simply have to trust them. When an audit contract comes to an end, auditors are unlikely to be critical of managers for fear of failing to be re-engaged. The inevitable cosy relationship between auditors and managers lies at the heart of what has gone wrong in the banking sector.

If auditors had been doing their job properly and their audit reports had not been so opaque and impenetrable, the financial crisis would not have happened as it did. The fact that banks were gambling with worthless bits of paper based on sub-prime mortgages was the fundamental cause of the banking crisis, and it is not over yet. Auditors did not do their job in relation to the practice of bankers such as those at Northern Rock before and until it collapsed. If they had, we might have prevented that catastrophe.

Frank Dobson: Does my hon. Friend agree that it is a trifle irksome to listen to the radio or watch television and to hear someone from PricewaterhouseCoopers telling us what we ought to do for the future when PricewaterhouseCoopers audited Northern Rock and did not spot anything going wrong, or to hear about the famous Ernst and Young ITEM Club when the biggest item in the firm’s history is that it did not spot that Lehman Brothers were broke?

Kelvin Hopkins: I thank my right hon. Friend for that intervention, and I am just about to mention those great companies.

As if to reinforce the case for radical reform, on 22 February the Competition Commission published a report that was deeply critical of PricewaterhouseCoopers, Ernst and Young, Deloitte and KPMG—the big four—for a deep “misalignment” with shareholder interests. The commission made it clear that auditors and company executives had acted as a cabal to their mutual benefit and to the exclusion of the interests of investors. Under the definition of investors, we can include depositors and retail customers in the banking sector.

The commission concluded that the relationship between auditors and management has been too cosy and must be overhauled. The big four audit nearly 90% of all blue chip companies. One suggested remedy has been for the mandatory rotation of tendering so that after, for example, five years or so an audit company would have to relocate to other companies and could not be re-engaged. The companies engaging auditors would then be required to ask new auditors to compete for business. That would go some way towards breaking the unhealthy link between auditors and the companies they are supposed to be auditing.

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Whatever new rules might be introduced, it is vital that auditors are compelled to ensure that their loyalties are to shareholders, depositors and customers and not to banking and company managers. Auditors failed to raise the alarm before the financial crisis and that must never happen again.

7.47 pm

John Stevenson (Carlisle) (Con): People talk about banking being a very dry subject, but this has been an interesting debate with different views and varying opinions that I have found enjoyable to listen to. I hope I can make a small contribution.

Historically and, indeed, even now financial services and the City have been, and are, a vital part of the UK economy. London in particular and the financial industry in general have made a massive contribution to the prosperity of this country.

London is recognised as one of the, if not the, pre-eminent financial centres in the world. London is a world city, partly because of its location, our language and our legal system, but also because of the financial industry. In our system, there is huge expertise and skill and many successful companies and businesses, not just banks, have their headquarters in England. It is a city that we should be proud of and a financial capital that we should not underestimate.

Through the financial sector and its successes, we have the most precious commodity of all—jobs, and not just in London but up and down the country. There are financial services in my constituency, Carlisle. It is skilled employment that is often well paid and it creates wealth and prosperity for many that goes beyond the financial industry into other aspects of our economy, such as law, accountancy and consultancy as well as other support industries, creating many jobs in the wider economy.

There is also taxation. We should not underestimate the substantial contribution to the public purse made by the financial sector. We might bash bankers, but taxes pay for public services and a high proportion of the tax take in this country comes from the sector. Bonuses are taxed, profits are taxed and those taxes go towards our public services. They make a positive contribution. The balance of trade supports our economy year in, year out. We would probably have a real crisis were it not for the invisibles that earn us considerable sums, compared with the manufacturing sector.

If this debate were taking place in 2007, we would probably be saying that everything in the garden is rosy and we would believe that nothing needs to change, but we know how different the situation has become. Banks became arrogant and thought they were invincible, Government became complacent—“No more boom and bust”—and where were regulators? It was a lethal combination and we all know what happened. In 2008 there was a failure of policy and regulation on a huge scale. Since 2008 we have been dealing with the fall-out of the previous Government’s failures. Arguably it is this problem, the banking problem, that is still holding back recovery. Since the bail-out there has been much discussion of what direction Government and our country should take in managing and regulating our banks and the banking sector.

We have various choices. We could do nothing and allow banks gradually to recover, carry on as they did before and hope that the banking crisis never happens

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again. Alternatively, we could split the banks completely—split retail from investment—and create a clear, absolute divide. We could help change the sector completely by creating smaller banks and more of them, in effect creating a banking sector where banks are small enough to fail. Finally, we could pursue the middle way, which is in effect what the Government propose. All these options could be equally correct. They may be different solutions to the same issue, but who knows if one of them might be more successful than the others? However, there appears to be broad consensus that there should be some form of divide within banking services. I therefore support the Government’s proposals as they have a certain degree of flexibility within them, allowing for changing circumstances.

We all acknowledge that the financial sector is critical to the success of businesses up and down the country. Central to that is the success of the banks themselves. The goal for Government must be to ensure that the country has financial stability at the heart of the banking sector. Clearly, stability must be the priority. We do not want our recent experience to be repeated, but we should not lose sight of other considerations for Government: lending to businesses and consumers, which is vital to growing our economy; choice through competition; awareness of the risks to the health of the nation’s finances; and the need to ensure stability and strength in the wider economy. I appreciate that some of these issues are not relevant to the Bill and do not require legislation. Nevertheless, it is important that the Government do not lose sight of the other aspects that support a strong and vibrant economy.

The Government clearly take the issue of banking stability very seriously, and so they should. We have had the Vickers report, the Parliamentary Commission on Banking Standards and the Government’s response to them. We now have the Bill before us. The issue for the House is whether it will achieve the Government’s aims and objectives, and whether those are the right solutions. In general, I support the direction of travel and the thrust of the Government’s aims. The concern, as ever, is the detail. The Bill is a skeleton. Much flesh still needs to be put on the bones. There is clear provision in the Bill for further orders and regulations, which the Minister touched on in his speech. I acknowledge that he will be making further amendments to the Bill and that he has indicated that he will be open-minded about amendments. That is to be welcomed, but to understand the Bill fully we need to see those orders and regulations to judge whether the effect is likely to be successful. I assume that that will be done in Committee. That was the indication that the Minister gave.

I appreciate that those on the Treasury Committee and on the commission have a much better understanding of the issues, but I would like to touch on three aspects of the Bill. First, a number of questions arise from the provisions relating to a ring-fenced body. Which banks will be affected? What will be the de minimis level? If there are going to be only a few such banks, can we name them? As for the reserve power to split up a group structure, the proposal is not for a general industry-wide reserve power, but for a specific power. Is this potentially a nonsense if there are only a few ring-fenced banks? The same thing could be achieved by applying the

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specific reserve power to each of them. In some ways we want our banks to be small enough to fail and we want plenty of them so that they do not need to be ring-fenced.

What of the ring-fenced institutions themselves? They may be separate legal entities, but how independent will they be? What of the boards? Who will the directors be? Will they be entitled to be on the board of the subsidiary as well as of the parent company? How independent will they be? What of the employees? Who are they responsible to? Who will key and talented employees look to as their bosses? Will it be the parent company or the ring-fenced company that they are actually working for? They will obviously be considering their careers, and that could have an impact on their judgment.

What about the systems of the ring-fenced institutions—the computers, the customer information? How separate will these be from the parent company’s or those of the other institutions within the group? What about management? Will it be totally separate? It could be argued that even the buildings would have to be separated. Who has access to information and decision making? Human resources, systems and management issues need to be addressed to ensure that the whole structure of the proposals will work.

With reference to core services, the proposed primary legislation deals only with deposits. Is that it? What other services may be included or specifically excluded? I appreciate the need for flexibility, but we still need to have a clearer idea of the proposals or at least of the Government’s thinking. On the core activity, the acceptance of deposits, what about small and medium-sized enterprises and high net worth clients? What is the definition of an SME or of a high net worth client? That could mean different things to different banks and to different people. There are still many issues that need to be addressed so that we have a better understanding of what we are being asked to support and to ensure that we pass legislation that will work.

We all want to see a strong, stable and successful financial sector. Within that we want a robust and competitive banking industry, which is itself stable but able to finance and support the wider economy. Although I support the Government’s intentions in the Bill, I encourage the Government always to remember that a competitive market with low barriers to entry and sensible regulation robustly applied should always be at the centre of a successful banking and financial sector. That should be our goal and it should certainly be the goal of the Bill.

7.56 pm

Mr William Bain (Glasgow North East) (Lab): The Bill matters greatly to my constituents in Glasgow because the financial services sector north of the border contributes nearly 8% towards Scotland’s GDP, which is the second highest in the UK after London, and 8.6% of jobs in Scotland are in the financial services sector. The Bill will affect a large number of savers, businesses and employees in Scotland.

I have to say, with regret more than anything else, that the Bill is desperately weak and disappointing and it will need substantial amendment in Committee if it is to provide the radical surgery that the banking and economic system needs. The truth is that our banking system is badly broken. It is failing to supply or boost demand for lending to businesses in key parts of the

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economy. As the Institute for Public Policy Research found in December, the remuneration packages within the industry have been responsible for a huge rise in inequality across our country.

It is disappointing that we have not had a commitment from the Government to introduce a proper financial transactions tax and that they have not shown leadership by pressing for that to be introduced at G20 level, given that we already have such a tax in this country in the form of the stamp duty that is paid on share transactions.

Steve Baker: Between 1997 and 2010, the broad measure of the money supply, M4, tripled. That new money had to go to somebody first. That meant that it widened wealth inequality. The hon. Gentleman is arguing that because the state encouraged this enormously elastic money supply and created wealth inequality, we now need more state intervention to try to fix it. That would be a disaster.

Mr Bain: I know that the Prime Minister has been very much a fan of a magic money tree. The Chancellor, by refusing to change course on fiscal policy and putting everything on to monetary policy, shows that the policy of the Government is to treat the Bank of England almost as if it were a magic money tree, so I am not sure of the point that the hon. Gentleman is making.

There is very little in the Bill on competition. There is nothing that would impose a fiduciary duty on the banks in relation to their clients’ money in the same way that company directors have in relation to company funds or lawyers in relation to clients’ funds, so there are huge deficiencies. There is also the great suspicion that the Bill waters down some of the key recommendations of the Vickers report. The maximum leverage that the Chancellor is prepared to accept is way beyond the Vickers recommendation. The Chancellor appears to be prepared to allow a leverage of 33 times, whereas Vickers’ recommendation was for only 25 times. That is because instead of adopting the Vickers report on the level of equity capital at 4% of assets, the Chancellor is going for the Basel III recommendations.

As I said, the IPPR, in a report published in December, examined the culture of greed and how the remuneration system got out of control in the banking system. For example, the top 0.5%, or even the top 0.1%, enormously enriched themselves because of the practices in the industry. That is one reason why it is regrettable that the Bill does not contain provisions for a banking code of conduct or to put ordinary employees of the banks on remuneration committees to ensure that there are annual binding shareholder votes on executive pay. Neither does it propose properly to enforce the legislation passed by the last Government to reveal how many people in the banking system earn more than £1 million a year. There are great areas where the Bill is enormously disappointing.

