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Lord Ezra: My Lords, I join the noble Lord, Lord Mackay of Ardbrecknish, in extending congratulations to the noble Lord, Lord Clinton-Davis, on his important new ministerial appointment. I had not expected that we would hear from him at such length today. I was looking forward to his speech tomorrow and I hope to participate in that debate. What he has put to us today is of considerable importance and I am glad that we have the opportunity of commenting on it.
From these Benches, we welcome the Statement with its emphasis on long-term objectives. We welcome the greater independence of the Bank of England. That was specifically proposed in our manifesto, as the Minister is no doubt aware. I raised the issue as long ago as the middle of 1993 in a Question. I drew attention to the clear benefits which had arisen in New Zealand through the arrangements which they introduced there and which appear to be the basis for the arrangements now proposed for the Bank of England.
The Statement referred to the recommendations of the Treasury and the Civil Service Select Committee in the other place. It is precisely on the lines of those recommendations made at the end of 1993 that these
proposals have been put forward. So they have been carefully studied and there is every reason to be pleased that the proposals are now to be put into effect.The Minister referred to accountability to Parliament. I join with the noble Lord, Lord Mackay, in saying that while much is made of the Bank's accountability in its new role to the other place, I hope that there will be a full opportunity for a review of the Bank's operations in this House.
Reference was made to the restructuring of the court. Again the point was made by the noble Lord, Lord Mackay, and I hope that, in that restructuring, the regions will be fully represented, as well as the commercial and industrial interests referred to.
I move to the second part of the Statement: the prudential supervision of the banking system. I very much welcome a review of the Financial Services Act 1986. I was one of those who had to sit through the tedious stages of that Bill and I must say that I found it one of the most complex and diffuse pieces of legislation that I have ever come across. It is probably a record in recent times. I ask the Minister for an assurance that its replacement will be more user-friendly.
I agree with the basic concept of bringing together in an enlarged SIB the regulation of banking and securities and insurance services. As the Statement rightly emphasises, demarcation between those various services no longer exists. Banks have moved into securities and insurance, securities companies have moved into banking and building societies have moved into banking and other services. There are no longer any distinctions in the whole financial sector. So it is right that there should be recognition of that fact. I also happen to agree that it is right that there should be a statutory basis for it. Those are such vital issues that leaving it purely on a voluntary basis is no longer adequate.
However, I should like to ask two questions on the subject. The first concerns the sentence in the Statement that:
- "The Bank will remain responsible for the overall stability of the financial system as a whole",
- "will be responsible for prudential supervision".
There was also an emphasis on practitioner representation being maintained. At what level will that be done? Will it be at the SIB level or that of the various subordinate bodies? I presume that there will be subordinate bodies set up eventually. It will be important to know how the practitioners will come into the arrangements.
Taking those two measures together, we welcome them and look forward to the detailed legislation to put them into effect.
Lord Clinton-Davis: My Lords, at the outset let me thank both noble Lords for their comments. The noble Lord, Lord Mackay of Ardbrecknish, who is an old friend and sparring partner from transport days, was extremely nice about my appointment. He should not read too much into it so far as concerns my Treasury role. After my performance today, I doubt very much whether it will want to prolong it. Also, I note his comment about responsibility without power. Rather like that of a grandparent--which I am eight times over--it is a fallacy to believe that a grandparent has responsibility with power. It is total impotence.
The noble Lord said that we had not made the position clear in the manifesto. With the greatest respect in the world, I feel that he is mistaken; but that is understandable because I cannot believe that he read the manifesto, and least of all the business manifesto. When he acquaints himself with those worthy documents, he will find that we have not set upon this course with absolute suddenness over the past two weeks. With great respect, I feel that the noble Lord represents a party which is least well equipped to criticise us about quangos. A government who set about not simply setting up quangos but tangos--totally autonomous non-governmental organisations--ensure that they are a little out of court on that point.
The noble Lord asked a series of important questions. I am sure that he does not expect me to deal with every single one, but I shall use my best endeavours. He asked whether the new monetary policy committee would be representative of the whole of the United Kingdom. We were very careful in the course of the lead-up to the election and beyond to make sure that we were conscious of the need of the whole of the United Kingdom to be closely involved in matters such as those we have been discussing.
The whole issue of the Bank will be debated in this House, if this House so chooses, through the usual channels. I do not mind the noble Lord not having read our manifestos, but I wish that he had read the speeches of two former Chancellors of the Exchequer, the noble Lord, Lord Lawson, and Mr. Norman Lamont, who said that they wished they had embarked upon those policies. As my noble friend the Chancellor of the Exchequer said in another place not so very long ago, "I have had the courage of your convictions". That is precisely what has happened.
