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We should all like to think that the new consumer financial education body will deliver sensible financial planning and increased saving, but the hard truth is that the biggest problems to solve lie at present in excessive personal debt. Education, at least in the short term, will not be enough on that front. That is why we welcome the Bill's ban on credit card cheques, but we are equally disappointed that the Government have not gone further. My noble friend Lord Marlesford, who was unable to be with us for the whole of today's debate, intends to table amendments to place greater responsibilities on credit card issuers. I agree with my noble friend Lord Trenchard on the other measures needed on credit cards, and we should deal with the OFT's powers in relation to bank overdrafts following the Supreme Court's decision. We also agree with the Financial Services Consumer Panel that consumers should have the added protection of earlier disclosure of warnings issued by the FSA for regulatory breaches. We will bring forward amendments in Committee to deal with all these issues.

We have made it abundantly clear that we strongly disapprove of many of the current bonus arrangements in banks. They have profited from action taken by Governments and monetary authorities around the

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world to protect the global financial system. We believe that banks should now be rebuilding their balance sheets and supporting British businesses with increased lending, not paying large cash bonuses.

We completely agree that the remuneration practices of banks must reflect risk and that the regulator must be concerned with that. But we must be wary of legislating for a regime which speaks to today's rather than tomorrow's issues. Remuneration controls may well be part of a rational framework of prudential supervision, but they must not be drafted with the court of public opinion in mind.

We must also ensure that we keep in step with the rest of the world and get the balance right between protecting financial stability and usurping the role of owners and shareholders. These are not easy issues to deal with in legislation, as we shall doubtless expose when we scrutinise Clauses 9 to 11 in Committee.

The issue of the draft regulations on remuneration disclosures has also been raised. The Minister in another place said in early January that the draft would be released for consultation "as soon as possible", and the Minister in this House used the word "shortly". He will know that this phrase and word are two of the most slippery in the ministerial lexicon. Can the Minister assure the House that the draft regulations will be available before our Committee stage?

We have also made plain our support for recovery and resolution plans which are set out in Clause 12, but, as with the remuneration clauses, we must be sure that our legislative response is properly targeted and durable for the long term, rather than a response to short term issues. It must also be aligned with international rules and be proportionate. We are less than clear that that is what the Bill achieves.

There are many issues related to the various additional powers that this Bill seeks to confer on the FSA. Our concerns here tend to be more detailed and technical but, if there is a common theme, it is between the need for the FSA to get the job done, which we recognise, and the FSA being able to steamroller anything or anyone in its path. We will need to explore the balance in Committee.

There is one overall point which we must not lose sight of as we scrutinise this Bill. It concerns the cumulative impact on our financial services sector of post-financial crisis changes, including those in this Bill. The financial services sector is a large and important part of our GDP, as my noble friend Lord Howard reminded us. While we may wish that other parts of our economy were stronger to balance this out, I hope that no one wishes harm to one of our most successful industry sectors. As we go through the remaining stages of this Bill, I hope that noble Lords will bear in mind the warnings of the noble Baroness, Lady Valentine, that punishing the banks for their real or perceived failings may end up harming the UK. Overloading the banks with regulatory responses and other burdens may have the effect of cutting off our nose to spite our face.

Where does that leave us overall? This Bill is not a major contribution to the big issues facing the financial sector. There are some good points, but many parts of

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the Bill have as much capacity to do harm as good. Our task of course is to eliminate as much of that harm as we can.

Today's debate has demonstrated that the passage of the Bill will not be straightforward. Your Lordships' House will need to devote considerable effort if we are to return it to another place in anything like an acceptable form. The Government can do their own sums. There are relatively few days left for scrutiny of legislation. If the Government choose to use those days on this Bill, we will not be found wanting.

8.07 pm

Lord Myners: My Lords, it is a pleasure to produce the closing speech for the Government on Second Reading. It is the second important and significant piece of legislation on which I have had the pleasure of doing so in recent weeks. The Fiscal Responsibility Bill, which is clearly so welcomed by the opposition Benches, will have profound and long-lasting consequences for the management of the economy, and today we have the Financial Services Bill.

This has been a very stimulating debate and we have been very well informed by the breadth of opinion on Benches on both sides of the House. I am grateful to noble Lords for the astute points they have made. I must be clear at this point that it will not be possible within a reasonable time period to answer all the questions that have been raised because they have been so rich, varied and wide in regard to many issues. We look forward to a very engaging Committee stage, but I apologise now to those noble Lords whose questions I do not give answers to. I will, however, go through Hansard and, where there are specific questions which require a factual or policy answer, I will endeavour to write to the noble Lords concerned and copy my reply to others.