In terms of the overall reforms, we have three major issues of contention with the Bill as framed. First, too much of the detail of the Government’s policy is to be dealt with by delegated or secondary legislation and is not present in the Bill. Secondly, the Government are prepared to allow too much flexibility within the ring fence, and do not give consumers and taxpayers the assurances they deserve that the principle of too big to fail will not still exist within a regulatory system. Thirdly,

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the culture of the banking system is not changed enough by the Bill. There are insufficient steps to ensure the proper degree of lending to households and SMEs that is required.

To take that final point first, the figures we have seen on the national loan guarantee system, Project Merlin and funding for lending have one thing in common: the Government are not matching up to their promise and the banking system is inadequate to meet the needs of households and businesses. After a net growth in lending of just £0.9 billion in the third quarter of last year, net lending through funding for lending participating banks contracted by £2.4 billion in the fourth quarter of last year. Whereas Lloyds was drawing £3 billion through funding for lending, lending by Lloyds shrank by the same amount in the final quarter of the year. Whereas RBS has drawn £750 million, it decreased its lending by £1.7 billion in the same quarter. It is clear that funding for lending, as it has been conceived and is operating, is simply not providing the lending to small and medium-sized businesses. There is a missed opportunity in the Bill to change course and ensure that the system provides the support to businesses that is necessary if we are to have the growth that is the only means of cutting the deficit.

We also see from the bank data published last week insufficient detail on the breakdown of lending to households and businesses. However, we know that business investment fell by 1.2% in the last quarter of 2012, and it is clear that confidence in the economy is stubbornly low. There are still high levels of corporate surpluses, but the banking system is failing to deliver money to those businesses to start increasing orders, to deal with our low productivity and to restore confidence where it is most needed now.

It is also clear that there are unfortunately no provisions to establish immediately a British investment bank that would break the logjam of getting money out of corporate surpluses and flowing into the real economy and promoting orders and demand. Why have the Government persisted with this argument, even in the light of the proposal in the second report from the parliamentary commission for a secondary reserve power to ensure that where there are examples, or even the possibility, of the primary reserve power being circumvented by the banks, there is a reserve back-up power to break up the entire system if that is necessary in the national interests and to prevent financial collapse?

The commission’s report argued that the banking industry could indeed dilute the impact of the ring fence, and that not just the primary but the secondary reserve power was necessary in order to ensure that that did not occur and that we had proper enforcement of the ring fence. The Bill also introduces a requirement for directors of ring-fenced entities to be approved by the regulator, with such persons being subject to disciplinary action by the regulator if they have been involved in any contravention of the ring-fencing rules. It is clear that those powers should also be increased.

The problem with the Bill is that the devil is in the detail, but a huge amount of the detail is not apparent. One reason why the Chancellor said that he could not accept the secondary reserve power is that he claimed it would be anti-democratic. He said that it would not be present on the face of the Bill and it would not be fair to introduce that by delegated legislation. The question remains for the Minister: if that is the objection, why

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not put more of the detail into the Bill? Why not ensure that we can then have that secondary reserve power, which the hon. Member for Chichester (Mr Tyrie) and the other members of the parliamentary commission deemed to be absolutely necessary to have confidence in our banking system? Then we would be able to move on in a spirit of consensus, instead of, with regret, having to point out the Bill’s great deficiencies.

The other shortcoming of the Bill is the inconsistent treatment of derivatives. Those were described by the US investment guru, if we can call him that, Warren Buffett as financial weapons of mass destruction, but sadly the Government have yielded to some of the more regressive parts of the financial lobby and will permit banks to locate simple derivative products—whatever simple means—within their retail banking operations. They should look at that again.

The Bill is weak and does not learn the real lessons from the financial crisis. It does not learn the lesson that we have a very small number of very large banks, whereas other countries, such as Germany, France, Canada and United States, have a more diverse range of successful financial institutions, including co-operatives, credit unions and Government savings banks. There is little in the Bill that would help to expand the thriving credit union movement. I recently visited credit unions in my constituency and others in Glasgow city centre that are providing mortgages and expanding the range of financial services in a responsible way given the scale of financial exclusion that many of our constituents face. Having different types of banks in an economy introduces different incentives and gives the public real choice. The point is not to have more banks competing on the same business model of short-term speculative profit, but to have competition across different business models with diversity of form and diversity of function.

Unfortunately, the Government refuse to listen to those points and have taken insufficient steps to make the reforms that our country needs. I hope that in Committee they will listen to the arguments again, because our constituents, businesses and the people who save and invest in our financial system deserve no less.

8.9 pm

John Thurso (Caithness, Sutherland and Easter Ross) (LD): I begin by apologising to the Chair and to Members on the Front Bench; due to the vagaries of snow at Aberdeen and the fact that the plane I was on was not de-iced on time, I missed my connection and therefore arrived to hear only the latter part of the Minister’s speech. However, judging by the tone of the debate, I think that I have a fairly good idea of what he must have said.

The second point I would like to make at the outset relates to the staff of the Parliamentary Commission on Banking Standards. My hon. Friend the Member for Wyre Forest (Mark Garnier) made the good point that the Chair of the commission, my hon. Friend the Member for Chichester (Mr Tyrie), has done a sterling job, but we have also been extraordinary lucky in having staff of such high quality. The preface to our report lists the staff and shows the amount of resource that has been available to us. The staff who have been available to the Commission are of an extraordinarily high quality.

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We have therefore been able to produce work of an extraordinarily high quality. I say that at the beginning because, whatever my poor remarks, I very much hope that those on the Front Benches will take note of the work that has been done to date.

I think that the next banking crash will happen some time between 2078 and 2088, with a couple of small wobbles between now and then. If one looks back to the dawn of banking, when an Italian moneylender first sought to made a buck or two, one sees that crashes have happened ever since. One of the best pieces of work I have read recently was a commission staff note setting out exactly how often crashes have taken place and the fact that they are pretty much identical. They all start with over-exuberance and an asset bubble, which is followed by a collapse, and on each occasion, going back several centuries, the Bank of England has intervened and the country has had to rescue the financial system.

The Bill sets out not to prevent those sorts of crashes from happening in future, but to try to make them survivable, in particular by making banks resolvable. If we are to have risk and reward, there will be problems in future. The Bill, and the recommendations of the parliamentary commission in relation to it, set out to try to make those situations less systemic and less of a risk to the country and the taxpayer. At this stage, the Bill is necessarily rather more about structure than it is about some of the other points that have been raised. I welcome the Bill and want to comment on one or two of the things that are not in it and to urge the Government to listen to the points that the parliamentary commission has set out in our report. When I have done that, time permitting, I would like to look at some of the wider points.

On the question of process, it is a matter of regret that the Bill is unlikely to have sufficient time in Committee to allow the House to consider all the issues. Once again, the unreformed other place will have the duty of sorting that out. I am particularly concerned about the fact that, should the important areas of standards, culture, competition and remuneration require any action in legislation—we have yet to deliberate on whether they might—the Bill will almost certainly have passed through this House by the time the parliamentary commission completes its final work.

Let me turn to the points that I wish to make. First, on the question of leverage, the key is risk-weighting assets. Much of the academic work has shown that, broadly, the banks that had better leverage ratios were the ones that survived. It is a very simple fact. The risk weighting of assets does not actually assist terribly much in that process. Andy Haldane made that point remarkably forcefully in evidence to both the Treasury Committee and the parliamentary commission. Therefore, the simple test of the leverage ratio is extremely important. Vickers came up with 4% and the Government have gone for 3%. I am convinced that 3% is not enough, but perhaps 4% is too much. Certainly, as the report we have published makes clear, we should be looking at that. There is a problem for Nationwide and for building societies, but we really cannot let that tail wag the dog when it comes to sorting out the banks’ part of it.

Secondly, there is the question of industry-wide separation, which a number of Members have referred to. I want to be clear about what we are setting out to do

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and what we have recommended. The electrification of the ring fence is by means of allowing the regulator a power to separate an institution. The institution is observed by the regulator to be burrowing, tunnelling, climbing over, powering through—however it is done and whether it is a tiger, fox, wolf or whatever—and the regulator then makes a decision for that one institution, saying, “You’ve tried your luck too far. That’s it: your institution is separate.”

The wider power seeks to address the fact that we are not going to have another crack at this for a good few years and that in all probability, in five or six years’ time, things will be recovering and people might say, “Well, the punch bowl is not there yet so we don’t have to pull it away. Let’s all just leave it be”. We are saying that the Bill should permit secondary legislation if necessary. There should be a review—I cannot remember whether we agreed that it should be every three years or every five years—at which time the Financial Stability Committee could recommend, were there an attempt to undermine the system, that the Government bring in secondary legislation to effect a total separation. That is an immense number of barriers between the placing of the possibility in a Bill and the actuality of it happening. I really hope that the Government will accept the argument that allowing for such a power in the Bill would stand as a potential encouragement to the banking system not to seek to undermine the ring fence.

Ever since I started to study this in the last Parliament, when I served on the Treasury Committee with the now Lord McFall, I have been a Glass–Steagaller. I am in favour of full separation. However, I accept the Vickers compromise, because it is where we have got to. I accept it on the assurance that the ring fence is properly electrified and that there is the fall-back power.

My third point relates to the sibling or parent governance structure. The parliamentary commission’s members broke up into panels, and we have now all reported back. I had the honour of chairing a panel on corporate governance. The evidence I saw was not reassuring. If there is a parental relationship, the temptation of the CEO to tell the ring-fenced bank what it should do will, over time, become overwhelming. Therefore, an equal governance structure, which gives proper independence required within the corporate governance of the ring fence, is absolutely essential.

The last point relates to derivatives. When someone defines a simple derivative, will they let me know what it is? I know what a simple product is. When I want to fix my risk by having a fixed-rate loan, I know that there is a derivative product that I am sold. I understand that and have no problem with that product. The problem is this: why on earth does that have to be originated in a ring-fenced bank? Why on earth can it not be sold on an agency basis? It will cost me a little bit more, but I will probably get advice on which is the best one in the marketplace. We have agreed with the Government that simple derivatives should be permitted but, as our report shows, it was pretty well surrounded by caveats.

My final point is that we need to answer the question what are banks for, because it is at the heart of the whole issue of separation. Over the past half century or so we have pushed together various businesses, some of which were never banking and never will be. The problem now is that we talk about bankers as a collective when we are really talking about bankers, financiers, traders,

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stockbrokers, and all sorts of other people. This makes it difficult when we come to consider regulation of the profession. Pure banking, if I can put it like that, is a profession, can be regulated as a profession, and can have professional standards expected of it, but many other areas should be regulated in different ways; traders should be licensed, and so on. I am sure that we will come on to consider that issue.

My right hon. Friend, if I may call him that, the Member for Wolverhampton South East (Mr McFadden), chaired a panel on small and medium-sized enterprises and I chaired one on Scotland. One of the things that came out of that is that banks have completely failed industry, individuals and commerce. My worry is that this process will be about the political bubble talking to the financial bubble—the Westminster village talking to the City village. At the end of all this, we need a banking system that serves commerce and industry. If that means that we have to start by getting more competition through breaking up RBS or creating a “good bank, bad bank”, then so be it; there is a lot that we need to look at. However, what we must do is ensure the availability of reasonable credit to our constituents and provide a system that is resolvable, so that at least for a couple of generations we can go without a crash.

Several hon. Members rose

Mr Deputy Speaker (Mr Nigel Evans): Order. I am lifting the time limit for the remainder of this debate. I call Mr John McDonnell.

