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Financial Regulation


3.29 pm

Asked By Lord Barnett

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Lord Davies of Oldham: My Lords, since 2000 the respective roles of the Bank of England, the Treasury and the Financial Services Authority in financial stability have been clearly set out in a memorandum of understanding between the three authorities. The paper Reforming Financial Markets, published today by the Treasury, introduces a more formal and transparent structure for the three authorities by establishing a statutory council for financial stability chaired by the Chancellor, which will analyse and examine emerging risks to the financial stability of the UK's economy and co-ordinate the authorities' response.

Lord Barnett: My Lords, will my noble friend thank our right honourable friend the Chancellor for kindly making his Statement in advance of my Question? That was very helpful. However, it needs a lot of clarity and I hope that we will debate it before too long. Does my noble friend agree that although the Statement confirms that the Governor of the Bank of England is basically the head of a quango, albeit an important one, he is not responsible for policy, which is for the Chancellor, and now he will no longer be responsible for regulation, which will be for the FSA? On the other hand, does my noble friend agree with the governor's statement that if banks are,

I gather from the Statement-a very lengthy one-that he disagrees. In that case, does he accept that banks, either big or small, are not too big to fail?

Lord Davies of Oldham: My Lords, I recall the time when my noble friend was a mighty force in the Treasury. He seems to have demonstrated that force today by getting the Chancellor to produce the Statement today and to answer in such a constructive way the points which he is seeking to make. The answer to his question is obvious. We have learnt from the financial crisis that difficulties and threats to the British economy can occur as a result of large institutions and indeed of not-so-large institutions. The House will recall Northern Rock, which is certainly not one of our largest banks. Consequently the issue of size is not necessarily the crucial one. What is at stake is whether the failure of any financial institution poses a threat to the stability of the financial system. That is what the new machinery is designed to ensure does not happen.

Lord Roberts of Conwy: My Lords, will this council for financial stability not serve to diffuse authority within the banking system away from the three bodies that the Minister referred to, when we really want concentration in the banking sector?

Lord Davies of Oldham: My Lords, I do not think that it will do that at all. What it will do is make the co-ordinating mechanism which exists between these three authorities open and transparent; and of course the Chancellor, in chairing it, is directly accountable to Parliament for decisions taken. In that respect I would have thought that the House would have appreciated that this is an advancement of openness, clarity and confidence about the way in which the three institutions will work together to promote financial stability.

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Lord Peston: My Lords, I have looked at the White Paper though only cursorily because it has only just become available. It looks absolutely first-class, and of course I agree with my noble friend Lord Barnett that the sooner we debate it, the better. However, I hope that my noble friend can answer the one question that still seems not to be fully answered. Am I right in thinking that when it comes to deciding whether to use taxpayers' money to bail out a bank that has taken undue risks, the decision will absolutely be taken by the Chancellor and no one else?

Lord Davies of Oldham: My Lords, under the new structure, which will be much more open compared with its predecessor, when a risk occurs which is of such significance that it threatens the financial stability of British institutions, decisions will ultimately be the responsibility of the Chancellor of the Exchequer.

Lord Oakeshott of Seagrove Bay: My Lords, I thank the noble Lord for that reply. Clearly, the buck must stop with the Chancellor. He claimed in his Statement today that he was supporting better corporate governance and strengthening regulation, and that he wants to penalise banks whose pay policies create unnecessary risk and focus on short-term profit. So why did he wave through Mr Hester's £10 million bonus package, which depends entirely on the performance of the share price over the past few years? Taxpayers own the bank through UKFI, so why is he washing his hands when he has the power to stop this scandal?

Lord Davies of Oldham: Because, my Lords, the priority for RBS and the priority for the Government is not only to restore as rapidly as we can faith in the financial stability of institutions in this country but also to ensure that funds to deal with the desperate needs of industry, commerce, householders and people in all roles in our society flow as early and as freely as possible. We all recognise the challenge. I repeat that the last time we had a financial crisis of these dimensions, it took advanced countries close to a decade to recover, yet we are judging the efficacy of the Government's activities in a matter of months after the crisis first occurred. That may be a measure of the success of the actions taken.

