Moreover, monitoring and reviewing all risks to a bank constitutes an essential part of the PRA’s work. The PRA’s approach is to insist that firms adopt and follow a risk appetite that is consistent with the PRA’s statutory objective to promote the safety and soundness of firms that it regulates. This will include regular monitoring and review of all risks, not limited just to those associated with prop trading. Therefore, to require the PRA by legislation to undertake such a review seems unnecessary. Should we legislate for a review of how reference rates are set, for example? Should we legislate for a review of mis-selling practices? Why, therefore, should we do it for prop trading? It is not apparent to me what problem a review would solve. While I think that reviews can play a useful role, in this case we are not sure that it is justified in advance.

We need to give the regulator the space to allocate its resources in a way that is appropriate and proportionate when considering all the different risks to the UK financial system, not only focusing on one particular risk. Our more widely framed reporting requirements allow for this. For all of these reasons, I do not think that a review on the particular issue of prop trading is necessary. The regulators are already subject to extensive

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reporting requirements. I expect the PRA to make the Treasury, and Parliament, aware of any emerging risks it identifies, whether through prop trading or anything else. The deputy governor for financial stability has already written to the chair of the Treasury Committee, offering to discuss arrangements for reporting. I therefore ask the noble Lord to withdraw his amendment.

Lord Higgins: My Lords, the Minister says that we do not want to have the regulator wasting resources. However, if we ban an activity, it would not waste resources. I am also not absolutely clear—I thought I was—that we are going to say that proprietary trading by a ring-fenced bank is absolutely banned. If that is so, ought we not to make it absolutely clear in the Bill?

On the point made by the noble Lord, Lord Turnbull, we have to distinguish between proprietary trading and other activities such as hedging as there may be a case for the bank operating on behalf of its clients by hedging for a foreign exchange risk or whatever. However, that is not at all the same as what is normally meant, certainly by Paul Volcker, whereby banks use a client’s money to take on particularly risky investments which have nothing to do with the client.

Lord Deighton: I was trying to be clear but I shall reinforce my comments. I think this issue was covered on the first day in Committee when we dealt with the details of ring-fencing. It is clear that proprietary trading for ring-fenced banks is not allowed; it is an excluded activity, as defined. As my noble friend implies, there are some exceptions to that which are predominantly related to a bank’s own hedging activities to deal with its own surplus liquidity. My noble friend’s phrasing was accurate and the issue is included in the Bill.

Lord Lawson of Blaby: My Lords, I think that there has been a slight misunderstanding. My noble friend the Minister said that we have gone down the ring-fencing route instead. That is a different matter altogether. The idea of ring-fencing is to put a sharp barrier between the commercial banking operations of a universal bank—the lending to individuals and to small businesses and, indeed, medium-sized businesses—and the investment banking activities. There should be a line between them. There is also the great question, which we debated earlier, as to whether there should be a total separation. This is about whether a universal bank—I agree with my noble friend that it would not be done in the ring-fenced part—should be permitted to engage in proprietary trading at all.

It is all very well to say that there may be cultural contamination as a result of proprietary trading but that, as there are other forms of cultural contamination as well, we should not bother about this one. I do not buy that. If we can significantly reduce the amount of cultural contamination by making proprietary trading by banks illegal, that is a plus. There may still be other problems with the banking culture, but at least we would have solved an important part of it.

My noble friend the Minister also seemed to say that there was no need to review this issue. There is a need to review it for the very reason that the noble Lord, Lord Turnbull, pointed out. The overwhelming

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weight of evidence received by the commission in conducting its inquiry was that it would be a very good idea for banks not to engage in proprietary trading for some of the reasons that I and other noble Lords have given in this short debate. However, as the noble Lord, Lord Turnbull, identified, the problem was how precisely you define proprietary trading and distinguish between it and market-making and some of the other activities referred to.

I have known Paul Volcker for 30 years. He is a very wise old bird. I am not suggesting that my noble friend the Minister is not wise, but of all the people I have known in the financial sector Paul Volcker is among the wisest, if not the wisest. If he thinks that this measure is desirable and workable, that carries a great deal of weight with me. He said that if a chief executive of a bank did not know whether or not he was engaging in proprietary trading he ought to be fired. At one level that is a perfectly good answer. Nevertheless, there is a complicated issue of definition. That is why we have said that we should see how things develop over the next three years and see whether there is a workable system in the United States or whether those who say that it is completely impossible to have a satisfactory definition because it will not work are right. We will find that out and then we will take action accordingly.

It is nice to hear mention of the notion that the PRA can bear down on proprietary trading as it implies an acceptance that there is, or could be, a problem. However, that is not the same thing as saying very clearly that no bank should be doing this, even if it is not a ring-fenced bank. At present, the Bill does not go far enough in that regard. This is something to which we will almost certainly wish to return on Report. I beg leave to withdraw the amendment.

Amendment 94 withdrawn.


6.15 pm

Amendment 95

Moved by Lord Turnbull

95: Before Clause 16, insert the following new Clause—

“Remuneration code

(1) The FCA and the PRA must prepare (and may from time to time revise) a remuneration code.

(2) The remuneration code is to apply to all persons who have approval under section 59 of FSMA 2000 to perform a function in relation to the carrying on by a bank of a regulated activity which is designated under subsection (6B) or (6C) of that section as a senior management function.

(3) The remuneration code must—

(a) require that persons to whom the remuneration code applies are, except in specified circumstances, to receive a proportion of their remuneration in the form of variable remuneration,

(b) require that a specified measure of profits is to be used in calculating any variable remuneration which is calculated by reference to profits,

(c) require that the nature and amount of variable remuneration is to strike an appropriate balance between risk to the bank providing it and fair reward for the receipient of it,

(d) require a proportion of variable remuneration to be deferred for such period, not exceeding 10 years, as is appropriate to strike a balance between risk to the bank providing it and fair reward for the recipient of it,

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(e) require that no, or only a limited amount of, variable remuneration of a person to whom the remuneration code applies is to be calculated by reference to sales made by the person or by any group of persons employed by the bank providing it, and

(f) require that non-executive directors of a bank are not to receive variable remuneration.

(4) A requirement imposed by the remuneration code is a relevant requirement for the purposes of Part 14 of FSMA 2000.

(5) In this section “variable remuneration” means remuneration (whether in money or in securities or any other form of money’s worth) the amount or value of which varies in accordance with profits, sales or other matters.”

Lord Turnbull: This amendment stands in my name and in the names of the noble Lords, Lord Lawson and Lord McFall. It seeks to legislate for a remuneration code for banks administered by the PRA and the FCA and to provide some headings on its content. I shall speak also to Amendment 96 which seeks to establish a more stringent regime for clawback.

We can analyse this remuneration issue at several levels. Is a special regime needed for banks? We already have a regime for remuneration in UK corporates, partly determined by BIS regulations and partly enforced by the guidance issued by investors and investor groups such as the ABI and the NAPF. This remuneration structure has recently been reinforced by increasing the amount of disclosure and by increasing the voting power of shareholders. We also have—or have had—a remuneration code for financial institutions—going wider than banks—administered by the old FSA. Why should we go to something more stringent for banks?

The Parliamentary Commission on Banking Standards took the view that a special regime for banks beyond that required for other financial institutions and listed companies generally was justified. Why was that? We identified a number of characteristics that make banks special. They are responsible for an essential service which has to be operated continuously and has, hitherto at least, created a presumption of being too big or too complex to fail, thereby creating an implicit guarantee which can be exploited. Banks are highly interconnected and can fail very quickly, damaging not just themselves but affecting people’s confidence in other parts of the banking industry and the wider economy. Banks are also very highly geared, as has been mentioned today. Their capital structure is not at all like that of the general run of FTSE companies. Equity counts for low single figures. Like the noble Lord, Lord Flight, I read Essays inMoney and Banking in Honour of R S Sayers, and the ratios were vastly higher in those days. As a result, those running banks are incentivised to take risks and their shareholders are incentivised to support them. Therefore, I think you can rely less on countervailing pressure from shareholders to achieve restraint in bank remuneration.