8.21 pm

John McDonnell (Hayes and Harlington) (Lab): Thank you, Mr Deputy Speaker. Does that mean that I have an hour and a half?

Mr Deputy Speaker (Mr Nigel Evans): You should be so lucky.

John McDonnell: I most probably will not even take 10 minutes.

I am very pleased that the plane of the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso) did come in, because he always makes complex issues simple and entertaining. There is a consensus in the House around regulation as the approach to take towards resolving the banking crisis and ensuring that, if we do not prevent a future crisis, we at least stave it off for, as the hon. Gentleman suggested, possibly another 70 years. The degree of positioning is around Glass-Steagall-type full separation, a ring fence, and then, as he said, the novelty of an electrified ring fence. There must be different power levels of electricity on this ring fence, as well.

I stand outside that debate, because I do not think that regulation will work. I was the first Member to raise the issue of Northern Rock in this House. At that time, I completely underestimated what Northern Rock was up to. I thought that it was all about an offshore tax scam that was part of its link with the organisation that it called Granite; I had no idea of the scale of the problem that would be unravelled. I can remember the then Chief Secretary to the Treasury, I think, leaving the Chamber after I had talked about Northern Rock, to obtain a briefing about what I was talking about. I realised that what I was talking about was a crisis that

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was being created in the City by greed, primarily, and by speculation and casino banking. I remember being at the Labour party conference in the 1980s, around the time of big bang, and organising the launch of a book called “Big bang: the launch of a casino economy”, authored by the then Member for Hackney and my hon. Friend the Member for Bolsover (Mr Skinner), which predicted some of the outrageous potential that there was for speculation as a result of big bang.

When I raised Northern Rock, I completely underestimated the levels of casino banking and the corruption that was taking place. In the previous debate a few weeks ago, I described the City as a “cesspool of corruption”, which it was. However, what was also revealed was the absolute incompetence. It was like “The Wizard of Oz”—when the curtain was pulled back, there was not a wizard but someone scrambling with various levers. We discovered then that the hierarchy of British banking did not even understand the instruments with which they were working because they were so complex. Then it all started to unravel, and we discovered scales of greed, incompetence and corruption that none of us expected.

At that time, we were assured that the regulatory system was not at fault, but we soon discovered how inoperable it was. The result, as we all know, is that the then Government intervened to borrow and used taxpayers’ money to bail out the system. At its peak, taxpayers’ exposure to the bank collapse was on the scale of £1.2 trillion. I understand that so far we have retrieved only £14 billion of that taxpayers’ money. The second wave was the austerity programme introduced to pay for the Government intervention to save the banking system. Mervyn King estimated the cost of that to be £1 trillion. Anthony Haldane, who is probably more accurate in his assessment, estimates that we have lost the equivalent of between one and five years’ GDP. Those absolutely staggering sums are the result of a crisis brought about by incompetence and greed. The majority of people are 7% poorer than in 2007, and their living standards have fallen, according to the latest estimate, by 13.2% since 2008. The median household income in 2015-16 will be the equivalent of that in 2002-03. These are the implications of what this wealth of greed brought about: mass unemployment, welfare benefit cuts, food banks, and parents missing meals so that children can eat. It is absolutely staggering.

I find it extremely difficult to come to terms with an issue that was raised by my right hon. Friend the Member for Holborn and St Pancras (Frank Dobson). Since the crisis occurred—since I first stood up in this House and mentioned Northern Rock—and we went on to the nationalisation of banks, and then to quantitative easing on a scale that we had never seen before or could even comprehend, the scandalous practices have not gone away: they have continued. As my right hon. Friend said, the bonuses have continued, fraud has continued, LIBOR interest rate fixing has been investigated, and we have seen tax evasion and money laundering. This is happening even when the bankers are in full public sight. At a time when the eyes of the country are on them, they are still manipulating the system.

I find it astounding—I have raised this in the House three times, and 10 days ago I received a letter from the Minister about it—that when quantitative easing was

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introduced, we discovered through press reports that bankers even then sought to profiteer from it. The letter from the Minister confirmed that at one point the Bank of England had to intervene and withdraw from the market because there were suspicions of price fixing and manipulation of the market during quantitative easing.

Kelvin Hopkins: I am very interested in and admire what my hon. Friend is saying. There is a suggestion that the recent surge in share prices is simply the effect of quantitative easing and that it bears no relation to what is happening in the real economy.

John McDonnell: Exactly. I accept that point, but the relatively simple point that I am trying to make is that a group of people who have, in effect, been caught with their hands in the till are trying to use the money that has been used to bail them out to profiteer at the taxpayers’ expense. That is staggering and it says to me that regulation will not work with these institutions. Even when they are absolutely shamed, subject to public opprobrium and under the acute gaze of the public eye, they still try to profiteer.

Steve Baker: This is the point that I have been trying to make. Every time the state sets up these dreadful institutions, people are able to profiteer. If we tell people that we are creating new money out of nothing and giving it to them in exchange for Government bonds, of course they will seek to make a profit. The thing to do is to make sure that they have institutions within which they can make a profit justly.

John McDonnell: There is another route and I will come on to it. The hon. Gentleman and I agree about the problem, but there is another solution. As he has said, regulation does not work with these institutions or the motivation to profiteer. I do not think that the new regulatory system—whether it be subject to a ring fence, an electrified ring fence or leverage ratios—will work. The reality is that as long as the banks are in private hands and have profit as their motive, they will aim to get around a regulatory system. The hon. Gentleman has mentioned how they will dig under and go around the fence. Like a chicken finding its way into the coop, they will always find a way. The regulatory regime proposed by the Bill is complex and, to be frank, virtually unenforceable. I think it will be almost impossible to execute the attempt to impose a firewall, as the Good Banking Forum concluded recently.

I agree with the hon. Member for Caithness, Sutherland and Easter Ross that we need to revisit the question of what role banks should play and what people want. I think that people and society want and need banks in which they can safely deposit their money and savings and which lend responsibly and provide credit to finance investment growth across the country. That is not what this Bill will secure and it is certainly not what is happening at the moment. The larger banks have an estimated £6 trillion at their disposal, but just £200 billion —3% of the overall total—is used to fund investment in this country’s industry. I do not think that a system of honest, responsible banking or long-term investment is deep in the culture. That may well have occurred at the

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earliest stages of capitalism but, many crises of capitalism later, we should have learned the lesson that this system is not working.

I believe that the only way to secure probity and to ensure that people’s funds are safe and secure and that we can invest in our economy in the long-term to create jobs is through a publicly owned and democratically controlled banking system. Of course, we own banks at the moment—we nationalised them. After Northern Rock, I remember standing up in the House to urge the then Chancellor of the Exchequer, my right hon. Friend the Member for Edinburgh South West (Mr Darling), to nationalise the banks. The next day he said that he had nationalised three of them. I told him that I had been right and he said, “Well, you were bound to be right at least once in 30 years.” We nationalised those banks, but we have no control over them. They are not democratically accountable to Government, workers, investors or the wider community. That is why they are not investing and why people cannot secure loans.

We should take full ownership of the larger banks. We already own Northern Rock, RBS and Bradford & Bingley and a large part of Lloyds. We should take public ownership and control of the UK-based operations of Santander, Barclays and HSBC, and we should create a unitary industry. That would enable us to control investment, secure savings, stop the paying out of large bonuses and ensure that any surpluses are returned to the public by investing in the public good. That is secure and safe banking, which is what I thought was the House’s objective.

What would full nationalisation cost? An excellent piece of work for the Fire Brigades Union by Michael Roberts and Mick Brooks, which was published and launched in this House only a week ago, estimates that it would cost £55 billion at current market rates. That is 3% of GDP. We could ensure that there would be no need for any cash exchanges and could simply swap shares for bonds, thereby saving the public purse a large amount of money. The Co-operative bank and mutuals would continue to operate as alternatives, as would credit unions, because we have confidence in them as safe and secure banks. We could also—we called on the previous Government to do this—remutualise those banks that transformed themselves from mutuals into limited companies.

In that way, we could achieve the stated objectives of the Bill not through regulation, but through public ownership and control. I do not believe that regulation will work. The system has gone too far and the profit motive has overridden any sense of value or judgment in the City. Unless we take action now, we will be back in a limited number of years to deal with another banking crisis. To be frank, we have not even talked tonight about the shadow banking process, the scale of the transactions that take place within it or how we should deal with it. That is beyond all our controls at the moment.

I will finish by saying who we are taking action for. We are doing it for my constituents, some of whom are threatened with evictions or job losses or are having their welfare benefits or their services cut, all because of an economic crisis that they had nothing to do with. They did not cause it and did not contribute to it. It was caused deep in the financial sector of this country and across the world. My constituents deserve not reform

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of the banking sector in this country, but an absolute transformation of it, based on public ownership and democratic control.

8.35 pm

Andrea Leadsom (South Northamptonshire) (Con): I am delighted to speak almost last in this debate.

I agree with the hon. Member for Hayes and Harlington (John McDonnell) when he says that many people have suffered terribly as a result of the financial crisis, and when he speaks of the greed and the complete lack of regulation and control over banking over the past decade.

The British people are still furious about the behaviour of bankers, and they have every right to feel that way. Banks were already seen as greedy and arrogant. They have now reached the depths of humiliation in the wake of the LIBOR manipulation, PPI mis-selling and bank swaps mis-selling. Individual bankers are rightly being investigated by the police. I and all colleagues in the Chamber hope that if criminality is proven, they will go to jail and bear the same brunt of punishment as any other criminal.

Nevertheless, we must recognise the vital importance of the financial services sector to the UK economy. It is a huge employer. If all financial services are included, more than 1 million people have jobs in the sector. The vast majority of those people do an honest day’s work for a fairly modest salary and do not receive a large bonus.

We must also remember that we are talking about a globally mobile business. In the investment banking business, someone can pick up the phone in London on a Friday morning, put it down on Friday night and carry on doing the same deal on a Monday morning in Singapore. While reforming the industry to make it safer for people in this country, we must be careful to preserve it so that we can take advantage of the enormous opportunities that it provides, such as the sale of mortgages and health and life insurance policies in developing markets such as China, Brazil and South Korea that do not have developed, simple, basic banking packages. We can make profits for Britain at the same time as helping those developing economies. It is important that we remember to protect this industry at the same time as reforming it.

The Bill offers the opportunity to put right many of the wrongs of the previous Government’s approach to financial services in the UK. It will help to bring back to UK banking what used to be called the balance of fear and greed. For many years, there has been enormous greed with no fear of consequences. We have allowed a small group of vast institutions to grow by consolidations, mergers and takeovers. The culture has been one of, “Heads, I win; tails, the taxpayer loses.” That has proven to be true.

The Bill will address Labour’s failed tripartite system of regulation. It will put accountability for the supervision of the banks and for systemic risk back into the hands of the Bank of England. In 1995 when Barings went bust, before Labour had had the chance to mess up the regulatory system, I was a small cog in the wheel trying to prevent a run on the banks. I remember supporting the then Governor, Eddie George, to ring the various international banks to ensure that there was not a run on the banks on Monday morning. Why did he do that

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over that fateful weekend? It was because he knew that the buck stopped with him and that it was entirely down to him to ensure that there was not a run on the banks. How different it was under Labour’s tripartite system. When people were queuing down the streets to take their money out of Northern Rock, the Treasury was looking at the Bank of England, which was looking at the FSA, and nobody took any action. That was utterly shameful, and the Bill will ensure that it cannot happen again.

