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1.59 p.m.

Lord Sudeley: My Lords, I have two interests to declare, both concerned with Lloyds Bank, which, in the experience of the Independent Banking Advisory Service, has caused more complaints than any other bank.

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The first case concerns the loss of our two old estates in 1893. Whatever our debt accumulated through the agricultural depression at that time, that debt was covered twice over by very large assets. Nevertheless, we were defeated in our intention of selling one estate and keeping the other when the bank filed a petition for bankruptcy against us to force the immediate payment of the debt on the nail. Nothing was left. The bank is adamant that it has no information about why it did that. It was all so unnecessary when we had such large collateral.

The second case concerns the handling by the bank, as executor and trustee, of 63 freehold reversions in my grandmother's estate. In her will, my grandmother stipulated that no reversions of properties were to be sold until the leases fell in. The bank did the opposite and sold all the properties at what they would fetch at auction without reserves, when all auctions had rings. The bank insists that it has not kept records of the reasons for the sale.

The Bill is divided into two halves: the transfer to the Bank of England of control over interest rates and the transfer from the Bank of England of its old supervisory role to the Financial Services Authority.

To deal first with interest rates, we are told that the Bank of England is setting them in line with government policy to set the target on inflation. But who creates the inflation except the banks themselves, lending more money than they have? This scenario would be relieved if, in line with the thinking of the Christian Council for Monetary Justice, the meetings of which in another place are chaired by the Member for Great Grimsby, all laws protecting money lenders--that is to say usurers, who lend without risk--were rescinded and banks were therefore obliged to put the large resources at their disposal where they are needed, at risk in industry. That has happened in Germany to some extent, and more especially Japan. The Government have a great opportunity to improve the national economy as a whole.

To revert to the domestic difficulties created by usury, there is too much debt because the more debt is created the better banks do. Why, otherwise, do banks make excessive loans without ascertaining properly whether debtors can repay, only to involve themselves in a conflict of interests in their roles as creditor and service provider, usually to the detriment of the customer?

In advising on debtor strategy, owing to their obsession with liquidity or what is called the cardinal rule in business--that liquidity or cash flow is more important than capital--the banks ignore collateral when they should not, and at advanced level the banks simply do not have enough specialist expertise to deal with debt.

The body which does have that expertise is the Bankruptcy Association. Let me pay a quick tribute to its huge successes. It found that creditors accept informal arrangements for debtors because they see that the Bankruptcy Association's fees in setting up the arrangements are minimal. The association has reached agreements with banks and other lending institutions for

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as little as five pence in the pound and it has also saved hundreds of matrimonial homes, even where there has been a second charge on the property.

I turn to the supervisory role. We know that the Bill is the first stage. The second stage is to amend the Financial Services Act 1986. The second piece of legislation will be published in draft form for consultation in the summer. Perhaps I could offer a few comments on it.

What are the problems in the light of which, as perceived by the Independent Banking Advisory Service, the supervisory role under the Financial Services Authority needs enlargement? Banks are incapable of regulating themselves. There are three areas where the Independent Banking Advisory Service has identified abuse. The first is false affidavits. The Independent Banking Advisory Service has found that many affidavits sworn by bankers are untrue. Many statements are made deliberately and untruthfully to achieve the result which the bank needs. This is compounded by banks making contemporaneous notes of untrue events and conversations, to cover their position, should the case come to court.

Secondly, there is concealment of information. Banks have total control of their own records, and if they stonewall there is nothing anyone can do. If you sue the bank, it hides behind lack of documentation. If the bank sues you, documentation is found or discovered or there is further documentation to support the matter being raised.

Thirdly, there is abuse of the present unnecessarily complex legal system with its endless appeals. Banks use the legal system as a backstop to prevent serious complaints being fairly resolved. With the banks' vast resources providing expensive teams of legal advisers, the bank customer is outspent, outgunned, locked into a long process to the bank's advantage, regardless of the issue or complaint.

What are the solutions? The National Consumer Council urges that statutory force should be given to the code of practice provisions. The Government must empower the Financial Services Authority to make compliance with the banking code a licence condition, and the new regulatory body must be responsible to the Government, not to the banks.

I conclude with three detailed recommendations of the Independent Banking Advisory Service. First, there must be a public record available for inspection regarding serious complaints against a bank, together with the result and determination. Secondly, the new regulatory body must have power and clout, similar to those of Customs and Excise, with search powers. Banks do not provide discovery of documents to their detriment, even when subject to a court order. Thirdly, secret notes and memoranda regarding discussions and meetings with customers--often untrue and used in legal action later--must be outlawed. Instead, all notes and records of meetings where agreements on security and holding of assets are discussed are to be agreed with the customer and signed at the time.

Powerful though banks may be, they are, thankfully, sensitive to political pressure.

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2.7 p.m.

Lord Montague of Oxford: My Lords, when I read the minutes of the last meeting of the monetary policy committee, I found the following statement:

    "An immediate move in interest rates--"

that means upwards--

    "would send a clear and early signal to the labour market of the Monetary Policy Committee's determination to achieve the inflation target".