Banks are also special in the way they behave. Total remuneration has increased hugely and takes a very high share of the total surplus compared with dividends, taxation, retentions, building up capital and so on. As has also been said today, cash bonuses have been paid on the basis of mark-to-market profits which, in the end, proved ephemeral. There is unlimited upside when remuneration takes the form of equity but, unlike the old partnerships which have gradually been superseded, there is limited downside.

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If you accept the premise that there should be something special for banks, what should be the content of this regime? The first thing that should not be there is what the EU and the European Parliament are trying to put in: a limit on the ratio of variable pay to base pay. That is likely to be counterproductive, pushing up base pay and reducing the quantum which is provisional and, therefore, at risk of clawback. What should be there is something about the proportion of variable pay that is deferred and the time period over which it is deferred. The commission recommended that some, not necessarily all, could be deferred for up to 10 years, in recognition of the cyclical nature of banking.

Amendment 96 seeks to strengthen clawback. The terms “clawback” and “malus” sometimes get muddled up. Most of what people have said is strengthening clawback is better described as malus. It is where remuneration has been conditionally offered but not yet vested and there is still the option of cancelling the vesting. This clause suggests that, in the really serious case of a bank being run so badly that it fails and ends up being taken into public ownership or requiring the commitment of public money, even sums that have been vested should be at risk. Some of this could be pension money. If someone has paid for a pension regularly, through contributions, I would, by and large, say it was their money. However, we have seen instances where very large, discretionary amounts are paid into people’s pension funds precisely in order to put them somewhere where, hitherto, they have had immunity.

Those are the principal components of the amendments. You could go further. For example, Charles Goodhart has argued that it is a mistake, in the case of banks, to make variable pay take the form of shares because the shares are highly geared and it would be better if a significant amount was not in shares but in bailable bonds. This would limit the upside but that value would not be transferred if the bank failed.

What is the scope of these arrangements? How far down the bank should they go? They should certainly cover the senior managers’ regime. What is offered below that is not the licensing regime that we suggested which should apply to people who had the ability to damage the bank in some way. As it is set up at the moment, it could be any employee, which is a much less focused scope in terms of who is covered.

The other issue is about which parts of banking should be covered. We came across this argument and are still uncertain about whether it is those people who work in entities which take deposits or whether it should also cover people engaged in investment banking, which is the common sense view. Another amendment in my name attempts—probably unsuccessfully—to produce a definition which is wider than simply those who are in banking entities which take deposits. However, the noble Lord, Lord Newby, has written to a number of noble Lords recognising this problem and undertaking—I hope he will confirm this—to work with us to find a definition which covers the kind of people and activities that we want it to.

The final question is whether this all needs legislation. I can confidently predict the noble Lord’s response as we have had it at least three times today. I think he will say, “We agree there is a need for a special regime for

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banks and we agree on lots of the components that should be in it. We will work with you to agree the coverage, but we do not agree that it needs to be in legislation as the PRA has all the powers that it needs”. I think that is pretty much what is in his folder. Why is the commission pressing for legislation? In the whole of the financial crisis, two issues have infuriated the general public. The first, which we dealt with last week, is the absence or extreme weakness of personal accountability. The second is the sense that the bankers made the money but did not lose it in the bad times. They were incentivised to excessive risk-taking: too much upside, not enough downside. The public find the existing regime incomprehensible and they want something done about it. In particular, they want assurance that it cannot happen again. The way to ensure that there is no backsliding is to provide the powers proposed in my amendment. We should also set some of the parameters of what that covers.

Lord Eatwell: My Lords, we have already, on some previous amendments, begun to discuss the issue of the culture within banks and the culture which contributed significantly to the disaster in the banking system of the past four or five years. Nowhere does that bite become more evident than in the issue of remuneration. There has been considerable disquiet about the sheer scale of remuneration but this amendment, particularly in terms of the elements listed under subsection (3), goes to the heart of the matter which is the relationship between remuneration and risk-taking and the way in which remuneration systems incentivised, to an extraordinary degree, risk-taking which went way beyond the ability of the financial institution to manage it effectively.

If we are to persist with the banking structure we now have in this country, with very, very large banks—which are extremely difficult to manage—dominating the banking scene, then it is necessary to de-incentivise the risk-taking which did so much damage. That is the most valuable element in this amendment. The elements to which the noble Lord, Lord Turnbull, referred are also important, but we need to provide a clear statement that a remuneration code will be developed which does not incentivise selling insurance or financial instruments that individuals or firms do not need. This has been a characteristic of banking in this country over the past four or five years and has been directly incentivised by remuneration structures. We have to remove that sort of structure by giving the FCA and the PRA the responsibility to develop a code, expressed here in quite flexible terms, without the excessive rigidity in current European Union proposals. This is a very flexible structure but it focuses on the exact issue of incentives and risk-taking. In that sense, I think that it could achieve an enormous amount in changing the culture in British banking and in ensuring that banking is more stable and significantly safer than it has been in the past.

6.30 pm

The Lord Bishop of Birmingham: My Lords, I rise to speak on behalf of the most reverend Primate the Archbishop of Canterbury. He regrets very much that he cannot be in his seat today, but it is seldom that one

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has the opportunity to offer Christian baptism to a young couple, particularly when their child is a future heir to the throne of this country. None the less, I know that he, like me, would want to echo the support for these amendments, which have been spoken to by the noble Lords, Lord Turnbull and Lord Eatwell. In a sense, I now regret that I am here doing my duty, because I could not have put it better myself.

In the wake of the economic debacles following 2008, one of the greatest areas of concern among the public was the apparent lack of change in the financial fortunes of those whom they viewed as being most responsible for the banking crisis. As we have heard, the salaries of senior bankers seem to remain high and bonus levels have quickly regained their old levels, while for many ordinary people and ordinary businesses across the country, it has been a matter of tightening the belt and looking very seriously at difficult household and commercial budget decisions. The submission of the Church of England’s Mission and Public Affairs Council to the banking commission said of this disparity between what I am going to talk about as two cultures that it,

“has gravely harmed the public perception of banking”.

Recognition of the disjunction between these disconnected groups—the wider public, who need the services of good banks, and those who lead those banks—is, I believe, at the heart of what these amendments seek to achieve. It is about implementing sensible measures, and we have been very sensible this afternoon, one with another, about what needs to be done: striking an appropriate balance between risk and reward; looking to the long-term benefits of decisions made by key figures in the banks; and giving incentives for a trustworthy and productive culture, rather than one that promotes excessive risks, ending in disaster. Deferred remuneration, which we have in this proposal, and clawback provisions —central components of the proposed remuneration code—are technical terms, but at the heart of these principles is a simple question: what sort of culture, as has been mentioned by several noble Lords, do we want to establish in these organisations? As the most reverend Primate the Archbishop of Canterbury has already pointed out to the Committee, one rather well known former banking executive said that there had been a culture in the banks focused on what happened when people were not looking.

There is now an increasing interest, including in your Lordships’ House, in culture, and we heard from the noble Lord, Lord Lawson, about the two principles of prudence and customer-centred or customer-focused culture. I hope that both the Government and the banks will give a high priority to insisting on these profound changes in culture. Indeed, at a regional level—and this may seem a little parochial for the high level of discussion that we are engaged in this afternoon—in Birmingham and the Midlands, well resourced bank employees from well resourced organisations, their banks, are already looking way beyond their computer screens and boardrooms to wider and deeper responsibilities in the community. They are looking at simple things such as finding and supporting young entrepreneurs, and giving basic financial skills to local citizens—I have said before in your Lordships’ House that there are 100,000 citizens in Birmingham who do not have a

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bank account—and they are even getting involved in making sure that future employees of the bank in our local primary schools have enough food at breakfast so that they can learn the basic skills of their education.