Jim McGovern (Dundee West) (Lab): The hon. Lady said that she was a small cog in the wheel and that Sir Eddie George was the big wheel. Does she think that that was working at that time?

Andrea Leadsom: I always think that the proof of the pudding is in the eating, and the fact is that Barings was culpable for a potential massive run on the banks, because of rogue trading. It did not happen, and why? It was because one individual took responsibility, surrounded himself with people who could prevent it and ensured that it did not happen. We do not need to look any further to see that it was working.

There is one area in which the Bill is a lost opportunity. It offers us the chance to address the big elephant in the room, which is the lack of competition in the banking sector. We have the chance to go well above and beyond what John Vickers proposed. Retail banking in this country should be truly competitive. As we all know, one of the biggest problems in our economy right now is the lack of finance for small and medium-sized enterprises, which are the lifeblood of our economy.

Steve Baker: My hon. Friend is absolutely right, of course, but the other problem is the lack of return for savers. Is that not the other of the current system’s twin failings—that it is failing to intermediate between the two groups?

Andrea Leadsom: I agree completely, and my hon. Friend tempts me down the route of blaming quantitative easing for the extraordinarily diverse results in the savings market, particularly for pensioners and other savers whom we desperately need to spend more. The evidence is that as a result of reduced annuities, their propensity to save has increased. We would like people to spend more in the economy, but they are not doing so.

The best way to shake the banks out of their current complacency is to allow new entrants to get into the market, bringing with them the high standards of service that customers believe they should be able to take for granted, including IT that works. To go back to Adam Smith in “The Wealth of Nations”, a truly competitive environment requires that there is free entry and exit for market players. That is not the situation in banking in this country right now. New entrants have experienced massive barriers to entry not just from competitor banks but from the regulators. Likewise, failure has not been possible, as we have seen at eye-watering cost to the taxpayer. Rather, the trend has been towards consolidation and mergers, with a small number of very large banks dominating. In 2000, there were 41 major British banking groups and subsidiaries, whereas in 2010

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there were just 22. Four banks have an almost 80% market share of the personal current account and SME lending market, so there is evidently a need for genuinely comprehensive action to increase competition in Britain.

One significant step in the right direction would be to take the opportunity to sell off the state-owned banks, as the Governor of the Bank of England himself suggested last week at the Parliamentary Commission on Banking Standards. Selling off the taxpayer-owned banks in small parcels would instantly create potential new challenger banks, and I urge the Government to consider doing so again. The Governor regretted the fact that RBS remained in public ownership and pointed out that we had not yet solved the “too big to fail” problem. He urged the Government to do more.

As right hon. and hon. Members have heard me say a few times before, the real game changer would be introducing full bank account number portability. We take that for granted with our mobile phones—if we change our provider, we take our mobile phone number with us. Why should it be any different with our bank accounts? Earlier this evening, the Father of the House told me that one of his ex-colleagues had spent years banging away in the Chamber about the importance of mobile pensions in the private pension sector. I was unaware that it had ever not been possible for someone to take their pension with them when they changed jobs, but apparently one of the greatest revolutions in the pensions sector happened when account number portability was achieved. We know what such portability did for the mobile phone sector; surely the time has come to introduce it to the banking sector.

At a recent round table meeting with various different luminaries from the banking sector, Which?, the Bank of England and so on, all those present agreed on a show of hands that if anyone is to achieve bank account number portability, the UK should be first. Let us, as the world’s leading financial services centre, be first to innovate and not wait until someone else does it.

Switching instantly between banks would remove the huge barrier to entry that currently constrains new, innovative banks. Several benefits would accrue from that policy. First, it would cut barriers to entry for new challenger banks. Increased competition would force existing and new banks to differentiate themselves to retain customers, leading to enormous improvements in customer service and the differentiation of bank offerings. Secondly, new challenger banks would mean more banks and increased access to new and different sources of funding, and over time that would reduce the risk of banks being “too big to fail”. The US has more than 3,000 banks and when a retail bank fails there is just a ripple and hardly anyone notices. We need diversity of financial service providers, which I genuinely believe such a measure would provide.

Thirdly, industry experts argue that the impact of creating a new shared payments clearing infrastructure would mean the banks sorting out the problem of multiple legacy systems that dates back to the consolidation of the 1990s. Clearing banks currently spend billions each year on string and Sellotape solutions for creaking systems, and we have seen twice recently the problems that RBS subsidiaries had in managing payments for their customers because of poor systems and systems failure. New systems could lead to a reduction of up to 40% in bank fraud that costs the sector billions of pounds each year.

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Fourthly, multiple legacy systems within banks make it hard for them to evaluate business ideas. The banks’ poor systems make it harder for them to assess good business ideas versus good collateral, and better and new systems would enable them to make better lending decisions to SMEs. Finally, and importantly, account number portability would offer the potential for the orderly resolution of a failed bank. The potential to close down a bank and transfer its accounts overnight to a solvent bank would be a valuable tool in any future financial crisis.

To kick-start a move to account number portability, the Government would need to introduce a new payments regulator with the power and mandate to require equal and fair access to money transmission systems. Only an independent regulator of money transmissions would get the job done, and using an existing regulator or the Office of Fair Trading is unlikely to be effective. I therefore welcome the Minister’s announcement of a consultation on establishing a new, independent payments regulator.

I conclude by saying that seven-day switching, as proposed by John Vickers, is not the same or even similar to full bank account number portability. It is a costly, overly-manual way of way of improving the customer experience, and does not solve the problem for small businesses, many of which—some 80%—have felt unable to change bank account provider in the past three years. Banks have SMEs tied up and want them to have personal overdrafts and bank accounts, business accounts and fully funded bank loans, whether or not they draw them down. It is extremely complicated for an SME to move banks in the current environment, and trying to change bank account number is part of that problem, as well as the lack of other banks that are willing to lend.

The first problem with seven-day switching is that it will not change the future for SMEs. Secondly, it does not address the administrative burden for SMEs. If we find that seven-day switching dramatically increases the number of people who switch bank accounts, that will simply increase the burden on all of our milkmen, dry cleaners, Tesco or whoever it might be. We will all have to change our bank account numbers with them, and they will have to change their systems. For big businesses that might not be a problem, but it is certainly a problem for small businesses. Which? has provided a wealth of evidence showing that SMEs are concerned about the impact of seven-day account switching on their administrative burden. I urge my hon. Friend the Member for Chichester (Mr Tyrie), in his Parliamentary Commission on Banking Standards, to put forward proposals on bank account number portability when he produces the final report later next month.

Now is not the time for timidity in reforming our banking sector, and it is not the time for false economies. We have to focus on enabling new entrants into the market, taking steps that are good for the consumer and for small businesses, and beginning the long process of restoring the reputation of our banking sector.

8.50 pm

Stephen Barclay (North East Cambridgeshire) (Con): It is always a pleasure to follow my hon. Friend the Member for South Northamptonshire (Andrea Leadsom), and, Mr Deputy Speaker, to be the last speaker to catch your eye before the wind-ups.

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The Father of the House spoke about one of his speeches in 1984, so I took the liberty of having a look. If the House will indulge me, I will quote from it:

“There has been a great deal of talk about capital. Of course that is important, but vastly more important than that is expertise, integrity and judgment.”—[Official Report, 16 July 1984; Vol. 64, c. 68.]

Indeed, there was much expertise, integrity and judgment in my right hon. Friend’s remarks, and in essence I want to focus my comments on them. The Bill addresses structure and it is right to learn the lessons. Of course there was too much leverage in the system. No one would think that the level of liquidity available to the banks at a time of crisis was adequate, and there has been much work by regulators and central bankers since the 2008 crisis to address that. What there has been rather less of, however, is a willingness to tackle culture.

While I commend the Government for the Bill’s focus on leverage, and on dealing with the well measured suggestions of my hon. Friend the Member for Chichester (Mr Tyrie) and his commission, we should be clear on what the Bill is not doing. It will not stop retail bank failures, such as Northern Rock and Bradford & Bingley; it will not stop investment bank failures, such as Lehman’s; and it will not stop the regulatory failures of universal banks, as we have seen with the anti-money laundering and sanctions abuses or the LIBOR abuses by some of our largest banks. The Bill does not address the shadow banking world—the £200 billion of risk that is currently carried in private equity. Most of all, the danger of today’s debate is that we do what is so often the case after a regulatory crisis: we focus on solving the problem we have just had. We are not talking about the impact on banks if we lose control of interest rates, which we all hope will not be the case. The focus is on the structural failures relating to liquidity and capital, and that has been the tenet of the debate.

Jim McGovern: Why would it be wrong to focus on our recent problem?

Stephen Barclay: Of course that is not wrong. I said that the Bill is welcome, and that it is a positive response to the commission’s report. The focus on leverage and liquidity is absolutely right, and that is why I pay tribute to the work of central bankers and regulators. I am not sure that the hon. Gentleman was listening to my remarks. The danger is that we focus on the past and do not anticipate the future. There is a need for flexibility, and for that the Bill needs to tackle culture. The paradox is that individuals in banks are motivated by big bonuses, which drive their behaviour, yet when things go wrong, we do not have their corollary, which is big fines against individuals. That might be the sort of thing to grab people’s attention when they become aware of issues.

I am glad that the hon. Member for Nottingham East (Chris Leslie) is back in his place, because he missed addressing that point in his remarks—it is a shame he would not take interventions from me. Under his Government, the Financial Services and Markets Act 2000, probably the most-debated Act for many years, created a rule book of more than 6,000 pages. He spoke about the need for more regulation and suggested that Conservative Members had failed because of the lack of regulation, yet we had 6,000 pages of it. The issue was that the regulation was not enforced.

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It is even worse than that, because the hon. Gentleman actually allowed a regulatory regime that included things such as guaranteed bonuses. Not only would somebody get a bonus if they performed well, but they got a guaranteed bonus even when the bank collapsed. When the financial crisis hit in 2008, contractually the banks were signed up to guaranteed bonuses, so they were still doling out money under the enhanced regulatory regime to which he referred—true socialism in action.

It gets worse. There was a fines system that incentivised banks to profit from the wrongdoing of other banks. When a bank was subject to a regulatory fine, the money went not to the taxpayer in the form of funding good works or to customers of the bank affected, but to the other banks in the form of lower levies to the regulator. When a bank committed a wrongdoing, therefore, other banks in the sector profited. This is the regulatory regime on which we are now being lectured.

Let me give another example on structure: the collapse of RBS. After 10 months of the brightest minds in our Treasury—I am sure they are the brightest minds—looking at this issue, they still could not rely on the books. So untrustworthy was RBS’s auditing that the permanent secretary to the Treasury had to send for a letter of direction from the Chancellor saying, “I can’t rely on the books. It’s such a mess, Chancellor, you’ll have to give me a letter of direction.” We will not take any lectures from the Opposition, therefore, about their regulatory regime or the mess in which it has left our constituents, who are the ones footing the bill.