Parliamentary Standards Bill

Main Bill Page
Copy of the Bill
Explanatory Notes
17th Report Constitution Committee

Second Reading

3.36 pm

Moved By Baroness Royall of Blaisdon

That the Bill be read a second time.

The Chancellor of the Duchy of Lancaster (Baroness Royall of Blaisdon): My Lords, the standing of Parliament and of politicians is at its lowest point in the modern history of our country. Parliament and politics face a huge task in seeking to dispel public disgust and public anger with our politics and politicians and instead to replace it with public trust and public confidence. The legislation before this House today is a vital step in that endeavour.

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I shall touch, first, on one procedural issue. On 30 June, my noble friend the Chief Whip proposed to the House a timetable for consideration of the Bill with the aim of achieving Royal Assent by the time the House rises for the Summer Recess. The noble Lord, Lord Norton, has since tabled an amendment to the committal Motion, which will be considered after Second Reading. In order to allow the House the opportunity to take a view on the timetable in response to that Motion, last night I withdrew from the Order Paper the Motion I had tabled, which would have allowed the House to take Report and Third Reading on 20 July. If appropriate, I shall retable my Motion at a later date.

Before I begin to address the issues in and around the Bill, I want first to deal with three specific points: this House and what this House has done to tackle its own difficult issues this year; the relationship of the Bill, and its provisions and implications, to this House; and the responsibility that we as Members both of this House and of Parliament more generally have towards this proposed legislation.

First, the Bill deals wholly and solely with the House of Commons. The reason for that is the public's anger-entirely justified, entirely understandable and entirely right-over the expenses scandal in the House of Commons. Most MPs are decent, hard-working men and women who strive for their constituents and do an excellent job. However, all MPs and many of their families have been tarnished by the expenses scandal, and that is why we need to work, and work hard, to put it right. I want to do everything possible to do that.

Although the scandal is primarily a Commons scandal, we in this House have had our own difficulties. We have had to take the serious and significant step of suspending Members of this House for the first time in 400 years. We have been subject to a degree of media scrutiny of our own system of allowances-not on the scale of that undergone by MPs but, none the less, unquestionably difficult enough. As do the Commons, we feel the dark shadow of investigations into Members of this House by the police-no doubt legitimate and necessary investigations but, again, difficult none the less. If this has been an appalling period for the Commons-and it has-then it has been a tough period for this House too. I believe that we can say that we have addressed our own problems ourselves and have tried to do so in good order.

The inquiry, which we established at our own instigation and concluded, into the events which led to the suspensions was thorough, rigorous and scrupulously fair. Arising from that incident, again at our own instigation, we have senior and serious Members of this House considering the issues for the rules and code of conduct of this House. At our own instigation and in the light of media scrutiny of our own allowances, the independent Senior Salaries Review Body is examining the question of financial support for Members of this House.

If there are abuses in this House, this House is rooting them out and, if there are wrongs, this House is righting them. This House is putting this House in order. In line with that, this Bill contains no provisions, no measures and no proposals at all for this House.

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Nothing in this Bill will affect this House. Nothing in this Bill will impact upon this House. Nothing in this Bill will change what we in this House do and how we in this House do it.

In spite of that, I recognise that there are two issues which we need to address: the constitutional and related issues-issues for the Commons, but for this House too and for Parliament more generally-which a number of Members of this House believe are raised by the Bill, and the future applicability of the Bill, its approach and provisions to this House. I will deal with the constitutional and related issues when I deal later with a range of reports on this Bill by a number of committees of this House and the other place. I need to deal with the future applicability of the Bill to this House.

I know that a number of Members of this House have expressed concern at statements by Ministers about the Government's declared intention that they intended, in due course, to extend the provisions of the Bill to this House. Indeed, I gave some of those statements myself. But we also said that we would listen and consult extensively. We have done so. We have listened. For this House is not the House of Commons; it is a different place, a separate place, a place with its own, different, and separate ways of doing things. It is a place in which self-regulation means something different-genuinely and materially different-from what it means in the Commons. In relation to this Bill, the Government have recognised that from the first.