These tentative cross-cultural relationships and initiatives give me hope not only that executives in banks will run sound businesses but that, as they experience and affect for good the lives of ordinary citizens, including those who are much less protected than themselves in ordinary life, the worthy values printed in the foyers of the headquarters of many of our large banks may at last begin to enter not just the policies of the banks and their structures and cultures but the policies, structures and cultures of the leading executives in those banks. I shall mention just one of those banks where these values appear; in fact, I may not mention which bank it is because I think that noble Lords should try to work out which one I am talking about. Those values read: “Serving Customers”; “Working Together”; “Doing the Right Thing”—a new one that has been inserted; and, fourthly, “Thinking Long Term”. It is in the policies, structures and cultures of the leading executives in those banks that I believe culture change will really happen. We have high expectations of that change but, as many noble Lords have said, it needs to be undergirded by legislation. It cannot be left simply to hope or chance or to the individual motivation of altruistic colleagues.

Therefore, I welcome that in both amendments we find provisions to limit sales-based incentives at both the individual and business unit level. In the PPI scandal, we saw what happens when banks come to value the sale of financial products as the objective of the whole exercise, with little or no thought for customers’ needs. Banks are now having to take responsibility for this culture of “selling at any cost” and the new remuneration code before us seeks to make explicit the realisation that an excessively sales-based culture can be very damaging both to the financial well-being of customers and to the reputation of the banks.

I hope that my noble friend the Minister will recognise that this amendment is not seeking to overly restrict remuneration, devalue the work that our senior bankers undertake or unduly affect the competitiveness of our world-beating banking sector. What it does is to set out some of the values and virtues that should underlie the banking system: long-term risk management; a fair balance between risk and rewards; valuing customer needs above the sale; and, above all, valuing collective interest beyond the individual or the unit, or even the bank itself. This will be good for both business and society.

Lord Phillips of Sudbury: My Lords, I commend the mover of the amendment, the noble Lord, Lord Turnbull. If, as I assume, this matter is brought back at Report, I should like to raise two questions. The first concerns the fact that the code is to be solely the responsibility of the FCA and the PRA. I wonder whether it should have a broader base than that. The City is a real bubble. The two authorities are part of that bubble, as are most of the people working in them. Everybody—particularly the noble Lord, Lord Turnbull, in moving the amendment—has said that we have to break out of this small enclave to understand

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the wider national, social and cultural impact of what is going on in the square mile. I just throw that idea out.

My second question concerns proposed new subsection (3)(a) in the amendment, which requires that those subject to the code shall,

“receive a proportion of their remuneration in the form of variable remuneration”,

although it does allow specific exceptions. For the life of me, I do not see why that is being insisted upon. Twenty-five years ago, most of the senior bank executives and those on the boards of banks did not receive a variable element in their remuneration at all. The problem that the amendment seeks to address was not present then, or at least not remotely to the degree that it now is. Therefore, again, if this matter is to be brought back at Report, I should be grateful if more thought could be given to the need for subsection (3)(a).

Lord McFall of Alcluith: My Lords, I support the amendment. The most important and admired banker of the 20th century—the late Sir Brian Pitman, the former chairman and CEO of Lloyds—came to the Future of Banking Commission, which I established, and on which David Davis MP, Vince Cable, Roger Bootle and others served. He gave us a lesson that day: he said very clearly that he understood that banks should be run for the long-term benefit of shareholders, and that that was what customers wanted most.

Sir Brian’s synopsis of what mattered to him as a banker was very clear, when he said in evidence to us:

“Nobody is a greater believer in shareholder value than me ... It’s long term shareholder value and everything has to be structured around the long term, particularly the remuneration structure … The minute you move to a huge emphasis on short term big bonuses you're going to change the behaviour. It is perfectly possible, in our case for 17 years when I was there”—

at Lloyds, that is—

“we were doubling the value of the company every three years for 17 years. Nearly everybody had shares in the company; messengers were worth a quarter of a million pounds when I left because we’d been successful as an organisation. But we believed it all had to start with the customer”.

He was very clear that if you had the customer in mind in terms of remuneration, you had to measure it on a 10-year basis. Only that way do you find out about the business cycle, and about whether the money paid in bonuses is money that has really been earned at all. As was said earlier, that money was not really earned in the past, because remuneration was based on expected profits, which did not materialise.

For the senior executives in banks it was upwards all the way: whether the bank went down or up, they had their bonuses. Sir Brian distinguished banks from other organisations as follows: “Banks and insurance companies have the unique ability to engineer increases in profits by pulling a lever that forces their banks to take more risks to lend and invest more relative to their capital resources, unlike other institutions”. That is why, in our report, we wanted a statutory basis, and we wanted the regulator to look at this issue.

When the noble Lord, Lord Lawson, and I were on the Parliamentary Commission on Banking Standards we considered the same issue on our sub-committee. We examined Barclays and its culture, and looked in

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particular at the structured capital management division —which, incidentally, the noble Lord, Lord Lawson, referred to as tax avoidance on an industrial scale.

We wanted to find out about the business model for that, and we spoke to insiders. When Sir David Walker and Antony Jenkins came to the committee, we had prepared questions, and my question for Sir David was along these lines:

“I would like copies of all management reporting and management performance information provided to Roger Jenkins”—

who established BarCap, along with Bob Diamond—

“and Iain Abrahams to support the bonus pool”—

in other words, to provide the numbers for us. I continued:

“The second one is the information used for the purposes of calculating the bonus pool of the structured capital management division, and the information used for determining the bonuses in particular for”,

three senior executives for the past decade.

The reason why we asked for that information is that the noble Lord, Lord Lawson, said in the evidence session that Roger Jenkins, who established the division, had had more than £40 million in one year. Bob Diamond had £100 million over a 10-year period. We wanted to find out exactly how they had earned that. The insiders told us that in 2008 BarCap was responsible for 110% of the profits of the whole entity. Here we had a tax avoidance unit on a massive scale masquerading as a bank, and responsible for 110% of the profits—and we did not have a clue how they made their money. I said that we wanted the information,

“in sufficient detail in order to identify each of the subcategories of the structured capital management business. In that respect, it will be the year-end management accounts information and quarterly reports information”,

which we received. We went on to ask for more—and we received absolutely zilch information. So, as we take this banking reform Bill through the House, we still do not know exactly what BarCap was up to.

What I—and the noble Lord, Lord Lawson, and others—want to know is that the regulator has the authority, so that it can see exactly how a business is performing and getting its money, and what business model and culture it has, so that the remuneration structure does indeed have a long-term basis and serves the long-term interests of society and of customers. That is not happening to date. That is why the amendment is before the House.

6.45 pm

Viscount Trenchard: My Lords, I am not sure that I agree entirely with what my noble friend Lord Phillips of Sudbury said about what happened 25 years ago in that the senior management of investment banks—merchant banks, as we called them then—did not enjoy variable remuneration. I worked for Kleinwort Benson for 23 years, and then for Fleming for four years, and more recently for the Japanese bank Mizuho for five years. To me, the culture of Kleinwort Benson was absolutely excellent, honourable and upright, even though it was doing investment banking.

There was a considerable cultural difference between the banking department and the bond trading department, but that reflected the environments in which the various

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people were carrying out their activities. We should also remember that even the asset management business was not separated at all at that time, and there were obviously enormous conflicts between underwriting securities and buying those same securities for clients’ managed portfolios. Those conflicts were dealt with internally, because of the overall culture, which was excellent. That was one of the reasons why the City of London earned respect around the world, and other places have attempted to model their own financial centres on what they perceived to have been London’s strengths.

Notwithstanding the disasters that have befallen us, quite a lot of that regard and respect still obtains today around the world. I worry that we are going too far down the road of state interference in remuneration, which is properly the responsibility of management, who are accountable to shareholders. In a command economy that may be the normal thing to do, but I do not believe that if we go too far down that road it will lead to the establishment of the kind of culture that existed in the City of London for decades. That is tarnished and damaged—we all agree—but I believe that it should be restored.

I do not believe that the case is made that the state should interfere too much in the salaries of bankers, any more than it does in those of the senior management of utility companies, for example. I fear that if the state interferes too much in this area it will definitely lead to the best bankers in the generation now coming up going to work in other centres. Many noble Lords may say, “Good riddance. If they are so greedy, we don’t want them here”, but I do not believe that that is so. We must have a regime that can attract the very best bankers—and I mean the very best in terms of the most capable, but also those with excellent moral standards because that is absolutely necessary.