Mr Richard Bacon (South Norfolk) (Con): It is a pleasure to listen to my hon. Friend, who, unlike many in the House—particularly in the Opposition, but also, I fear, on the Government Benches—as a former financial regulator actually knows what he is talking about, which is a dangerous thing here. In September 2007, when Northern Rock collapsed, the Treasury did not even know if it had the power to take it over, which was something of an indictment of thousands and thousands of pages of regulation. Does he agree that it might not be a coincidence that John Pierpont Morgan and Nathaniel Rothschild, the founders of two of the most successful banks in the 19th century—JP Morgan and NM Rothschild —had a considerable personal interest and stake at risk in those institutions if things went wrong?

Stephen Barclay: My hon. Friend is absolutely right, and he is right because, as I know from my time in banking, people in banks are usually aware of the problems, but there is a perverse incentive—a short-termism—that says, “If the rewards are delivered short term, but the risk is unlikely to crystallise”—

Chris Leslie: I believe that the hon. Gentleman was director of regulatory affairs at Barclays bank from 2006 right up, I think, until the general election. Will he assure the House that he was not aware of any of the LIBOR issues that took place under his watch?

Stephen Barclay: Once again the hon. Gentleman has got his facts plain wrong, because although I was—[Interruption.] We can all see that he has had a quick read, but as so often with Labour politicians he has not

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understood what he has read. I was director of regulatory affairs in the retail bank and, as anyone knows, the retail bank was not responsible for LIBOR. That was an investment banking issue.

Chris Leslie: Will the hon. Gentleman give way?

Stephen Barclay: Unlike the hon. Gentleman, who repeatedly refused to take interventions, I will happily take another.

Chris Leslie: I did take a fair few interventions. If the hon. Gentleman was the director of regulatory affairs at Barclays bank from 2006 until the general election on the retail side, was he aware of the mis-selling of payment protection insurance?

Stephen Barclay: Once again the hon. Gentleman has not listened to the answer. I was actually head of anti-money laundering and sanctions for half the period, so once again he is getting the basic facts wrong. It is interesting that he does not want to debate the issues. He does not want to debate the fact that there were guaranteed bonuses or a fines system that incentivised the wrong things. He does not want to debate the fact that, as my hon. Friend the Member for South Norfolk (Mr Bacon) correctly pointed out, we had a Treasury that was not even aware of its own powers. We also had a tripartite system in which it was unclear who was in charge. We then had Treasury officials looking at banks and their assets without being able to rely on what was under their noses. That is the legacy that Labour left us.

Chris Leslie: Will the hon. Gentleman give way?

Stephen Barclay: No. I have taken two interventions from the hon. Gentleman and he did not do well with either. I want to make progress, because I am conscious that time is moving on.

I shall return to the comments made by someone who, unlike the hon. Gentleman, speaks with professional expertise, namely the Father of the House. He was correct—as he is on so many issues, but particularly this one—to talk about the danger of focusing on structure and not rooting out conflicts of interest. That is at the heart of the point I want to make about individual accountability, linked to conflicts of interest—about the awareness, as my hon. Friend the Member for South Norfolk pointed out, of those in institutions who know where the risks are and how they are incentivised to speak up. On Thursday we will have a debate on the NHS and the fear of whistleblowers to speak out. Many of the issues in the NHS are similar to what we have seen in our banks. Let me give the House an example that makes the point highlighted by my hon. Friend. So far, the two biggest fines imposed on any individuals in banking were imposed on two Northern Rock executives. On both occasions they were less than those individuals’ bonuses the preceding year. How are people incentivised to do the right thing in our financial sector when they can see such short-term benefits from wrongdoing and very little downside risk?

I very much endorse what my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) said about empowering consumers by having portability in the system and grass-roots pressure. However, we cannot

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rely on that alone—I do not think she would suggest for a minute that we could—to address the regulatory failures or the asymmetry of information that customers face.

Jim McGovern: I became an MP in 2005, and between then and about 2009, I do not think any business people approached me. Since then, however, a lot of them have approached me to express their grievous concern about keeping their businesses going. I have to say that I am struggling to understand what the hon. Gentleman means, and I think the people in my constituency who have started small businesses as joiners, bricklayers or whatever would also struggle to understand him. Will he please make his point in lay terms?

Stephen Barclay: Yes, I can address that question head on. It is logical to have introduced measures to try to manage risk in the financial sector, but we are requiring banks to retain more and more assets at the same time as asking them to lend more. We are therefore asking them to do two conflicting things, as well as introducing a structural fix that innovative people will often be able to find ways around. For example, the shadow banking sector is not affected by this kind of proposal. If we want to address innovation, to be flexible and to move with the market, and retrospectively to impose fines for wrongdoing, we would be far more successful if we changed the culture than if we imposed rigid rules.

In many ways, I agree with the hon. Gentleman, in that we all have constituents who complain that the banks are not lending, but perhaps that is an issue for another day. There are many areas in which the banks’ behaviour is wrong, but we cannot change the culture through rules alone. We had more than 6,000 pages of rules, but that did not achieve the right culture. We can achieve it by having individual accountability, and one of the best ways of doing that is through personal fines.

I am sure that the hon. Gentleman read the Daily Mirror today, as I did; I always try to avail myself of the Daily Mirror. On the front page, there was a story about the “Fat cat in the hat”, who is a former Barclays executive, according to the report, and it must be true because it was in the Daily Mirror. The point is that it is individuals like that, where there is alleged wrongdoing, who are able to keep their bonuses and keep their profits. That does not send the right message on culture. Rules are too blunt a tool.

If we want to change the banks, the Bill is extremely welcome, but I hope that the very constructive proposals put forward by my hon. Friend the Member for Chichester will be given further consideration. There is much to support in the Bill, however.

Mark Garnier: Does my hon. Friend agree that the Chancellor’s measures stating that the fines levied on RBS should be taken from the bonus pool go some way towards addressing the point that he makes?

Stephen Barclay: Those measures are a step in the right direction, but they will also catch the legitimate people, rather than focusing on those who have done wrong. There will be no means of clawing back from wrongdoers. Let us take the example of Sir James Crosby. To what extent would he face retrospective clawback? He is long gone, and he has taken the money.

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Andrea Leadsom: Is not this exactly the issue that we have been debating over the past week, with the EU proposal to cap bonuses? That would have the unintended consequence of pushing up salaries, which are notoriously difficult to claw back. Does my hon. Friend agree it would be much better to put in place a proper compensation scheme, perhaps through statute, that was determined by the banks themselves and that ensured clawbacks and full accountability?

Stephen Barclay: My hon. Friend is absolutely right. One-size-fits-all rules often capture the good but are insufficiently robust to deter the bad. Yes, the Bill is welcome and takes constructive steps forward, but we also need to see more measures from the Treasury on individual fines.

Mr Bacon: There are some people here who are not interested in the debate, but they can go away if they want to. I am grateful to my hon. Friend for giving way; I have now caught up with those on the Labour Front Bench in terms of interventions.

I heard from 27 employees of Lloyds bank who were caught by the temporary ban on bonuses. Some of them were getting bonuses of only £2,000, so that was quite unfair. I think my hon. Friend the Member for Wycombe (Steve Baker) might have suggested that senior bankers and bank directors should be required to post personal bonds. Does my hon. Friend agree that that would go some way towards dealing with the problem?

Stephen Barclay: My hon. Friend is right. We have to introduce into the system a position in which those at the top who are getting the biggest rewards also face the biggest risks. Some colleagues have talked about criminal sanctions, but the burden of proof is such that it is often difficult for the prosecuting authorities to get sufficient evidence to make it an effective tool. I am not against that, but it is often not an effective tool in practice. We need to ask how we can get to a situation where we do not catch those on £2,000 bonuses and those who have done no wrong, and do not set in place a whole load of rules that fetter innovation or deter business, but where we do create a stick and a deterrent for those who have abused the system and know they are still on the hook for significant financial loss. Those are the people most motivated by big fines in the first place; we should have a correlation between the bonuses and the fines.

In conclusion, the Bill is constructive and welcome, but we need to hear much more from Treasury colleagues about individual accountability, not just structures.

9.10 pm

Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op): We have had a wide-ranging debate and heard some useful, thoughtful and constructive contributions. Everyone has had the opportunity to make all the points they wanted to—except, perhaps, for the Father of the House, who understandably bemoaned the fact that he had only 12 minutes. He might well be disappointed not to have been here at a later stage of the debate to give us the benefit of his wisdom, as he certainly gave us an interesting contribution.

We heard the maiden speech of the hon. Member for Eastleigh (Mike Thornton). He paid tribute to his predecessors in the traditional style, but raised a number

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of important points, not least of which was about bank lending and particularly the lending scheme for small businesses.

I would like to pick up some of the general points and themes running through the debate. My hon. Friend the Member for Nottingham East (Chris Leslie) gave a comprehensive opening speech from the Opposition Front Bench. Other Members picked up the point that he made that we cannot have any repetition of the actions that led to the taxpayer bail-out. The actions and attitudes of the bankers meant that the banking sector—or individuals in it, as many hon. Members have said—thought that it was okay to retain the profits privately when the sun shone, to use that metaphor, but to let the losses fall to the public purse when the rainstorms arrived. We simply cannot allow a repetition of such risks to taxpayers in the future. That is why the banks must be reformed here in the UK, and further reformed in the EU and across the world.

As my hon. Friend the Member for Nottingham East outlined—it was echoed by my right hon. Friend the Member for Wolverhampton South East (Mr McFadden) and by my hon. Friend the Member for Wirral South (Alison McGovern)—our financial sector is larger than most. The greatest global financial centre is in the City of London, and there are important centres in Edinburgh and across the UK, so we have to take any additional steps required to guard against any risk of future collapse.

My hon. Friend the Member for Nottingham East also spoke eloquently about the passage of the Financial Services Act 2012, which sought to address some regulatory shortcomings. Many hon. Members will have heard him during the course of the Public Bill Committee speaking eloquently—and, I have to say, frequently—about many of the issues that we are looking to this Bill to address. He highlighted a number of them, including concerns about LIBOR.

I hope that the hon. Member for North East Cambridgeshire (Stephen Barclay) will take the point made by my hon. Friend the Member for Nottingham East. The hon. Gentleman talked a lot about regulatory shortcomings, but we need to remember how members of the public and ordinary people in the street will view this issue. People in the banks were culpable; they were individuals who somehow thought it was all right to take those risks and—[Interruption.] I hear the hon. Gentleman say, from a sedentary position, that it was our system. At the end of the day we can have systems, we can have regulatory reform, we can have all those rules in place, but if the culture and the attitude of the people involved do not change, that will simply lead to more problems in the future. Members on both sides of the House have recognised that today. I am surprised that the hon. Gentleman, who, I understand, previously had a career in the banking industry and, indeed, in regulation, does not seem to accept that individuals as well as systemic failures bear some responsibility.

Stephen Barclay rose—

Cathy Jamieson: I am happy to be corrected if I have misunderstood the hon. Gentleman.

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Stephen Barclay: The hon. Lady seems to be misrepresenting the entirety of my speech. The whole speech was about the need for individual accountability. I said that under the system established by the hon. Lady’s party, there was no such accountability. That is why Sir Fred Goodwin walked away with his huge bonus untouched. Under that system, there were no real fines and no individual accountability. That is the essence of it.

Cathy Jamieson: I understood the hon. Gentleman to be blaming the regulators rather than the individuals who were involved in the wrongdoing. Let me repeat that, notwithstanding the amount of regulation that is introduced, if there are people who are intent on wrongdoing, we need to address the culture and the expectations in banking. I think that members of the public expect us to do that.