The noble Baroness, Lady Noakes, asked a specific question about when we expect to provide the House with draft copies of our proposed regulations on remuneration. The word "shortly" in my lexicon means quite imminently and I certainly intend to ensure that that is done ahead of the Committee stage so that the House has that information.

I start with some discussion of the institutional framework because this issue was raised by a number of Members of the House. The noble Lords, Lord Lawson, Lord Howard of Rising, Lord Henley, my noble friend Lord Barnett, the noble Viscount, Lord Trenchard, the noble Lord, Lord Newby, and the noble Baroness, Lady Noakes, all focused on the early clauses of the Bill and the institutional framework.

The suggestion from the Opposition that handing the Financial Services Authority's powers back to the Bank of England would have prevented the financial crisis, or indeed would prevent a future one, is misguided. Many major institutional frameworks exist in different countries across the world, but no model of financial regulation has been successful in fully insulating a country from the crisis. Arguably, the only advanced economy able largely to withstand the banking crisis was Canada, and its regulatory structure is very similar to our own.

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The causes of the crisis were numerous and diverse, and the FSA has acknowledged the shortcomings of its past regulatory approach. This is commendable: I am aware of no other financial regulatory body that has been quite as forensic and open in its self-analysis of its shortcomings, and in clearly articulating how it intends to address those issues in future. However, the solution is not to rearrange the responsibilities of those with roles to play in preserving financial stability. It is rather to ensure that all the responsible parties have the right tools at their disposal to maintain financial stability, and that the right framework exists to ensure effective co-ordination of the authority's activities. What matters is not who does the job, but that the job is done effectively-the noble Lord, Lord Newby, among others, made that point-and that the institutional framework is clear and coherent. The answers are less around architecture and more around behaviour and competence. The noble Lord, Lord Hodgson, also spoke about the need for practical solutions as opposed to vesting this entirely in matters of dogma.

Change to the institutional system by moving specific responsibilities from one body to another will not, by itself, make a difference, other than to cause significant disruption at a time when attention should be focused on practicable and workable improvements to regulatory performance and decision-making. At this critical time, we need the authorities to focus on reducing risk, not on having to deal with disruption and uncertainty caused by unnecessary institutional upheaval. I was somewhat alarmed to hear suggestions from the opposition Benches that, if they were to find themselves in power, the organisational change would not take place immediately. I can tell Members of the House, from my experience through the FSA having a reporting line to me, that the current uncertainty in the FSA has been extraordinarily debilitating to the effectiveness of the day-to-day management of the organisation. Addressing this uncertainty has put an enormous strain on the senior management. The Opposition have to make up their mind on this and be clear about whether or not they intend to do it. We are accustomed to the Opposition changing their mind on almost everything. This is now another area where we hear coded messages to the effect that, "Well, perhaps we will take our time over the faster, further and deeper institutional change that we were going to make and not do it immediately". That simply is not a tenable solution; we need predictability.

In connection with the council, the noble Lord, Lord Hodgson, among others, raised the question of who is in charge; the Governor of the Bank of England was also asked this by the Treasury Select Committee. The Government's vision for the council is one of close co-operation, monitoring and co-ordination. It is a model which respects the independence of both the Bank and the FSA. The council's role is to ensure that the authorities have distinct responsibilities but that they continue to work together effectively and closely. Fundamentally, the council is a forum for the effective co-operation of three authorities, each with clear and distinct roles to play. It is not about a power hierarchy; it is about working together to achieve the right outcomes. Its role is not to take binding decisions;

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there will not be votes. It is not for the Government to impose their will on an independent Bank of England or an independent financial services regulator. Each authority is accountable for its actions, and the Chancellor is ultimately accountable to Parliament and the taxpayer. The council is about effective co-operation and co-ordination. The package of proposals will ensure this happens in a much more transparent, formal and accountable manner than under the previous tripartite arrangement. I hope that provides a clear and comprehensible answer to the question raised by the noble Lord, Lord Hodgson.

I could go on for a long time about the Glass-Steagall arguments. The contribution of the noble Lord, Lord Lawson of Blaby, was very thoughtful, well-researched and nuanced in its observations. In response to a question, he quoted from chapter 32 of his memoirs, The View from No. 11. In fact, last Friday I put his book to one side in my library with a view to rereading all of its 1,150 pages, I recollect.