Over the past few years, the interference in setting the variable remuneration of controlled persons or senior managers in banks has led to a massive increase in fixed salaries in all banks, including small banks and Japanese banks which do not pay multimillion pound bonuses. The senior directors in Tokyo do not receive the kind of figures that shock ordinary hardworking people in this country. That is understandable because they do not accept that a banker is worth thousands of times more than a comparable engineer or anyone else. Inflation in salaries has occurred over the past three or four years because of the limited interference in variable remuneration that has already happened, and I am certain that if we go as far as this amendment would take us, that will lead to a great deal more inflation in the fixed salary element.

That is my advice, based on my experience of being a banker in a merchant bank. Fleming was an investment house that became a merchant bank, but it was not one of the original accepting houses. The Bank of England had an influence on the accepting houses, but they were rightly highly regarded. Of course there were slip-ups from time to time, and there always will be, but if we set up a framework that creates an environment where everything is tightly prescribed by the state, that will not encourage innovation or lead to the development of the right kind of responsible culture.

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Lord Lawson of Blaby: My Lords, I strongly support the amendment moved by the noble Lord, Lord Turnbull. I know that my noble friend Lord Higgins wants to give us the benefit of his wisdom, but perhaps I may intervene now because I would like to explain to the noble Viscount, Lord Trenchard, why he has got completely the wrong end of the stick in terms of what this amendment is about. I must say that I was puzzled when he said that one of the reasons we got into difficulties with banking was because of interference with bankers’ remuneration. There has been no interference with bankers’ remuneration at all. It is true that there is a proposal from the European Union to cap bonuses, but that is not something we have in this country and the commission was explicit in saying that we do not want to see it. This amendment has nothing to do with that.

This amendment is about the structure of remuneration, not the quantum. We are not making a statement about the quantum, but about the structure. I shall explain why that is so. I am sure that the right reverend Prelate the Bishop of Birmingham will accept that nothing in this world is without flaws. I yield to no one in my conviction that, for all its flaws, the market system is the best system for conducting an economy and securing economic prosperity for the benefit of the people of a country. One of the essential elements of the market system, without which it cannot work, is the fear of failure. However innovative, adventurous and enterprising industrialists may be, they always know that if they get it wrong, they will fail. The fear of failure is vital because it is an essential market discipline. The problem in banking is that when you have banks that are too big to fail, that fundamental discipline does not work. That is the difficulty. If it is the case, as it was in the management of the banks up to the crisis, of “Let’s gamble, because heads I win, and tails the taxpayer loses”, you are encouraging gambling. You are bound to see more recklessness, which is exactly the reverse of what banks should be doing.

The noble Viscount referred to the good old days of the merchant banks. I knew them very well. While I did not have the privilege of working in a merchant bank, for a time I wrote the Lex column in the Financial Times, so I got to know them. One of the reasons for their great success was that although they were extremely innovative and they were staffed by very clever people, on the whole they were partnerships, and the partners had their own fortunes at stake. That was the vitally important discipline, but that is not the case with the banks. Incidentally, however, it is the case for hedge funds. I can recall, as will many noble Lords, that some years back there were a few people who thought there were dangers in the City and that some things might go wrong. What did they point to? They pointed to the so-called shadow banking system—the hedge funds. They thought that the big banks were fine, but that those dodgy hedge funds might cause problems. In fact, there were very few problems with them. Why was that? First, the hedge funds knew that they were not too big to fail. They knew that they would not be bailed out by the taxpayer. Secondly, on the whole, the proprietors’ own money was invested in the hedge fund.

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This remuneration code set out in the amendment is not the whole solution to this problem. We have to make it possible for banks to fail, and that is part of what the Government have been doing with the resolution procedures and the bail-ins; we have read page after page on that. We have to enable banks to fail because that is the only way we will get the right kind of system; not that we want them to fail, but it has to be possible for them to do so. But unfortunately, at the present time, I do not think that they will be allowed to fail. They believe that they will always be bailed out by the taxpayer, so we have to buttress this in another way.

One of the most important aims of the amendment is to replicate after a fashion the discipline of the partnership. It provides that the PRA will be able to insist that bonuses—saying nothing about how much they are—would have to be deferred for a number of years in order to ensure that top management is more careful. It will know that it cannot grab the all bonus money in one year in the knowledge that the institution will be bailed out later on. Management will have to think a bit longer term. In a sense, it is like top managers’ own capital being invested in the company because their bonuses will be deferred for a number of years. The amendment provides a remuneration code to act as a sort of buttress. On its own it will not do much, but it could serve as an important buttress to other measures that the Government are introducing—there are a few more that I would like to see introduced. That will give us a banking system which is not a casino.

Viscount Trenchard: My Lords, I have listened carefully to my noble friend Lord Lawson and I apologise if, as he said, I got the wrong end of the stick. I would like to make just two points. With regard to my noble friend’s assertion that there has been no interference in variable remuneration by the state until now, unfortunately I believe that that is not correct. I have served on the executive committee of a bank since 2009 and the regulator has definitely interfered with the variable remuneration in terms of its ratio to fixed remuneration. Over the past three years, that has led the firm to increase fixed salaries considerably, and that has been going on in many banks all over the City. I am just saying that that has already happened and that the attempt to apply restrictions on the proportion of variable to fixed remuneration has led to inflation in fixed salaries.

The second point is that Kleinwort Benson was a listed company when I joined it and that the other merchant banks were mostly companies by that stage. I agree entirely with my noble friend that the partnership ethos was still there, but the listed nature of the businesses enabled even relatively junior people to be awarded modest amounts of shares as part of their variable remuneration from an early stage.

7 pm

Lord Higgins: My Lords, we have had a fascinating debate within a debate between the noble Viscount and my noble friend Lord Lawson. I merely make one or two points. It seems to me that there is a case for a

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remuneration code. In a way we could let the amendment end after subsections (1) and (2) and leave it to the FCA and PRA to take a view. It raises the question of whether, after they have done so, the code they come up with ought then to be considered further in this House. I leave that on one side.

As far as culture is concerned, what my former constituents regard as unfortunate is the whole culture of bonuses. I think that they take very strongly the view that the people concerned should be paid a rate for the job and then get on with it. Rather than specify, as this amendment does, that a proportion must be in the form of remuneration which is variable, I think they would rather the opposite—or at any rate, that the proportion which is variable should be limited.

There are, of course, very real practical problems concerning remuneration in a company which is clearly going on the rocks, when one needs to recruit someone to sort it out. That is a particular case. More generally, we could usefully consider the points made by the noble Lord, Lord Turnbull. The argument for his attitude, if I understand it correctly, on variable remuneration is, “If it is variable, we can claw it back at some later stage”, but that may be a long while after the actual events have taken place. There is also the problem of companies being not just too big to fail but, as has been said on previous occasions, too big to manage. Part of that problem is that we are looking at remuneration for banks which are in that situation. What has become clear in recent events is that people have been paid very large sums when the organisation they are asking to manage is not capable of being managed at the size that it is. Be that as it may, there is a case for a remuneration code, but we should probably leave it to the bodies concerned, which are suggested in this amendment.

Lord Newby (LD): My Lords, we have had an extremely wide-ranging debate on many aspects of bankers’ remuneration. I remind the House of the two specific amendments in front of us. The first imposes a duty on regulators to prepare an additional code on remuneration in relation to senior managers of banks, while the second proposes additional powers for regulators to claw back deferred remuneration of employees of banks that require state aid.

The statutory requirement on regulators to prepare another remuneration code aims to implement a set of remuneration reforms similar to those recommended by the Parliamentary Commission on Banking Standards. I will explain why the existing remuneration code, current rule-making powers and further regulatory action in response to the parliamentary commission provide a clear basis for the implementation of these proposed reforms.