A number of important points were made at the outset of the debate about the timing of the Committee stage. My hon. Friend the Member for Nottingham East, and a number of those who intervened subsequently, expressed concern about the fact that the Bill provides such a slim framework for further secondary legislation, largely by Treasury order. My hon. Friend the Member for Bassetlaw (John Mann) described it as an “Is this it?” sort of Bill, and my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) called it a mini-Bill.

The Minister seemed to suggest that we would have adequate opportunities not only to scrutinise the Bill itself, but to scrutinise and respond to whatever other measures or recommendations were made by the parliamentary commission at a later stage. I think that how, when, and where that scrutiny will take place remains rather uncertain. The hon. Member for Chichester (Mr Tyrie), the chair of the commission and of the Treasury Committee, asked for two days to be provided on Report, but it seems that Ministers did not consider that appropriate, or did not wish to do so. That is serious, because the Bill is very thin as it stands, and a great deal of work will be needed in connection with the secondary legislation. We ought to have every opportunity to scrutinise not just the good work that has already been done by the commission, but what it will do in future.

The commission report has helpfully provided us with a series of amendments and explanations of why they are important. It has also provided us with information on why the members of the commission feel that certain amendments should be proceeded with even if the Government do not agree with them. I think that we should have an opportunity to look at those amendments properly. I think that the public would expect us, having given the responsibility to the commission to make recommendations, to pay proper attention to them, and would expect the Government to take heed of them.

It is hard for the public to believe that things have changed when they perceive that a massive bonus culture is alive and kicking, and that has been reflected in the debate. A number of Members pointed out that debates of this kind may appear to be technical, and concerned very much with the rules and regulations. People watching may wonder how it affects their everyday lives. A number of hon. Members made the point that we have to ensure that we use the opportunity of legislation to rebuild consumer confidence, but we also have to talk about financial inclusion and diversifying the sector, and we

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have to change the culture of high-risk banking and see an improvement in standards, because that is what people expect legislation and the change to deliver. We also want action to support growth and to create a banking system that serves the needs of our economy, a point well made by hon. Members on both sides of the House.

Paul Farrelly (Newcastle-under-Lyme) (Lab): I, too, used to work for Barclays in a past life. Does my hon. Friend agree that it would not do justice to the reputation and professionalism of this House, and to the many months of work by the Parliamentary Commission on Banking Standards and the Select Committee, if this Bill were not given the most time possible for scrutiny, because it is so important for this country? Does she also agree that one thing we should be very wary of is the watering down of recommendations that have been made by experienced people on commissions, in much the same way as experienced people have looked at the press?

Cathy Jamieson: My hon. Friend makes very good points. There would be real concerns if the Committee stage of the Bill was seen as a rubber-stamping process and the Bill was not scrutinised properly. The Economic Secretary to the Treasury likes to think of himself as a listening Minister—he says that often—so I hope he is listening today to the real concerns expressed by hon. Members. [Interruption.] He does not seem to be listening at the moment, but perhaps someone will give him a nudge and tell him what points I am making on behalf of other hon. Members about the Committee timetable.

I wish to make a number of points about the particular issues that hon. Members have raised. On leverage, I was reminded very much about our discussions on the pronunciation of “schedule” in a previous financial services debate. Obviously, it will be important for us to have the opportunity to look at the issue of leverage properly. I heard the Financial Secretary to the Treasury talk about the dilemma of trying to ensure that he not only does the right thing for the taxpayers, but listens to the industry. It is very important that the leverage ratio powers need to be clearly taken in the Bill and, as was said during the opening speeches, phased in ahead of the European Union plans for the end of the decade.

The Parliamentary Commission on Banking Standards highlighted that issue, particularly in respect of building societies and the concern about the 3% ratio. Indeed, my hon. Friend the Member for Bassetlaw raised particular issues about small building societies, with others raising the more general issue of the building societies and how the matter could be dealt with. I would hope that proper scrutiny of the Bill would give us the opportunity to overcome any negative impact or any problems that would arise for building societies, which clearly have different equity structures. I would argue, as did my hon. Friend the Member for Nottingham East, that that is not a reason for not putting safeguards in place. I wonder whether the Government have looked at the matter specifically or will do so. Could they give us some further information, perhaps in the Economic Secretary’s closing speech?

Another issue raised by a number of hon. Members was the derivatives inside the ring fence. A number of references have been made to the Vickers report and the

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fact that derivatives trading should not be allowed—that was of course the position. However, the parliamentary commission recognised that there was a case for some simple derivative products. A lot of hon. Members have sought a definition of a “simple derivative product”. Again, we need clearer protections to prevent abuses within the ring-fenced retail banks where derivatives are being sold. Again, I expect us to examine that more fully in Committee. I hope that we will be able to get assurances from the Economic Secretary about the Government’s intentions, as this is one area where they depart significantly from the original recommendation of the Vickers report.

I mentioned that the Economic Secretary likes to think of himself as a listening Minister, and we heard that again from the Financial Secretary when he opened the debate. I have heard that comment on a number of occasions, as I have been on a number of Committees and in Bill debates with the Economic Secretary. Although he has certainly appeared to listen, I am not sure that that has translated very often, if at all, into the acceptance of Opposition amendments or to any change in Government policy. I hope that on this occasion, even if he does not accept amendments tabled by my hon. Friend the Member for Nottingham East and me, he might at least be persuaded to accept the amendments proposed by the Parliamentary Commission on Banking Standards, which are very important.

I also want to pick up on a number of areas where the Bill makes no comment or does not do enough, as discussed by a number of Members. The hon. Member for Wycombe (Steve Baker) mentioned “Bank of Dave” and the Bill does not address the issue of challengers or new entrants. There is nothing in the Bill on a universal obligation for banks on basic bank account services, which is very important. We take it for granted that we have a bank account, but it is not quite so simple for many people on low incomes.

Questions were asked about switching and bank account portability. There is nothing in the Bill on mutuality and I do not see anything about a fiduciary duty of care, which was mentioned by my hon. Friend the Member for Glasgow North East (Mr Bain).

My hon. Friend the Member for Wirral South (Alison McGovern) talked eloquently about how in such debates everyone on the inside speaks in code, making it difficult for those who are external to break through and understand how important such discussions are for them. She put that into perspective very well when she talked about some of the issues that matter to ordinary people. The theme was picked up by my hon. Friend the Member for Hayes and Harlington (John McDonnell), who rose to the challenge of the dropping of the 12-minute limit on speeches and gave us a clear account of some of the challenges for his constituents in the current economic circumstances.

Of course, it is important that we have a banking system that enhances our economic prospects. We want to see support for enterprise, we want to see growth and we want to see the supply of lending and credit to the economy. A number of Members mentioned that, particularly in relation to small businesses. I hope action will be taken in the Budget, but if it is not, I hope that we will at least see an improvement made through this Bill to the funding for lending scheme so that we give priority to lending to small and medium-sized enterprises.

11 Mar 2013 : Column 119

We called for that last summer when the scheme began, but it has not been as successful as the Government might have liked.

We heard a number of interesting suggestions from my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) and my hon. Friend the Member for Glasgow North East about the idea of a national investment bank as well as about how regional banking could be organised along the lines of the German model or in other ways to support SMEs. I hope that we can consider those issues as the Bill makes progress.

We heard a couple of comments about whether the Bill would become known as the Clark-Javid Act. It has certainly seemed that it might end up being known as the Chancellor’s disappearing Act, given that he did not come to the Chamber and does not seem to have prioritised the debate today. When we discussed timetabling and the Committee, the shadow Chancellor asked the Financial Secretary whether he would take the opportunity to go out to track down the Chancellor and ask whether he would be prepared to amend the timetable to allow proper scrutiny of the Bill.

In conclusion, we will not oppose the Bill’s Second Reading today because reforms are clearly needed, but there are many important policy changes that are conspicuous by their absence from the Bill, and those must be addressed as we proceed.

9.30 pm

The Economic Secretary to the Treasury (Sajid Javid): This has been a thoughtful and considered debate, led by my hon. Friend the Member for Chichester (Mr Tyrie) and his colleagues on the Parliamentary Commission on Banking Standards. I take this opportunity to thank my hon. Friend for his leadership of the parliamentary commission and to thank all the Members of the House and in the other place who have made contributions to that commission.

I congratulate the hon. Member for Eastleigh (Mike Thornton) on an excellent maiden speech, and I welcome him to the House. I, too, spent quite a bit of time in Eastleigh over the past few weeks. I do not think I helped him get to the House, but now that he is here I congratulate him and wish him the very best. From what I heard today, I think he will make a fantastic contribution. Thank you.

We heard a number of pertinent and considered contributions from both sides of the Chamber, and I am pleased to see widespread support throughout the House for the measures that the Government have put forward in the Bill. The support from the Opposition Benches for so many measures is an admission, at least from some Opposition Members, that they got it wrong during their time in office, and that, as my right hon. Friend the Chancellor has said, when the fire alarm was ringing, nobody was listening. That was a point well made by my hon. Friends the Members for Carlisle (John Stevenson) and for North East Cambridgeshire (Stephen Barclay).

Nearly six years ago, we experienced the first run on a high street bank in over 100 years. Five years ago, the previous Government were forced to bail out both RBS and Lloyds, as well as to provide billions in support to

11 Mar 2013 : Column 120

the financial system. It was the worst financial crisis in a generation. It happened on their watch and it left this Government with a huge mess to clear up and with the task of restoring trust in the banking system and ensuring that taxpayers are unlikely ever again to have to step in to bail out banks. That is exactly what the Bill is designed to achieve. Ring-fencing will ensure that core services continue to be provided if a bank gets into trouble, and it will ensure that it is those who lend to banks and benefit in the good times who take losses when there are bad times.

This is a crucial Bill for the future of banking in this country, and its seriousness has been reflected today by the Members who contributed—15 right hon. and hon. Members, and the Father of the House, my right hon. Friend the Member for Louth and Horncastle (Sir Peter Tapsell), who made a superb contribution. I will attempt to respond to as many of the issues they raised as possible.

As my right hon. Friend the Chancellor has stated before, we have built a strong consensus around ring-fencing as the right structural reform, and others are following our lead. The proposals of Governor Liikanen and the high-level expert group draw heavily on this Government’s proposals and are entirely compatible with the Bill put forward by this Government. A number of Members, including my hon. Friends the Members for Chichester and for Caithness, Sutherland and Easter Ross (John Thurso), and the right hon. Members for Wolverhampton South East (Mr McFadden) and for Oldham West and Royton (Mr Meacher), raised the issue of the “electrification” of the ring-fence, as proposed by the parliamentary commission and accepted by the Government.

It seems clear that the House is in broad agreement with this important addition to the Bill. The Government agree that a power to require an individual group to separate could be a powerful deterrent against attempts to game the ring-fence. This power would strengthen the ring-fence. The Government will therefore table an amendment while the Bill is before this House to provide for the regulator to have the power, subject to Treasury approval, to require a group to separate.

On a related issue, several hon. Members have raised the proposal of the parliamentary commission that the Bill provide for sector-wide separation to be triggered at some, as yet undetermined, point in the future. The Government do not accept that proposal. The parliamentary commission is, in effect, asking the House to legislate two parallel policies: ring-fencing and full separation. That is despite the conclusion of the ICB, which rejected full separation in favour of ring-fencing, and despite the parliamentary commission producing no evidence in favour of sector-wide separation as an alternative. Indeed, the parliamentary commission accepts that there is no compelling case at present for full separation. That is why it recommends an independent review at some point in the future to consider whether full separation should be implemented.