When the proposals now in this Bill were first advanced, No 10 said in a document from the Prime Minister's Office on 19 May that the Government accepted the difference in self-regulation in this House, and in this Chamber, on 20 May, I repeated a Statement made in the other place by my right honourable friend the Leader of the House of Commons which stated that we,

I understand the concerns of Members of this House about this Bill or its approach being applied to this House and I acknowledge those concerns.

I can say two specific things today. First, this Bill, whose current and only remit is for the House of Commons, will not apply to this House. Secondly, this Bill will not be extended in the future to this House as currently constituted. But, thirdly, just because this Bill does not and will not apply to the House of Lords, it does not mean that this House has nothing to do with this Bill. This House does have business with this Bill because this House has a responsibility to this legislation.

The Commons has passed this legislation. The Commons believes it needs this legislation. That is explicit in the approval that the Commons has given to it. The Commons has amended this legislation to the point where the Commons is satisfied with it and with what the legislation will do to the Commons. This is the Commons' Bill; a Bill of the Commons, by the Commons and for the Commons; and I believe that the Commons should have it.

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I am aware of the argument put by some Members of this House, with their own views of what constitutes a strong sense of parliamentary duty, that they see it as an obligation on them to save the Commons from itself. I understand those arguments and I respect those arguments, but I believe that they are misplaced. Although this House has a clear responsibility, it is a responsibility to let the Commons have the Bill that the Commons wants for the Commons.

That is the responsibility of this House in dealing with the Bill. I look for this House to discharge the responsibility that it has before it.

I now turn specifically to the Bill itself. The argument for the Bill, in what it is proposing for the Commons, is clear. The fundamental purpose of the Bill is to replace the self-regulation of expenses, allowances and financial interests with a system of independent, transparent and robust regulation.

Public confidence in the Commons-and, indeed, the whole of Parliament-has been shaken by the expenses crisis. Although the issue has now fallen from the headlines, we are mistaken if any of us believe that this episode has been forgotten or forgiven by the public. We have a duty in this House to help the Commons implement a new system that can restore public confidence in the propriety of MPs and the process that governs their expenses and financial interests.

That restoration of confidence cannot happen soon enough. There is agreement between the leaders of the parties that that is essential. All party leaders in the Commons agreed on the need for an independent authority for the setting, administration and adjudication of allowances. The Commons passed the Bill now before us unopposed at Third Reading. It has benefited from scrutiny and amendment in the Commons. Our aim is to create a system in which the public and Members of the other place can have full confidence. Key to the package of measures that we have brought forward in this Bill has been the guiding principle that we should deliver an independent, transparent and accountable system for handling expenses.

The Bill establishes an Independent Parliamentary Standards Authority and a separate Commissioner for Parliamentary Investigations. The authority will have three very important functions. It will set the system of MPs' allowances independently of Parliament. It will administer the payment of those allowances according to clear rules. It will set and administer the MPs' code of conduct on financial interests. All three of these functions will be taken out of Parliament and made transparent and independent. The commissioner will investigate complaints about breaches of the rules on allowances or financial interests. He or she will be independent and transparent, working outside Parliament.

Let me now deal in more detail with the structure of the Bill. Clause 1 provides for the creation of the Independent Parliamentary Standards Authority, the IPSA, and a separate Commissioner for Parliamentary Investigations. The Independent Parliamentary Standards Authority will have the power to set a system of allowances and expenses for MPs without requiring parliamentary approval.

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Schedule 1 to the Bill supplements Clause 1 and makes provision for the membership, administration and funding of the IPSA. The IPSA will be made up of four members and a chair. To ensure that the IPSA is lead by people with the appropriate breadth of skills and experience, the Bill provides that one of the five members must be a person who has held, but no longer holds, high judicial office; one must be qualified to be an auditor for the National Audit Office; and one must have been, but no longer be, a Member of the House of Commons. There is no bar on Members of the House of Lords being members of the authority.

With the exception of the parliamentary member, a person who has been a Member of the House of Commons at any time within the past five years may not be a member of the IPSA. It is important that the IPSA should have some understanding of the way that Parliament works, but it is equally important that we can demonstrate to the public that it is truly independent. The proposed membership will deliver that balance.