The existing remuneration code addresses the commission’s objectives for regulating remuneration in a way that combines a concrete legal basis with a rigorous system for application. The remuneration code is made under the rule-making powers given to the regulators in the Financial Services and Markets Act 2000, including Section 137H, which extends the provision which may be included in remuneration rules. Any breaches of the regulator’s rules, including

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breaches of the remuneration code, can be punished with serious sanctions. The code reflects the Financial Stability Board’s principles and standards for sound compensation practices, and European legislation under CRD IV. So this is a code established under statute and therefore might not in any way be thought to be ephemeral.

The content of the existing code already goes a long way to addressing the content proposed in the amendment and, where that is not the case, the regulators have indicated their intention to consult further on any necessary changes. So, for using profits to calculate pay, the existing code states that firms must assess current and future risks, and the need for consistency with the timing and likelihood of the future revenues. This clearly requires firms to calculate profit-based remuneration carefully with regard to risks to the bank. On the balancing of risk and reward, the code makes extensive reference to the close relationship that remuneration and risk considerations must have. Reward calculation based on profit and non-financial metrics must encourage effective risk management and not constitute a risk itself.

On pay deferral, the code specifically requires that at least 60% of variable remuneration above £500,000 or to a director of a significantly-sized firm is deferred over a period of not less than three to five years. On top of the existing requirement, the regulators have said in their response to the PCBS that they will consider adding to their code requirements on deferral. In this area, the existing code is already rigorous and set to become even more so. Regarding the issue of variable pay for non-executive directors, the PRA has stated clearly in its response to the PCBS that there is currently a presumption that this practice should not take place and that this will continue to be the case.

The FCA is conducting a thematic review of sales-related incentives and assessing what action would most effectively prevent those presenting conduct and stability risks. This could include further high-level remuneration principles for staff not subject to the full remuneration code. Additionally, the PRA and FCA have stated that they will update the remuneration code following consultation next year. This review will take into account the PCBS recommendations, including those on a greater use of instruments such as bail-in bonds to tackle the practice of compensating recruits on change of employment and greater and more granular disclosure by remuneration committees in banks’ annual reports.

Therefore, to specify in primary legislation exactly what the code should cover on top of the rigorous current approach seems unnecessarily rigid. The exact content of the code will need to be updated from time to time, including in the light of international best practice. Ensuring that the regulators have the necessary powers and authority to undertake such changes in a timely manner is crucial—and that is already achieved in FiSMA. Overprescribing in primary legislation risks adding an unwieldy layer to what is already an effective process.

I believe we have already given the regulators the necessary powers to apply rules to manage financial stability risk and promote responsible behaviour in banks.

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The existing code is based on internationally agreed principles and is responsive enough to incorporate new provisions when called for. Indeed, nowhere is this clearer than in how the PRA and FCA revisions of the code, and the FCA thematic review, will take account of the parliamentary commission’s recommendations.

On the subject of the clawback of deferred remuneration at banks in receipt of state aid, I should begin by being clear that the Government perhaps more than that of any other country, recognise the consequences of bailing out financial institutions. We have been clear that individuals must be held accountable for misconduct and that there should be no rewards for failure. The Government agree that there should be specific powers available for the regulator in relation to remuneration at banks where they require state assistance. The ability to reduce or revoke deferred remuneration when a bank requires state aid would further strengthen accountability and complement the extensive reforms which the Government have undertaken to remove the implicit taxpayer guarantee.

However, regulators already have the power to require the cancellation of deferred remuneration and loss of office payments where a bank requires state-aid support under their existing powers. In the PRA code, specific provision is made for the reduction of deferred remuneration where a bank suffers subsequent poor performance. Additionally, the reforms introduced under the EU capital requirements directive IV have reinforced existing rules on pay at banks in receipt of state support so that: bonuses are strictly limited where inconsistent with the maintenance of a sound capital base and timely exit from government support; regulators will be able to require banks to restructure remuneration in a way that is aligned with sound risk management and long-term growth; and directors should not receive a bonus unless justified.

The Government sought to build on these measures to strengthen further the accountability of individuals who are responsible for an institution which requires government intervention by requesting the PRA to consider the PCBS recommendations on this issue. In response, the PRA has stated that following consultations next year revisions to its code will strengthen and broaden the circumstances in which unvested awards can be reduced and vested awards clawed back. The PRA is also considering to whom these rules should apply and whether further powers are desirable in this regard.

However, extending these powers to cover the removal of pension benefits which have not yet become payable, but which the individual concerned has a contractual right to receive, is difficult. That would restrict the rights of the individual concerned under the European Convention on Human Rights to the “peaceful enjoyment” of his or her possessions. The Government do not consider that this would be appropriate. The PRA will consult further on these issues early next year, including on the details of how the powers should be drafted and the population of staff to whom it should apply.

The noble Lord, Lord Turnbull, specifically asked to whom the remuneration code applies. The code currently applies—and will continue to apply—to around

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2,700 firms, including all banks, building societies and capital adequacy directive investment firms. That includes broker-dealers and asset managers—such as most hedge fund managers and all USIT investment firms—as well as some firms which engage in corporate finance, venture capital and the provision of financial advice, brokers, multilateral trading facilities and others. In terms of who is covered within those firms, the code defines “Remuneration Code Staff” to include,

“senior management, risk takers, staff engaged in control functions and any employee receiving total remuneration that takes them into the same remuneration bracket as senior management and risk takers, whose professional activities have a material impact on the firm’s risk profile”.

Some of the principles in the code must be applied to the whole firm, including those on guaranteed variable remuneration and the more general principles around risk management et cetera.

The right reverend Prelate talked about the culture in the banking sector and changes that he is seeing in Birmingham, which he hopes are the start of a process. I think we would all agree that that is desirable. In some of the big banks at least, there has undoubtedly been a noticeable change in culture in recent months and years. The right reverend Prelate and a number of other noble Lords talked about the overall level of remuneration. That is a matter for the bank’s shareholders but the Government and my colleague in another place, Vince Cable, have strengthened the powers of shareholders to require boards to explain and get approval for what they plan to do on remuneration. That has considerably increased transparency and, I hope, might have a moderating influence.

The noble Lord, Lord McFall, asked whether the regulator would have access to Barclays management information, to know how it makes its money. I think we talked a bit about this in an earlier debate. The PRA has access under Section 165 of FiSMA to require banks to provide it with all the information or documents that it reasonably requires for its function. That is a very broad power and would cover the information referred to.

The nub of our argument, as the noble Lord, Lord Turnbull, rightly pointed out in his opening speech, is that we have a code. It is operating with increased rigour and will be amended next year to take account in detail of what the parliamentary commission has said. That being the case, we do not need any further provision.

7.15 pm

Lord Turnbull: My Lords, I agree that this has been an interesting debate. I start by thanking the right reverend Prelate the Bishop of Birmingham for his supportive remarks. He referred to the way in which companies print mission statements, values et cetera—what the most reverend Primate the Archbishop of Canterbury referred to as doing the three Ps, or, “Print, pin up and pray”. We have to move beyond that and make these things a reality.

First, I will respond to various speakers. The noble Lord, Lord Phillips, made two comments. One was to ask about all the other people in the City. The remuneration code which exists—I declare an interest as a director of an insurance company—still applies

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and will apply. The issue here is whether a kind of upper tier is to be created that relates specifically to banks. I believe there is a case for that. He also asked why anybody needs variable remuneration. A number of noble Lords have given the answer to that. One is that base pay builds in fixed costs. In the case of banks, why do you defer? One reason is because, particularly given the way that they are accounted for, profits which look okay today vanish tomorrow—they are ephemeral. You suddenly find that a series of trades that you had valued at a certain level just disappears. You should wait and see until the profits are actually made and then you can pay it out. The argument has also been made that this would tend to raise base pay. A degree of variable pay is actually a beneficial part of the system, although it needs to be controlled.