We can go over this territory extensively. I am not persuaded that the issue of size was fundamental to failure, nor that the combination of utility, retail, commercial and investment banking activities in one organisation is in itself a cause of weakness. The noble Lord very clearly articulated the arguments which are advanced as to why it is not possible to separate the banks. I recollect his fourth argument in particular-that it was not possible to distinguish between proprietary trading and more conventional activities of a bank-but I simply do not accept that argument because we are having to do that in terms of the appropriate capital requirements. We prefer the combination of much more capital behind the riskier activities, much more stringent liquidity requirements and better governance-and here I look to the noble Baroness, Lady Hogg, and ask her not to perform a modest role at the FRC but an absolutely critical one. We are thrilled that the noble Baroness has been appointed chairman of the FRC. The role the FRC will continue to play in corporate governance and in stewardship-the neglected part of the discussion and debate around governance-is going to be so important to strengthening our banking system. We are then going to back that up with much enhanced regulation and supervision, including recovery and resolution plans, on which many comments have been made today. I am not persuaded by the arguments for separating banks along Glass-Steagall-type ground. However, if I had been persuaded, it would have been by the eloquence of the noble Lord, Lord Lawson, in his presentation.

I have talked also about stewardship, which touches on the issues of reward and remuneration. I make it clear that the Government do not propose to become involved in setting salaries or bonuses. However, I disagree with the noble Lord, Lord Blackwell, with whom I worked 10 years or so ago in a major clearing bank, and for whom I have the deepest respect. I believe that if a bank's remuneration practices give rise to unacceptable risks, it is appropriate for the FSA to make that clear and require either much more capital or a variation in the permissions of that organisation, or ultimately to say that a contract with this type of clause-perhaps a clause that hugely rewards the profits of an activity of an individual or

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team, with no consequences for the losses made-is not something that we will accept as part of a well managed banking system, with effective systemic risk management.

There is a key argument about disclosure of remuneration. The noble Lord, Lord Blackwell, made reasonable points when he asked why the industry had been picked out. The answer, which came from the noble Lord's own Benches, is very clear and concerns the importance of the systemic risk within banks. The noble Lord, Lord Lawson, also spoke to that, quoting Bagehot among others. We are trying to empower shareholders so that they can take more informed and engaged decisions, thereby protecting us as consumers. The noble Lord, Lord Sawyer, spoke about the importance of empowering the consumer. Consumers, customers and individuals have a very important role through their insurance policies and pension schemes as investors in banks, yet they have completely failed to exercise their responsibilities when it comes to remuneration in banks. They claimed that one reason why they failed is because they did not have the information. I am not persuaded that that is a credible defence: as the owners of the business, they could have insisted on being given the information. However, if it falls to the Government to facilitate them in making better-informed decisions, by making sure that the information is available to them, then we will do so. It is not for the satiation of prurient curiosity or for any other motive, but to encourage more informed and constructive stewardship. It is conceivable that we might find that the information proves useful to institutional investors, in which case they may urge other companies to make similar disclosures. Thus the practice may not always be limited to one sector.

The noble Lords, Lord Henley and Lord Newby, and my noble and learned friend Lord Goldsmith commented on the lack of draft secondary legislation. I understand noble Lords' eagerness to have sight of draft regulations that are being prepared, both on the disclosure requirements around remuneration, about which I have already spoken, and the rules in relation to collective proceedings. I reassure the House that the Government are committed to bringing forward drafts at the earliest opportunity, and that these will be consulted on in the usual manner. With regard to collective proceedings, draft rules have been published and will be available to inform the Committee's discussions of the clauses. The rules will be fully consulted on later this year, once the draft has been finalised. I say to the noble Lord, Lord Newby, that draft regulations on Clauses 9 and 10 will be available before the clauses are debated in your Lordships' Committee.

The noble Viscount, Lord Eccles, and my noble friend Lord Whitty raised questions about the impact of removing the FSA's public awareness objective. Transferring this in enhanced form to the new consumer financial body will not diminish the regulator's obligations to consumers. The FSA must continue to consider and safeguard consumers' interests through its customer protection objective. Under this objective, the FSA must consider the risks to consumers of different kinds of financial dealing, consumers' differing degrees of experience and expertise in financial matters, and

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consumers' need for advice and information. Consumers will benefit from these measures. The new body will be focused entirely on supporting them to manage their financial affairs and navigate the financial system. The regulator must continue to consider their needs and to protect their interests.