However, ring-fencing has already been endorsed by a thorough independent review, which undertook public consultation, extensive scrutiny and cost-benefit analysis lasting nearly three years before rejecting full separation. The Parliamentary Commission’s proposal to legislate for an alternative policy in case we change our view would, in the Government’s opinion, be bad law-making. If in the future a Government were to believe that ring-fencing was no longer appropriate, which they

11 Mar 2013 : Column 121

would be perfectly entitled to do, they should conduct a thorough analysis of the evidence, consider the arguments for and against, including perhaps by commissioning an independent review. If they concluded that a different approach was necessary, they should bring forward legislation for Parliament to consider in light of all the facts.

Several Members referred to the Volcker rule, including my hon. Friend the Member for Wyre Forest (Mark Garnier). While some may support such a measure, after 18 months of consideration, Sir John Vickers did not recommend that the ring fence be supplemented by a ban on proprietary trading. When the parliamentary commission asked him whether a Volcker rule should be introduced on top of his ring fence, he warned that the complexity of such a rule could, by distracting regulators’ focus, actually undermine the ring fence. On top of that, in Europe, Governor Liikanen and his high level expert group noted how difficult it could be to distinguish between market making and proprietary trading. They also worried about pushing proprietary trading into the shadow banking sector, instead choosing to keep it within the regulated banking sphere. This Government are minded to agree with such an appraisal, and do not therefore see the benefit of a Volcker rule on top of ring-fencing.

We have heard some interesting views on the leverage ratio. Let me be clear. The Government strongly support a robust leverage ratio and are pushing hard for full implementation of the Basel III leverage ratio in the EU via the capital requirements directive. The ICB and the parliamentary commission have both proposed that we increase the minimum leverage ratio above the 3% international standard set out in Basel III. The Government strongly support the idea of a minimum leverage ratio as a back-stop to risk-weighted capital requirements. But a higher leverage ratio would become a front-stop, the primary capital constraint on low-risk institutions, including building societies—a point made by the hon. Member for Bassetlaw (John Mann)—and one that could reduce essential lending to households. A front-stop leverage ratio would also create perverse incentives for these institutions to risk-up, because a leverage ratio does not distinguish between the safest assets, such as UK gilts, and the most risky assets. I do not think any hon. Member would like to see policies encouraging our safest banks and building societies, including those that weathered the last crisis quite well, to become more risky. So the Government are not persuaded by the arguments for a higher leverage ratio.

We have also had a number of interesting interventions on primary loss absorbing capacity requirements, not least from the Chairman of the parliamentary commission. The Government are committed to ensuring that banks have the means to absorb losses should they get into trouble, and that those losses fall on those best able to assess the risk that they are taking. The Government agree that the ICB recommendation that ring-fenced banks, and UK-headquartered globally systemically important banks, should be subject to new PLAC standards. That will be 17% of risk-weighted assets for the largest banks. That extra capacity to absorb losses will improve resilience against shocks and mean that, if a bank does fail, it can be resolved without recourse to bank bail-outs.

Some Members questioned who would decide whether banks should issue primary loss absorbing capacity against their overseas activities. The parliamentary

11 Mar 2013 : Column 122

commission recognised that the Treasury should have a role in shaping how the regulator applies primary loss absorbing requirements. That is because such decisions will be inextricably bound to the key Treasury objectives of protecting public finances and supporting long-term growth. The Government therefore believe that there is strong merit in the FSA’s suggestion that PLAC instruments and decisions should be made in the context of a firm’s resolution strategy. We will therefore make provision during the passage of the Bill to give effect to that.

Members have also mentioned bail-ins, which were discussed at some length by the right hon. Member for Wolverhampton South East. Bail-in is an important statutory tool that helps to ensure that creditors, rather than taxpayers, expect to bear the costs in the event of bank failure. It is a particularly important tool for systemically important banks, where the impact of insolvency on the wider economy is large.

To ensure that UK banks are not disadvantaged relative to international competitors, and because the task of resolving large cross-border banks is complex and requires close co-operation, it is important that the UK works with other countries to design a consistent bank bail-in tool that can work in relation to the resolution of cross-border institutions. We are therefore working closely with our European partners to develop a credible and effective bail-in tool as part of the European recovery and resolution directive. We are pleased that the Irish presidency has set out its intention to make rapid progress towards conclusion of the RRD. However, if agreement cannot be reached—we expect that it can—we will consider tabling amendments at a later stage in the Bill’s passage to allow the UK to act alone.

We heard many thoughtful interventions on competition matters. We heard from my hon. Friends the Members for Wyre Forest, for Cities of London and Westminster (Mark Field), for Wycombe (Steve Baker) and for South Northamptonshire (Andrea Leadsom). The Government are committed to making changes to encourage greater competition in the banking sector. Many of those do not require legislation to take effect, and we have already acted in a number of ways. The FCA is now tasked, through the Financial Services Act 2012, with a competition objective, as Sir John Vickers, the former head of the Office of Fair Trading, recommended.

While discussing competition, we also heard from a number of Members on what might be called alternative structures for banking. The hon. Member for Bassetlaw suggested that we move to the Chinese model, and the hon. Member for Hayes and Harlington (John McDonnell) suggested that we nationalise the entire banking sector. However well intentioned those proposals, I think that they are wholly misguided.

John Mann: It ill befits the Minister, when an hon. Member makes a point on three occasions, not to manage to listen to it. Perhaps he would care to consider the point I made: I dismissed the Chinese model and recommended the German model.

Sajid Javid: Well, let us talk about the German model. As someone who worked for a German bank for 10 years, I think I might know a little more about the German model than the hon. Gentleman does. The German model was the one that had to nationalise Commerzbank

11 Mar 2013 : Column 123

and other banks in the regional sector, and the largest bank in Germany was not without its own problems, such as the LIBOR scandal. He suggests the German model, but I do not really understand what the difference is.

John Mann: The difference between the German model and the model the Minister has at the moment is that the German model is lending to business.

Sajid Javid: I think that the hon. Gentleman needs to do some homework on the German model.

Let me turn to switching. The Vickers commission made a number of recommendations on competition, one of which was for a seven-day switching service. That will go live in September this year. It will be free to use and will come with a guarantee to protect customers against financial loss in the event of any errors occurring during the switching process. A number of Members, not least my hon. Friend the Member for South Northamptonshire, made interesting points on full account number portability. The Government have always kept an open mind in that debate, arguing that the seven-day switching service should be allowed a good run. If it does not deliver the expected consumer benefits, more radical options will of course be looked at, including full account number portability.

The structural reforms proposed in the Bill will of course aid competition. As the Bank of England’s executive director for financial stability, Anthony Haldane, said to the parliamentary commission, one of the biggest challenges we face on competition concerns is that banks are perceived as being too big to fail. The banking sector reforms made through the measures in this Bill are designed to address precisely that issue.

Andrea Leadsom: Does my hon. Friend agree, though, that the big banks will lobby extremely hard against greater competition, particularly full bank account number portability, and does he undertake to resist their lobbying attempts?

Sajid Javid: My hon. Friend makes a good point. The contents of the entire Bill show how the Government have already resisted the attempts of many in the banking lobby.

My right hon. Friend the Chancellor—this will also interest my hon. Friend—has, as she will know, announced a consultation on bringing the payment system into regulation. We will make sure that new players in the market can access the payment system in a fair and transparent way and that they serve the needs of consumers, not those of established banks. Members may want to note that we will launch this consultation soon after the Budget. I am sure that my hon. Friend will want to make representations on full account portability to the consultation.

Several hon. Members talked about RBS. The Government believe that RBS’s future is as a major UK bank with the majority of its businesses in the UK as regards personal, SME and corporate banking. United Kingdom Financial Investments Ltd continues to be responsible for managing the Government’s shareholding in RBS on a commercial and arm’s-length basis and for developing and executing a strategy for disposing of the

11 Mar 2013 : Column 124

investment in an orderly and active way. UKFI continues to look at a full range of options for disposing of the investment, and RBS should emerge as a stronger and safer bank able to maintain lending to businesses and consumers that can, in time, be returned to full private sector ownership.

The Bill before us ensures that a future Government can keep bank branches going and cash machines operating while letting investment arms fail. It ensures that taxpayers will not fork out for the mistakes of others. Put simply, it deals with exactly the issues that are of concern to most of the UK public after the recent crisis. Financial services are a vital part of our economy, as evidenced by points well made by my hon. Friend the Member for Cities of London and Westminster, and they employ over 1 million people across the country. Let us not forget that the total tax take of the financial sector, including the income tax paid by its employees, adds up to over £60 billion—money that we rely on to fund our vital public services. It is crucial that we make sure that the British public again begin to trust the industry, that banks continue to serve families and businesses, and that the sector becomes what my right hon. Friend the Chancellor has described as a

“financial industry that is strong, successful and inspires the pride of all those who work for it.”

Question put and agreed to.

Bill accordingly read a Second time.

Financial Services (Banking Reform) Bill (Programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the Financial Services (Banking Reform) Bill:


1. The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

2. Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 18 April 2013.

3. The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Consideration and Third Reading

4. Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.

5. Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

6. Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.

Other proceedings

7. Any other proceedings on the Bill (including any proceedings on consideration of Lords Amendments or on any further messages from the Lords) may be programmed.—(Greg Clark.)

The House divided:

Ayes 277, Noes 218.

Division No. 178]


9.48 pm


Adams, Nigel

Afriyie, Adam

Aldous, Peter

Amess, Mr David

Andrew, Stuart

Bacon, Mr Richard

Baker, Norman

Baker, Steve

Baldwin, Harriett

Barclay, Stephen

Barker, rh Gregory

Baron, Mr John

Barwell, Gavin

Bebb, Guto

Beith, rh Sir Alan

Bellingham, Mr Henry

Benyon, Richard

Beresford, Sir Paul

Berry, Jake

Bingham, Andrew

Birtwistle, Gordon

Blackman, Bob

Blackwood, Nicola

Blunt, Mr Crispin

Boles, Nick

Bradley, Karen

Brady, Mr Graham

Brake, rh Tom

Bray, Angie

Brazier, Mr Julian

Bridgen, Andrew

Brine, Steve

Brokenshire, James

Brooke, Annette

Browne, Mr Jeremy

Bruce, Fiona

Buckland, Mr Robert

Burley, Mr Aidan

Burns, rh Mr Simon

Burrowes, Mr David

Burstow, rh Paul

Burt, Lorely

Byles, Dan

Cable, rh Vince

Cairns, Alun

Campbell, rh Sir Menzies

Carmichael, rh Mr Alistair

Carmichael, Neil

Chishti, Rehman

Chope, Mr Christopher

Clappison, Mr James

Clark, rh Greg

Clarke, rh Mr Kenneth

Clifton-Brown, Geoffrey

Coffey, Dr Thérèse

Collins, Damian

Colvile, Oliver

Cox, Mr Geoffrey

Crockart, Mike

Crouch, Tracey

Davey, rh Mr Edward

Davies, David T. C.