The noble Viscount, Lord Trenchard, asked about leaving the responsibility to shareholders. If shareholders own only 3% of the business, are they really going to be a sufficiently powerful force, particularly when their investment is highly geared? They share the same incentive as the managers. The managers are, in a sense, overincentivised and the shareholders are the same. The other thing that has come out is that there are strong externalities working in this world. The failure of a bank, and particularly the banking system, has the ability to create havoc over a wide area. The impetus and responsibility on the state to see that the banks provide a continuous service means that other people have a locus in this. You cannot simply allow banks to be run with the entire remuneration system being put into the hand of one set of stakeholders, such as the shareholders.

As for inflation over the past two or three years, my reading is that bank pay has probably plateaued in that period. Most inflation came in the decade before that, when there was precious little intervention from either the state or investors. The noble Lord, Lord Higgins, said that my support for variable pay was based on giving it to them so that you can then claw it back, but the deferral is really there because you want to make sure that these profits have actually been delivered and the benefits then shared with the bank, in terms of its capital, and through dividends. I absolutely agree that many banks are too big to manage. At the moment, a lot of them are shedding activity, although we will have to wait to see whether they are going fast or far enough.

The Minister’s response was pretty much as I expected but there was also quite a lot of “wait and see”. There will be new proposals but what is not clear is how far the Government have really taken onboard that there is a case for going further with banks than with other financial institutions. This crisis owed nothing to the rest of the City; if anything, the rest of the City were victims of it. We were arguing that provisions for longer deferral were more appropriate for banks than generally.

It is partly a question of knowledge; I do not know that people really understand what the remuneration code is. Between now and Report it would be quite good if the PRA or the Treasury could circulate to us what this code now looks like, which propositions are currently being consulted on and which decisions, if any, have not yet been put into effect. We will then be

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better able to judge whether we think this is going to be adequate, otherwise it really is a case of “Trust us, we’ll get round to it”. But this crisis is six years on. Time is moving on, so simply saying “We will get some further proposals next year” is not enough. A better job needs to be done in informing people of what is currently being considered. They will then be in a better position to make a judgment on whether that is good enough or whether we need to go further. Preferably, to pick up the point that the noble Lord, Lord Lawson, made, if there was quite a lot more time between now and Report we would be able to look at that to get a better understanding of what is in the pipeline.

The final question was about pensions. If you say, “What is in someone’s pension fund is inviolable”, you create an absolute incentive for people to stack money in there. This is about not their contributions but the discretionary payments that the company has decided to put in. Perhaps it has put another £1 million into someone’s pension fund. If that is done on a contractual basis, by saying, “Here is the regular contribution we make to your pension fund and here is the addition that we are making. You should be aware that that bit could be clawed back”, then I do not really accept the argument that says, “It’s your money now—it’s absolutely yours forever and we can never touch it”. You need to set up the basis on which deferred pay is offered in a way that makes it possible to claw it back.

We have seen in two cases, RBS and HBOS, that pensions were a crucial issue. In both cases, by a kind of popular pressure, concessions were made but it should not really need to depend on that. We should not simply accept the story that nothing more can be done. However, there is work needed to understand what the PRA and the Treasury have in mind. That would put us in a better place to take the discussion further between now and Report. On that basis, I beg leave to withdraw the amendment.

Amendment 95 withdrawn.

Amendment 96 not moved.

Amendment 97

Moved by Lord Turnbull

97: Before Clause 16, insert the following new Clause—

“Special measures

(1) This section applies where the FCA or the PRA—

(a) has reason to believe that a bank’s systems or professional standards or culture do not provide sufficient safeguards against the commission of actions in respect of which the FCA or the PRA has power to take action, but

(b) do not have reason to believe that any such action has been committed (ignoring any action which is already being investigated or in respect of which action has been or is being taken).

(2) The FCA or the PRA may give notice to the bank of the belief mentioned in subsection (1)(a).

(3) If the FCA or the PRA gives a notice under subsection (2), it must invite the bank to make representations showing that sufficient safeguards are in place.

(4) Following the giving of a notice under subsection (2) and the receipt of representations under subsection (3) (if any are made), the FCA or the PRA may commission an independent

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investigation into the bank’s systems and professional standards and culture with a view to establishing whether sufficient safeguards are in place; and for that purpose—

(a) “independent” means independent of the FCA, the PRA and the bank, and

(b) an investigation may not be commissioned from a person involved in the auditing of companies.

(5) The bank must cooperate with the investigation.

(6) Following receipt of the report of the investigation under subsection (4), the FCA or the PRA may by notice require the bank to take measures to provide sufficient safeguards and to monitor their effectiveness.

(7) The bank must—

(a) comply with the notice, and

(b) appoint an appropriately senior member of the bank’s staff to oversee compliance.

(8) Compliance by a bank with a duty under this section may be considered for the purposes of the exercise by the FCA or the PRA of functions under FSMA 2000.”

Lord Turnbull: Amendment 97 would create a regime of special measures. In the report of the Parliamentary Commission on Banking Standards, from paragraph 966 onwards, we argued that regulators should have a power to give notice to a bank where they believe that the bank’s systems, professional standards and culture do not provide sufficient safeguards. First, they could require an independent investigation, and then require a remedial programme of corrective action. This would be seen as a precursor to enforcement. It is basically a way of trying to avoid getting into the morass of enforcement. A similar regime is operated in the US by the office of the controller of the currency. It is called the safety and soundness plan.

Although the amendment refers to the PRA or the FCA, I believe that it would work best if the special measures plan was jointly owned. The twin peaks system of regulation has its advantages but there was always a danger that with each regulator focusing on its specific areas of concern, between them they would fail to capture the bigger picture. There could be a more generic problem of standards and culture and this would be an opportunity to work collectively and engage with the bank.

It may well be that yet again the response is that regulators have these powers already. Indeed, if they believe that the way that a bank is being run is a risk factor, they can impose a capital add-on. However, the argument against all these cases where we have these powers already comes back to if that is case, how did we get into this problem in the first place? What we are trying to establish is whether things will be different in the future. It would help us judge that better if the PRA/FCA could produce a working document on how they envisage using powers of this kind—a special measures regime—where they are looking for generalised improvements in the culture and the way that a bank is being managed. I beg to move.

Lord Newby: My Lords, we agree with the spirit behind the special measures proposal, as the noble Lord expected, but we do not believe it is necessary to give the regulators new powers in this area. They already have the powers to do everything the PCBS has asked. We have therefore been working with them on how they could respond to the recommendation using their existing powers.

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The regulators published their responses earlier this month. These responses explain that both the FCA and PRA can, and in fact do, use the powers that they already have to do many of the things that the PCBS recommended and that are included in the amendment. The regulators have a significant range of powers to identify and tackle serious failings, either to rectify existing problems or prevent further consumer loss or reputational damage to markets. In fact, the regulators are able to replicate all the steps outlined in the amendment using their existing powers.

For example, the regulators already have the ability to give notice to a firm through an appropriate mechanism, be it a letter or an e-mail, as a matter of course if they have any concerns or think there may be a problem. The regulators will look to engage with the firm to address the concerns they raise. Whenever it is appropriate, the regulators may request information from the firm under Section 165 of FiSMA. If, following an investigation, the regulators believe further action is needed, the PRA and FCA can use their powers under Sections 55M and 55L of FiSMA to impose requirements on firms to undertake or cease a particular action. These powers can certainly be used to require a bank to adopt additional safeguards or to strengthen its existing safeguards.

Similarly, the regulators can appoint an independent person to undertake investigations using their power under Section 166 of FiSMA to commission a skilled persons report, or under Section 167 to conduct an investigation into the business of an authorised person. Both the PRA and FCA are committed to doing so in instances that they believe add substantially to their understanding of an issue. However, we do not think it is appropriate that the use of an independent person should be a requirement in all cases. There are some instances where the necessary information will be available from other supervisory sources making any such requirement unnecessarily costly and counterproductive.