I am grateful to the noble Lord, Lord Ezra, who is another good friend. We worked together on a number of issues when I was in Opposition and I thank him for his co-operation. He knows that the existing system was not acceptable. It was widely opposed by experts in financial markets, by bankers, professionals and, above all, the noble Lord, over a long period of time. I find it astonishing that the Conservative Government appear to have learned nothing. This is not the time for the complacent acceptance that everything that they did was fine. I do not say that everything they did was wrong but apparently the electorate overall did not like the
message that they conveyed. That is less evident in this House, with numbers as they are, but certainly in another place it is plain. He ought to go over there and see the efficacy of what I say in that regard.The noble Lord asked whether this was a first step toward EMU. That is not the case. We put this measure forward on the basis of the merits of the argument. There are many substantial differences, on which I do not have time to enlarge. But this is not a hidden agenda for EMU. In any event, further legislation would be required on the Bank before we would qualify for membership of EMU. If the noble Lord were to examine that matter a little more carefully, he would see that that was right.
The noble Lord then chose to inhabit the land of pretending that there are huge divisions between my right honourable friends in the Cabinet. Who are they to talk? Regardless of boxes of chocolates that pass from certain people to Ministers, hardly a moment passes without their being at each other's throats. This is a matter which obviously the Cabinet resolved to introduce as a matter of urgency, and that has been done.
The noble Lord went on to refer to the second half of the Bill and asked when the Bill would be presented. The first priority is to engage in consultation. We shall undertake to do that with great care. Banking supervision is covered in the Bank of England Bill which will be introduced as soon as possible. The financial services element may not be introduced in this Session but we are starting work immediately on the drafting and will introduce it at the earliest opportunity. That will provide for the necessary time for consultation, which is an important ingredient of that reform.
I turn to points raised by the noble Lord, Lord Ezra, who generally welcomed the proposals that we shall put before the House. He asked two specific questions. He asked whether the new SIB would be dealing fundamentally with supervision. I see the noble Lord rising. If I have misinterpreted the question, I am perfectly happy to give way so that he can clarify it.
Lord Ezra: My Lords, the point I made was that the Statement mentions that the Bank will retain overall responsibility for the stability of the financial system, while the new SIB would have specific responsibility for supervising banking and the other financial services. I asked how the two would link up.
Lord Clinton-Davis: My Lords, the noble Lord referred to contact through the personnel involved in this matter, which is obviously right. There will be a clear co-relationship between the two. That has to be the case. They must work in parallel and in partnership with each other. That will be the situation.
I am not absolutely sure about the element of practitioner representation. I shall certainly write to the noble Lord in that regard. As somebody who comes from a distinguished profession--even though I was not a distinguished member of it--I feel that the noble Lord is right: careful consideration needs to be given to the matter and I am sure that that will be the case.
6.20 p.m.
Lord Callaghan of Cardiff: My Lords, perhaps I may make one observation and ask one question which I tried to convey to my noble friend, though I am not sure that it reached him.
The Chancellor of the Exchequer, Mr. Brown, said that to transfer the monetary function to the Bank of England was a bold step. He is right; it is a bold step. It is made more acceptable because the Government intend to set the targets and will appoint four additional members of the Bank monetary committee. The system has been shown to work in other countries. In this country we experienced a total failure when both issues were in the hands of the Government and we must see how it works out.
I do not withhold support from the idea. Both systems can work with the protection that the Government are giving to their own policy ends. It is a step worth trying in this country, though we must watch carefully and see what is the end result. I make just one suggestion; that is, that the four members appointed should have a longer term of office than the three years proposed.
The second point in the Statement is also a bold step and one for which I give three cheers. It is 10 years since I waited on the Bank of England in connection with a bank that I felt was drifting, though eventually it was proved to have criminal activity. I urged the governor to supervise it and take it under his wing, at any rate in so far as its British connections were concerned. He indicated that he had no real resources or facilities to do that and would be reluctant to take it over. There may have been other reasons in his mind which he did not disclose to me, but that was the reason he advanced.
The issuing of banking licences in the 1980s was far too lax. We seemed to take on anybody who wanted to come. Who will be responsible for issuing banking licences under the new regime? Will it continue to be the Bank of England or, as I hope, will that function be transferred to the new supervisory board? Because of the globalisation of financial institutions and the speed of communications, supervision is now an extremely difficult task and should be examined closely. Will the supervisory board be able to enter into discussions on an international basis with other bodies in other countries in order to see what measures of regulation can be applied? That is absolutely vital. Alternatively, will that be left to the Bank of England?
Those are matters which I am sure will be worked out. On the whole, I give two cheers for the proposed transfer of monetary facilities and three cheers for the supervisory board.
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