Davies, Glyn

Davis, rh Mr David

de Bois, Nick

Dinenage, Caroline

Djanogly, Mr Jonathan

Dorrell, rh Mr Stephen

Doyle-Price, Jackie

Drax, Richard

Duddridge, James

Duncan, rh Mr Alan

Dunne, Mr Philip

Ellis, Michael

Ellison, Jane

Elphicke, Charlie

Eustice, George

Evans, Graham

Evans, Jonathan

Evennett, Mr David

Fabricant, Michael

Farron, Tim

Featherstone, Lynne

Field, Mark

Foster, rh Mr Don

Fox, rh Dr Liam

Francois, rh Mr Mark

Freeman, George

Fullbrook, Lorraine

Fuller, Richard

Garnier, Sir Edward

Gauke, Mr David

George, Andrew

Glen, John

Goldsmith, Zac

Goodwill, Mr Robert

Graham, Richard

Grant, Mrs Helen

Gray, Mr James

Green, rh Damian

Greening, rh Justine

Grieve, rh Mr Dominic

Gyimah, Mr Sam

Halfon, Robert

Hames, Duncan

Hammond, rh Mr Philip

Hammond, Stephen

Hancock, Matthew

Hands, Greg

Harper, Mr Mark

Harrington, Richard

Harris, Rebecca

Hart, Simon

Harvey, Sir Nick

Haselhurst, rh Sir Alan

Hayes, Mr John

Heald, Oliver

Heaton-Harris, Chris

Hemming, John

Henderson, Gordon

Hendry, Charles

Hinds, Damian

Hoban, Mr Mark

Hollingbery, George

Hollobone, Mr Philip

Holloway, Mr Adam

Hopkins, Kris

Horwood, Martin

Howarth, Sir Gerald

Howell, John

Hunt, rh Mr Jeremy

Huppert, Dr Julian

Hurd, Mr Nick

Javid, Sajid

Jenkin, Mr Bernard

Johnson, Gareth

Jones, Andrew

Jones, rh Mr David

Jones, Mr Marcus

Kawczynski, Daniel

Kennedy, rh Mr Charles

Kirby, Simon

Knight, rh Mr Greg

Laing, Mrs Eleanor

Lamb, Norman

Lancaster, Mark

Lansley, rh Mr Andrew

Latham, Pauline

Laws, rh Mr David

Leadsom, Andrea

Lee, Jessica

Leech, Mr John

Lefroy, Jeremy

Leigh, Mr Edward

Leslie, Charlotte

Letwin, rh Mr Oliver

Lewis, Dr Julian

Liddell-Grainger, Mr Ian

Lilley, rh Mr Peter

Lloyd, Stephen

Lopresti, Jack

Lord, Jonathan

Loughton, Tim

Luff, Peter

Lumley, Karen

Macleod, Mary

Maude, rh Mr Francis

Maynard, Paul

McCartney, Jason

McCartney, Karl

McPartland, Stephen

McVey, Esther

Menzies, Mark

Mercer, Patrick

Metcalfe, Stephen

Miller, rh Maria

Mills, Nigel

Milton, Anne

Mitchell, rh Mr Andrew

Morgan, Nicky

Morris, Anne Marie

Morris, James

Mosley, Stephen

Mowat, David

Mulholland, Greg

Mundell, rh David

Munt, Tessa

Murray, Sheryll

Murrison, Dr Andrew

Nokes, Caroline

Norman, Jesse

Nuttall, Mr David

O'Brien, Mr Stephen

Ollerenshaw, Eric

Opperman, Guy

Ottaway, Richard

Paice, rh Sir James

Parish, Neil

Paterson, rh Mr Owen

Pawsey, Mark

Penrose, John

Percy, Andrew

Perry, Claire

Phillips, Stephen

Pickles, rh Mr Eric

Pincher, Christopher

Poulter, Dr Daniel

Prisk, Mr Mark

Pugh, John

Reckless, Mark

Rees-Mogg, Jacob

Reevell, Simon

Reid, Mr Alan

Robathan, rh Mr Andrew

Robertson, rh Hugh

Robertson, Mr Laurence

Rogerson, Dan

Rosindell, Andrew

Rudd, Amber

Ruffley, Mr David

Sanders, Mr Adrian

Sandys, Laura

Scott, Mr Lee

Selous, Andrew

Shelbrooke, Alec

Simpson, Mr Keith

Skidmore, Chris

Smith, Miss Chloe

Smith, Henry

Smith, Julian

Smith, Sir Robert

Soubry, Anna

Spelman, rh Mrs Caroline

Spencer, Mr Mark

Stanley, rh Sir John

Stephenson, Andrew

Stevenson, John

Stewart, Iain

Stewart, Rory

Streeter, Mr Gary

Stride, Mel

Stunell, rh Andrew

Sturdy, Julian

Swales, Ian

Swayne, rh Mr Desmond

Swinson, Jo

Swire, rh Mr Hugo

Syms, Mr Robert

Tapsell, rh Sir Peter

Teather, Sarah

Thornton, Mike

Timpson, Mr Edward

Tomlinson, Justin

Truss, Elizabeth

Turner, Mr Andrew

Vara, Mr Shailesh

Vickers, Martin

Walker, Mr Robin

Wallace, Mr Ben

Walter, Mr Robert

Ward, Mr David

Watkinson, Dame Angela

Weatherley, Mike

Webb, Steve

Wharton, James

Wheeler, Heather

White, Chris

Whittaker, Craig

Whittingdale, Mr John

Wiggin, Bill

Willetts, rh Mr David

Williams, Mr Mark

Williams, Roger

Williams, Stephen

Williamson, Gavin

Wollaston, Dr Sarah

Young, rh Sir George

Tellers for the Ayes:

Mark Hunter


Joseph Johnson


Abrahams, Debbie

Ainsworth, rh Mr Bob

Alexander, Heidi

Ali, Rushanara

Allen, Mr Graham

Anderson, Mr David

Ashworth, Jonathan

Austin, Ian

Bailey, Mr Adrian

Bain, Mr William

Balls, rh Ed

Banks, Gordon

Barron, rh Mr Kevin

Bayley, Hugh

Begg, Dame Anne

Benn, rh Hilary

Benton, Mr Joe

Berger, Luciana

Betts, Mr Clive

Blackman-Woods, Roberta

Blears, rh Hazel

Blenkinsop, Tom

Blomfield, Paul

Bradshaw, rh Mr Ben

Brennan, Kevin

Brown, Lyn

Brown, rh Mr Nicholas

Brown, Mr Russell

Bryant, Chris

Buck, Ms Karen

Burden, Richard

Burnham, rh Andy

Byrne, rh Mr Liam

Campbell, Mr Alan

Caton, Martin

Champion, Sarah

Chapman, Jenny

Clark, Katy

Clarke, rh Mr Tom

Clwyd, rh Ann

Coaker, Vernon

Coffey, Ann

Cooper, Rosie

Cooper, rh Yvette

Corbyn, Jeremy

Crausby, Mr David

Creagh, Mary

Creasy, Stella

Cryer, John

Cunningham, Alex

Cunningham, Mr Jim

Cunningham, Sir Tony

Danczuk, Simon

David, Wayne

Davidson, Mr Ian

Davies, Geraint

De Piero, Gloria

Denham, rh Mr John

Dobbin, Jim

Dobson, rh Frank

Doran, Mr Frank

Doughty, Stephen

Dowd, Jim

Doyle, Gemma

Dromey, Jack

Durkan, Mark

Eagle, Ms Angela

Eagle, Maria

Edwards, Jonathan

Efford, Clive

Elliott, Julie

Ellman, Mrs Louise

Engel, Natascha

Esterson, Bill

Evans, Chris

Farrelly, Paul

Field, rh Mr Frank

Fitzpatrick, Jim

Flello, Robert

Flint, rh Caroline

Flynn, Paul

Fovargue, Yvonne

Francis, Dr Hywel

Gapes, Mike

Gilmore, Sheila

Glass, Pat

Glindon, Mrs Mary

Godsiff, Mr Roger

Goggins, rh Paul

Goodman, Helen

Green, Kate

Greenwood, Lilian

Griffith, Nia

Gwynne, Andrew

Hain, rh Mr Peter

Hamilton, Mr David

Hanson, rh Mr David

Harman, rh Ms Harriet

Harris, Mr Tom

Havard, Mr Dai

Healey, rh John

Hendrick, Mark

Hepburn, Mr Stephen

Hodgson, Mrs Sharon

Hoey, Kate

Hood, Mr Jim

Hopkins, Kelvin

Hosie, Stewart

Howarth, rh Mr George

Hunt, Tristram

Irranca-Davies, Huw

Jackson, Glenda

James, Mrs Siân C.

Jamieson, Cathy

Jarvis, Dan

Johnson, rh Alan

Johnson, Diana

Jones, Graham

Jones, Mr Kevan

Joyce, Eric

Kaufman, rh Sir Gerald

Keeley, Barbara

Kendall, Liz

Lavery, Ian

Leslie, Chris

Lewis, Mr Ivan

Llwyd, rh Mr Elfyn

Love, Mr Andrew

Lucas, Ian

Mahmood, Shabana

Mann, John

Marsden, Mr Gordon

McCabe, Steve

McCann, Mr Michael

McClymont, Gregg

McDonagh, Siobhain

McDonald, Andy

McDonnell, John

McFadden, rh Mr Pat

McGovern, Alison

McGovern, Jim

McGuire, rh Mrs Anne

McKechin, Ann

McKenzie, Mr Iain

McKinnell, Catherine

Meacher, rh Mr Michael

Meale, Sir Alan

Mearns, Ian

Miller, Andrew

Mitchell, Austin

Morden, Jessica

Morrice, Graeme


Morris, Grahame M.


Munn, Meg

Murphy, rh Mr Jim

Murphy, rh Paul

Murray, Ian

Nandy, Lisa

Nash, Pamela

O'Donnell, Fiona

Onwurah, Chi

Owen, Albert

Perkins, Toby

Phillipson, Bridget

Pound, Stephen

Powell, Lucy

Qureshi, Yasmin

Raynsford, rh Mr Nick

Reed, Mr Jamie

Reed, Steve

Reynolds, Emma

Reynolds, Jonathan

Riordan, Mrs Linda

Ritchie, Ms Margaret

Robertson, John

Robinson, Mr Geoffrey

Rotheram, Steve

Roy, Mr Frank

Roy, Lindsay

Ruane, Chris

Ruddock, rh Dame Joan

Sarwar, Anas

Sawford, Andy

Seabeck, Alison

Shannon, Jim

Sharma, Mr Virendra

Sheerman, Mr Barry

Sheridan, Jim

Shuker, Gavin

Skinner, Mr Dennis

Slaughter, Mr Andy

Smith, rh Mr Andrew

Smith, Nick

Smith, Owen

Stringer, Graham

Sutcliffe, Mr Gerry

Tami, Mark

Thornberry, Emily

Timms, rh Stephen

Trickett, Jon

Turner, Karl

Twigg, Derek

Twigg, Stephen

Vaz, Valerie

Walley, Joan

Watson, Mr Tom

Watts, Mr Dave

Whiteford, Dr Eilidh

Whitehead, Dr Alan

Williamson, Chris

Wilson, Phil

Winnick, Mr David

Winterton, rh Ms Rosie

Wishart, Pete

Woodcock, John

Woodward, rh Mr Shaun

Wright, David

Tellers for the Noes:

Nic Dakin


Susan Elan Jones

Question accordingly agreed to.