Finally, there are already duties in regulations made by the regulators that require firms to deal with their regulator in an open and co-operative way. It may be that the noble Lord has not had a chance to look at the responses from the regulators and that, having done so, he will be satisfied, or, equally, that he would like further clarification. I suggest to him and any other noble Lords who have a particular interest in this matter that, if they have any further concerns having looked at those documents, we would willingly arrange a meeting with the Treasury to discuss any further elaboration that the noble Lord feels would help clarify how the system is going to work. Given that the powers exist, we really believe that the special measures powers envisaged in the amendment are unnecessary, and I therefore ask the noble Lord to withdraw it.

7.30 pm

Lord Turnbull: I am grateful to the Minister. I think I received a link to the document but never got round to reading it. I will go and find it again and if I cannot find it I will come back and ask for assistance. I welcome the fact that this is recognised as a tool by the regulators. It may be that when I have read the remarks the Minister has just made, I will find that satisfactory.

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One other point that I agree with concerns the use of Section 166. At various conferences I go to around the City, people think that Section 166 is probably being overused. Very often you could say, “We want you, the company, to investigate this. You could get it done by your chairman of audit or your chairman of risk or someone else”, but inevitably one of the four accounting companies ends up being a rather expensive and laborious way of doing it. I share the noble Lord’s sentiments on that.

I will go and do a bit more homework. In the mean time, I beg leave to withdraw the amendment.

Amendment 97 withdrawn.

House resumed. Committee to begin again not before 8.32 pm.

Earl Attlee (Con): My Lords, the usual channels have set us a bit of a challenge: noble Lords on the Back Benches have two minutes’ speaking time. I can help by reminding noble Lords that when the clock shows “2”, your time is up.

Millennium Development Goals

Question for Short Debate

7.32 pm

Asked by Baroness Jenkin of Kennington

To ask Her Majesty’s Government what assessment they have made of the United Nations High-level Panel report into the successor agenda to the Millennium Development Goals.

Baroness Jenkin of Kennington (Con): My Lords, I feel a bit guilty with my 10 minutes. Anyway, I welcome this opportunity to debate the impact of the United Nations high-level panel report into the successor agenda to the millennium development goals.

I start by welcoming my noble friend Lord Bates on his maiden outing to the Dispatch Box. Noble Lords may be aware that I co-chair Conservative Friends of International Development. There can be no more consistent and committed friend to international development than my noble friend. I doubt that there are many, if any, noble Lords in the Chamber today who are not aware of his recent walk from London to Derry, spending 35 days of his summer holiday walking 518.8 miles to draw attention to the plight of the children of Syria and in so doing raising the enormous sum of £50,000 for Save the Children. There may be others watching this debate or reading it in Hansard, or who may stumble across it later, who are not aware of this astonishing and generous feat. I urge them to find my noble friend’s JustGiving page, which is still open for donations. Tragically, Save the Children are in just as great a need of support in their humanitarian work in Syria today as when he finished the walk on 9 September.

This has been momentous and exciting year for development. As well as the high-level panel report, highlights include the UK’s achievement of the 0.7% GNI target, and hosting the nutrition summit and the G8.

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We can all be justly proud of the role that our Prime Minister and his team played in steering the panel and ensuring the delivery of such an ambitious agenda. There were times when the vision now laid out in the report seemed to be a long way off and I congratulate all the panel members and its co-chairs on rising to the challenge.

After five meetings, around 5,000 pages of submissions and more than 500,000 people consulted, the report is clear, intellectually coherent and moves on the debate about poverty and development without losing what is good in the existing agenda. It offers a clear storyline and an indicative set of goals to provide an example of how this might all translate into the post-2015 agenda.

The report is also a big leap of ambition from the MDGs. It includes, but goes well beyond, the core MDG business of health, education and poverty, and encompasses infrastructure, property rights, governance, violence and personal safety, an end to discrimination, and gender equality. It suggests aiming for zero targets—such as no people living in poverty—combined with nationally defined rates of progress towards that end.

The report has been well received both domestically and internationally. It has set the benchmark against which the discussions and processes of the next two years will be judged. This judgment will be against not only the report’s content but the way in which the panel conducted its work. Its emphasis on the importance of broad consultation and listening to the voices of the poor and vulnerable must be continued throughout the process.

No speech about the successor agenda can be delivered without referencing the historic impact of the MDGs. They motivated global action around a common cause: that absolute poverty was indeed beatable. The 13 years since the millennium declaration have witnessed some of the largest and most successful development impacts in history. The target of reducing extreme poverty rates by half was met five years ahead of the 2015 deadline. The target for access to improved sources of water has already been reached and there have been drastic falls in deaths from malaria, and in maternal and child mortality. Fewer people are dying of AIDS, malaria and TB.

That said, there is much more to do and it is important that we do not forget that there are still two years left to deliver on the current MDGs. The need to finish the job is one from which we should not be distracted. However, as the high-level panel itself said, we must go beyond the current MDGs because, commendable as they are, they did not focus enough on reaching the very poorest and most excluded. Reaching the target to halve poverty is a staggering achievement but one that leaves half the people in poverty behind.

The report states clearly that we can and must eliminate extreme poverty from the face of the earth by 2030. The Prime Minister helped to steer the panel to a consensus on the five big shifts required to achieve this visionary aim. Although everyone in this Chamber will be familiar with these shifts, they are worth restating. First, we must leave no one behind. We can end poverty by 2030. We can eliminate preventable infant deaths and we can make dramatic reductions in maternal mortality. Secondly, we must put sustainable development

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at the core, bringing the environmental and development agendas, which have been separated for decades, back together. Thirdly, we must put a focus on transforming economies for jobs and inclusive growth. As we all know, growth is the only real exit from poverty, meaning a much greater focus on promoting business and entrepreneurship, infrastructure, education and skills, and trade. Fourthly, we must build peace and effective, open and accountable institutions for all, ensuring that we tackle the causes and not just the symptoms of poverty. Fifthly, we must forge a new global partnership that brings national Governments, businesses, community groups, donors, local government and others to work together.

It is also true that ending poverty is not a matter for aid or international co-operation alone. The 2015 process must also be about developed countries reforming their trade, tax and transparency policies. This should build on the work already established under the Prime Minister’s leadership of the G8 in June this year.

Before moving on to the task that lies ahead, I will take a minute to reflect on what we in this House can and should be doing. As we approach the MDG deadline, we must consider the role of democratic governance and parliaments in continuing to promote development objectives. Participation, transparency and accountability are playing an increasingly important part in the post-2015 development agenda. The outcome document from the UN special event on MDGs last month mentioned that the new set of goals should,

“promote peace and security, democratic governance, the rule of law, gender equality and human rights for all”.

Parliamentarians play a critical role in meeting those requirements through their law-making, budgeting and oversight functions and their roles as the representatives of the electorate.

In September, UN states affirmed their commitment,

“to a transparent intergovernmental process which will include inputs from all stakeholders including civil society, scientific and knowledge institutions, parliaments, local authorities, and the private sector”.

However, the onus—and responsibility—is on parliamentarians to engage with those negotiations, which will be launched at the beginning of the UN General Assembly in September next year. We must all remain engaged with the process.

The next couple of years will bring plenty of challenges, but we should not forget that an ambitious successor to the MDGs is in our long-term interests. Every dollar invested in stopping chronic malnutrition returns $30 in higher lifetime productivity. The value of the productive time gained when households have access to safe drinking water in the home is worth three times the cost of providing it.

We will all be encouraged that the UN Secretary-General’s report on the MDGs picked up on the key ideas from the report. I urge the Government to continue to play a prominent role in the discussions, particularly in New York where the negotiations will take place. We wish the UN and the Governments luck and wisdom as they, together with civil society, businesses and other development actors, negotiate the final set of goals over the next couple of years. I think of the

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report as a Christmas tree, currently loaded with lots of glittering baubles; the task ahead is to prune that tree in order to get the results we need.

I leave your Lordships with this: on page 19 of the report the panel provides examples of the potential impact if its recommendations are successfully implemented. In short, it could mean a real and lasting impact on the poorest in the world. There would be 1.2 billion fewer people hungry and in extreme poverty; 1.2 billion more people connected to electricity; 1.3 billion tonnes of food per year saved from going to waste; 470 million more workers with good jobs and livelihoods; $30 trillion spent by Governments worldwide transparently accounted for; and 220 million fewer people who suffer crippling effects of natural disasters. Can there be a more pressing or important agenda for this House to support?