I will say a few words on the issue of consumer redress, which elicited a number of contributions in our debate. There have been several instances in recent years in which a large number of consumers have suffered detriment at the hands of regulated firms. The proposed provisions give the FSA the power to order firms to carry out investigations, assess their liability and pay out compensation, or to make other redress to consumers in the case of widespread mis-selling or other illegal activity. Consumer bodies have expressed extensive support for this provision, along with provisions for collective proceedings. The use of this power by the FSA would be subject to public consultation and a cost-benefit analysis, and the FSA would need to be satisfied that this was the most appropriate way of meeting its objectives before we went ahead.

The noble Lord, Lord Newby, my noble and learned friend Lord Goldsmith and others touched on issues of US-style class action as a consequence of Clauses 18 to 25. I do not believe that such things will happen. There will be no US-style litigation culture because there are numerous and major differences between the US and UK legal systems. In the UK, the "loser pays" principle applies, as my noble and learned friend reminded the House, which is an effective deterrent to spurious claims. Nor is there any provision for US-style punitive awards or triple damages. There is not the same burden of extensive upfront disclosure and lawyers cannot take a share of the damages. Nor are juries able to make exceptional damage awards. I assure the House that the Government would regard any move away from these principles as extremely serious. The UK has strong case management by the court. The Bill includes powers to ensure that collective proceedings cannot take place until certain matters have been considered and criteria have been met. It therefore contains wide powers to ensure safeguards for defendants both from the start and in the light of experience.

Lord Hodgson of Astley Abbotts: Is the Minister therefore saying that we will have the rules concerning collective proceedings by the time we get to Clause 18 in Committee stage?

Lord Myners: I have every hope that we will and I believe that that is what I have said. However, as I occasionally mis-speak, I will write and correct that if I have misdirected the noble Lord.

I reassure noble Lords and the noble Baroness, Lady Valentine, in particular, that the Government recognise the importance of a competitive world-class City that is profitable, responsible, strong and something of which we can be proud. If other European countries had London and Edinburgh, they would be fighting tooth and nail to protect the competitive and comparative advantage that we have. This Government should do the same. I hope that that might give the noble Viscount, Lord Trenchard, some reassurance on the AIFM directive

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and other areas of European regulation. We need to be alert and vigilant to the direction of travel in Europe with some of these ESAs and the thinking behind them, which, if we are not vigilant, would encroach on territory that we believe is important should remain as part of our national responsibilities.

The noble Baroness asked why we were putting a financial stability objective into the FSA when her recollection was that I had said last year that it was-

Baroness Noakes: Inappropriate.

Lord Myners: Well, we were of the view at the time that the market confidence clause covered that requirement, but I listen attentively to the noble Baroness and think about what she says over the weekends, on my holidays, when walking with my dog and so on. Her comments are never far from my mind, particularly when they echo the contribution from my noble friend Lord Eatwell. In the circumstances, we believe in acknowledging that internationally regulators are now increasingly focusing on the issues of systemic risk. We will be ensuring that the FSA is positioned alongside many other international regulators in having that responsibility. I have now concluded that it is appropriate, because we are a learning Government.

I shall wrap up very soon but I want to say that I am sympathetic to my noble friend Lord Sawyer, who is not in his place.

Noble Lords: Yes he is.

Lord Myners: I apologise; there is so much to do here! My noble friend Lord Sawyer made some powerful points about consumers. I am absolutely sympathetic to what he said but I do not think that the Bill is the appropriate vehicle for carrying that in Parliament.

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However, I understand that Mr Gary Hoffman of Northern Rock has not replied to him, so I shall be ringing Newcastle tomorrow morning to ensure that a reply wings its way.

My noble friend Lord Desai asked whether I would hazard a guess as to how much the support that the Government have provided for the banking system will cost the taxpayer. I am very confident that it will cost the taxpayer nothing. I am very confident that the support that we have provided through shares, the credit guarantee scheme, the special liquidity scheme and the asset protection scheme will produce a net surplus for the taxpayer in due course. Of course, as my noble friend will understand, the real cost is the economic consequence of the fact that the economy has been performing well below capacity; that cost will be with us for ever. Where we talk about billions of pounds, that is the price that we have had to pay for the greed and the mismanagement perpetrated by some people in the banking industry, most of whom are no longer involved in that industry.

I am conscious that I have been speaking for 22 minutes and I think that I have probably exhausted the patience of the House. I am aware that there are other points that I have not addressed and on those, as I said, I shall write to noble Lords.

Bill read a second time and committed to a Committee of the Whole House.

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