I mention that because I want to move straight away into the composition of the monetary policy committee. I am an industrialist. Anyone who has run factories throughout the land and thinks that raising interest rates is sending a signal to the labour markets that we should curb a wage demand has not worked in any of the factories for which I have been responsible. When interest rates are increased, the first thing that happens is that the unions say, "Right, we want a corresponding wage increase". And that takes me to the composition of the members of the monetary policy committee.

At the moment we have eight economists. We have heard some wonderful things from the economists today, but the point made at the beginning by the noble Lord, Lord Mackay, in relation to the importance of having people from the sharp end, is extremely relevant. That is why I am pleased to read at Part II, Clause 13(4) of the Bill:

    "The Chancellor of the Exchequer shall only appoint a person under subsection (2)(c)"--

as a member of the monetary policy committee--

    "if he is satisfied that the person has knowledge or experience which is likely to be relevant to the Committee's functions".

I take heart from that. I interpret it as implying that the Chancellor will be moving in the same direction as the Fed. The equivalent of the monetary policy committee in the Fed has 12 members. I am sure that the House will be interested to know that only five are economists; three are bankers; one is an expert in business administration; one an expert in finance and insurance; one an entrepreneur with manufacturing knowledge and one experienced in financial institutions. The Fed seems to be doing quite a good job and I very much hope that we can learn from that.

Whatever we have depends on confidence; it is not only a matter of structure. It is therefore timely that there should be an article in the newspaper today to which it is appropriate to draw attention. It is imperative that there is confidence in the country in relation to the Bank of England, the monetary policy committee and the Chancellor. The example I give the House shows what might happen and what should therefore be avoided. The Financial Times contains a long and what seems to me to be an authoritative article indicating that next week it will be announced that Mr. George has been reappointed as the governor. It goes on to state that Mr. George has not yet been told about that; he will be told about it next week. However, Bank of England officials are already commenting on it. It also states that, contrary to what is in the Bill--that the governor will be appointed for a term of five years--consideration was given to appointing Mr. George for two years. However, that was reconsidered and it will in fact be five years.

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That kind of article is destabilising. It is the sort of thing that destroys confidence. I presume that it is the long hand of some spin doctor and I hope that, wherever the spin doctor may be, we can have less of spin doctors and more decisions taken and announced in a proper manner.

I turn to a further aspect of the new Bank of England with principal responsibility for interest rates. As I understand it, the Bank of England will be asked to audit itself. I wonder whether that is sensible. Again, as I understand it, and I may be incorrect, the audit will take the form of the quarterly edition of the Bank of England's inflation report. I hardly think that the Bank of England is likely to criticise itself and therefore I wonder whether there is a case for looking at who should be responsible for conducting an independent assessment of the Bank. I heard mention earlier today that it is something that could be undertaken by a committee of this House. That is a thought worth pursuing.

I turn to the new unifying body, the Financial Services Authority. For a period I was the chairman of the National Consumer Council. It was during that period that I frequently had to discuss with the then Minister responsible, Michael Howard, the extent to which the Financial Services Act was likely to be successful. Naturally, we were not in total agreement. I fear that the line that I had to take with him has proved correct; namely, that it absolutely failed to win consumer confidence. The new unifying body must have as an important objective the gaining of consumer confidence.

You do not gain consumer confidence when you speak and write in language which they cannot understand; you do not gain consumer confidence when there are adverts on the television with type of a size that cannot be read; and you do not gain consumer confidence when voice-overs on the television state requirements at such a speed that they are absolutely incomprehensible. I very much hope that the new unifying body will be sensitive to the needs of consumers and not just to the requirements of supervising their practitioners.

We have said nice things about the Bill which I think are totally justified. They lead on to nice things about the Chancellor, which I think are totally justified too. I want to draw attention to another decision the Chancellor has taken. It really has nothing to do with the Bill but you have to see these things in the round. It is worth mentioning how important I believe it to be for the country that the Budget has been moved to the spring. It has been destabilising for commerce that Budgets have turned up in November, the peak time of seasonal trading in the year, which has very often disrupted trading. That is another wise decision of the Chancellor.

Coming back to the minutes of the monetary policy committee and comparing those minutes with the minutes of the federal open market committee, which is responsible for the same matters in America, I draw to your Lordships' attention a difference between the two sets of minutes which I think might be valuable to

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consider. As we know from the last minutes of the monetary policy committee, the identity of the dissenters was given but no reason for their dissent. Of course you can follow the minutes and assume that where they did not follow the decision, that was naturally where the dissent came from, but it is not necessarily so. In the case of the minutes of the federal open market committee, they give an explanation for the reasons for dissent. The dissenters make a statement as to why they dissented. That could be very useful and I therefore draw that to your Lordships' attention.

I welcome the Bill, but it will not be about the nitty gritty; it will be about management competence. The management competence of the people involved can make it a success and lack of management competence can ruin it.

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