Selection to the authority will be on merit and by fair and open competition. A candidate for appointment as the chair or as a member will be selected by a panel, under the aegis of the Speaker of the House of Commons, with the agreement of the Speaker's Committee, which is to be established by the Bill. The appointments will be approved by an Address of the House of Commons and made by Her Majesty. Provisions for the terms of office for the chair and ordinary members of the IPSA are set out in paragraph 4 of Schedule 1 and they will be for a fixed term, which will not exceed five years. Both may be reappointed only once for a further term not exceeding three years. The IPSA, its members and staff will not be regarded as servants of the Crown and its annual report will be laid before each House of Parliament.

The independence of the IPSA is further enhanced by paragraph 5 of Schedule 1, which provides that its members can be dismissed only in response to an Address from both Houses of Parliament. We are there as a safeguard for the independence of the process-a vital role in making clear to the public that the IPSA is not beholden to the other place, that its perceived independence is a real, substantial independence.

Schedules 1 and 2 extend the Freedom of Information Act to cover the IPSA and commissioner respectively. This means, among other things, that both bodies will be obliged to publish a publication scheme, approved by the Information Commissioner, setting out what information they will make available to the public without an FOI request being needed.

I have already referred to the Speaker's Committee for the IPSA, which will be established by the Bill. Schedules 1 and 2 provide that it will approve the selection of candidates for appointment as a member of the IPSA or as the commissioner. In addition to giving the committee certain functions, the Bill sets out the membership of the Speaker's Committee which will comprise: the Speaker of the House of Commons; the Leader of the House of Commons; the chair of the House of Commons' Committee on Standards and Privileges; and five MPs who are not Ministers of the Crown, appointed by the House of Commons.

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Clause 2 provides that the IPSA is to take over responsibility for paying the salaries of MPs in accordance with the relevant resolutions of the House. However, it will have no role under this Bill in setting the level of salaries. A new procedure for this has been set recently, with the level of salary increase being recommended by the Senior Salaries Review Body on the basis of a basket of relevant public sector pay settlements. That procedure will continue unchanged.

Clause 3 provides that the IPSA will be responsible for preparing and administering a new MPs' allowances scheme and that this should be reviewed on a regular basis. The measures in the Bill will in no way pre-empt the work currently being undertaken by the Committee for Standards in Public Life to review MPs' allowances. Indeed, the Bill simply lays the framework for a system of independent regulation, and we expect that the IPSA will draw on the outcome of the committee's work when devising an allowances scheme for MPs. Clause 3(7) lays out certain matters that the IPSA may include in the scheme, such as specifying the kinds of expenditure or the limits on the amounts to be paid. The allowances scheme will be laid before the House of Commons and published. However, it is essential to the credibility of the scheme that the other place should not be able to amend it, and therefore the scheme will come into effect without the need for parliamentary approval. There will however be a requirement on the IPSA to consult widely when devising the scheme and Clause 3(4) lists those who the IPSA must consult, including any other person the IPSA considers appropriate.

To ensure that we lay the foundations for a robust and transparent system, Clause 4 provides that the IPSA will also take over responsibility for authorising and making payments under the allowances scheme.

Clause 5 places a duty on the IPSA to prepare an MPs' code of conduct relating to financial interests. The code will be prepared and revised by the IPSA in wide consultation, and must be reviewed regularly by the authority. The Speaker must lay the code before the House of Commons, and no such code can come into force unless approved by a resolution of the other place. The Bill requires that the code of conduct relating to financial interests must prohibit paid advocacy and must require registration of interests. It will not cover declaration of interests, which will remain a matter for internal regulation by the other House.

Clause 6 sets out the investigatory powers for the Commissioner for Parliamentary Investigations. This will allow the commissioner to initiate an investigation where there is reason to believe that an MP may have been paid an allowance to which he or she was not entitled, or may have failed to comply with MPs' code of conduct relating to financial interests. A significant element of these provisions is subsection (6), which requires the IPSA to determine procedures in relation to the handling of investigations, complaints and the publication of reports following investigations. Clearly, Members in another place will want to be assured that any investigations or complaints will be handled according to appropriate standards of fairness. To begin to address these legitimate concerns, Clause 6(8) makes particular requirements on these procedures to exemplify how standards of fairness must be upheld.

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