Finally, during our deliberations and discussions let us never lose sight of the fact that behind these enormous numbers lie people: human beings, individuals and families; real people with the same hopes, fears and aspirations as us, but people born and trapped in poverty, unlike those of us lucky enough to have been born winners of the golden lottery ticket of life.

7.43 pm

Lord McConnell of Glenscorrodale (Lab): My Lords, I thank the noble Baroness, Lady Jenkin, for securing and opening this debate, in particular with such an outstanding and comprehensive speech, allowing the rest of us to add value to what she has said, rather than fill in any gaps. I echo her welcome to the noble Lord, Lord Bates, who, I hope, retains his passion for this subject, even if he is now speaking from a different seat than he was before. It is good to see him on the Front Bench.

In the time available I do not want to restate in detail my deep and firm commitment to have at the heart of the new development goals the eradication of poverty; the need for women and girls to have a central role in making those changes; and the vital need for an expansion in educational opportunities as the surest route out of poverty and the best way to develop the potential of every citizen on the planet. It is vital that we complete—or at least, maintain the momentum to achieve—the millennium development goals between now and 2015.

We cannot have peace without development, nor development without sustainable peace: the two go hand in hand. Therefore it is right that we welcome the report referred to by the noble Baroness, Lady Jenkin, which puts at the heart of this new agenda the need for security, good governance, democracy, human rights and gender equality. If we have one goal over the next two years, in the difficult arguments and negotiations that lie ahead, it should be to ensure that the situation in conflict-affected and post-conflict states, where the poorest of the poor, the most vulnerable and hardest to reach people on our planet suffer far too much, is at the heart of this new agenda, so that we really secure the opportunity to eradicate poverty by 2030.

7.45 pm

Lord Dholakia (LD): My Lords, I add my thanks to the noble Baroness, Lady Jenkin, for securing this debate.

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“Leave no one behind” has been the spirit of the millennium development goals since their inception. Yet the fact remains that, even after 15 years in which the proportion of people living in extreme poverty has been halved, 70 per cent of those not lifted out of poverty are women.

As the deadline of the millennium development goals hovers into view, it becomes clear that areas that require critical examination are those that affect women and girls most sharply. For example, only two countries out of 130 have achieved gender parity in education. Development is not always held back because of a lack of resources; sometimes it is held back because someone is holding it back. It is certainly crucial that women and girls are taken into proper account in every single one of the new goals. The lives of millions of girls are blighted by violence, whether that is armed conflict, domestic violence or the gender-based violence faced by girls in their own communities in the form of female genital mutilation. By categorising FGM as something done a long way away, in cultures we do not understand, we resist helping those who have suffered and those in danger of suffering.

The current generation of millennium development goals lets down girls and women. The omission of a goal to eliminate violence against women is a glaring one. This can be cultural violence, the abbreviating of the potential of girls who die when they become pregnant. It can certainly be physical violence, as with the example of FGM. Robbery is also violence; the refusal of some Chinese universities to allow girls to study engineering, as recently reported by the BBC, is to steal from them their potential earnings and status in society. Few of those goals, therefore, can be leapt towards by the simple act of changing one’s mind.

Ending gender inequality is the exception to that, and I call upon Ministers and leaders to seize goal 2 of the high-level panel’s report, hold it in both hands and commit to preventing and eliminating all forms of violence against girls and women.

7.47 pm

The Earl of Sandwich (CB): My Lords, the MDGs were overambitious, but the post-2015 agenda is reaching beyond the bounds of the possible. Through the high-level panel we are promising not to reduce extreme poverty but to end it altogether, in all its forms; to transform economies; and to build peace and good governance, involving civil society. The UN and its various panels have a huge task in reconciling the updated MDGs with the sustainable development goals. There are now almost too many concepts coming out of these panels, and I doubt that we will end up with the clarity of the original MDGs. Sustainability can, however, be a test of effective, lasting development, in which the beneficiaries become the principal actors, such as farmers putting new techniques into action or health workers drawn from the local population.

To achieve the scale of activity required is going to mean even greater commitment to development assistance. Some of the documents referred to increased and more effective methods of finance. The EU is suggesting a range of options and says that investments towards

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the goals “should work seamlessly together”. Here we hit a snag. Economic recession has meant that aid from the EU has fallen, despite the calls for 0.7 per cent. The Minister might like to comment on that.

Water and sanitation are likely to be rated much higher in future development goals. Climate change is another priority. I welcome also the likely new emphasis on gender, given that women make up about two-thirds of the world’s poorest. Enabling local people to improve their own environment and health is one of the most cost-effective forms of development, saving three or four times its investment in economic productivity.

Institutions such as the EU, the World Bank and even our own DfID cannot easily adapt their perceptions of development to the needs on the ground; they have to learn to build upwards from the knowledge and ability of the communities involved.

7.49 pm

The Lord Bishop of Ripon and Leeds: My Lords, I am grateful to the noble Baroness, Lady Jenkin, and I share the welcome for the high-level panel report. I believe it could be strengthened in two areas. The first area is environmental sustainability. The millennium goals are weak on climate change and the high-level panel report does not make it sufficiently clear that global warming already damages the economies, and therefore the poor, in poorer countries such as Bangladesh. The panel has the laudable aim of eliminating $1.25 a day poverty but that needs to be inextricably linked with a new climate equilibrium, which we are far from attaining. Do Her Majesty’s Government agree that there needs to be a legally binding global climate deal in 2015 in line with the scientific consensus?

Secondly, the emphasis on absolute poverty must not hide the danger of increasing inequality in our world. Income inequality is rife in both richer and poorer countries and is one mark of the increasing power of elites at the expense of those in poverty. I regret that the powerful analysis of Pickett and Wilkinson’s Spirit Level, that less equal societies do worse, has almost disappeared from our political debate. This inequality within and between nations is exacerbated by the failure of tax justice so far to ensure that multinationals pay a proper proportion of tax and that this is paid in the countries where their profits are made.

Will the Government support a post-2015 agenda which focuses on inequality as well as eradicating extreme poverty; and how could a new set of goals ensure a more equitable distribution of power and resources, both within and between nation states?

7.51 pm

Lord Patten (Con): My Lords there is no hope at all of the excellent aims of the high-level panel being achieved by 2030 or anything like it unless two preconditions are met. First, that there is good governance and good government in developing countries; and, secondly, that the undoubted vigour and vim of our great multinational corporations is harnessed to do good in the global economic environment in which they work.

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On good government, I can do no better than quote what the chief executive of the Catholic Agency for Overseas Development, Chris Bain, said on 31 May when he responded to the panel’s report. He said:

“Ultimately, legitimate goals will hinge on a credible political deal”.

He went on to say:

“Freedom of speech and peaceful protest alongside access to information are fundamental to the right of individuals to flourish”.

So there it is. There is a critical importance to the development of good transparent government, free speech, the rule of law and open and accountable administration.

I am concerned that one of the representatives on the panel comes from Turkey. I do not think that any of those aims are in Turkey at the moment. Those who demonstrated in civil society peacefully in Taksim Square found that. Turkey, of course, has the unenviable record of having more journalists in its prisons than any other country on earth. I agree with the noble Lord, Lord McConnell, that good government is essential.

Secondly, we have to recognise that global corporations and financial institutions can do much good. Foreign and direct investment will soon approach five times more than global development aid at a time when global growth prospects will rely more and more on the opportunities in developing and emerging markets in a symbiotic way across the globe. I look with admiration at the work of great corporations such as Unilever, which are totally transparent in what they do to try to help in development and are doing an enormous amount to aid the agenda which the panel has put forward.

7.53 pm

Lord Boateng (Lab): My Lords, our thanks are due to the noble Baroness, Lady Jenkin, for her work in this field as well as for introducing the report and the debate in the way she has.

The report is welcome, not least for its references to the importance of agriculture—which has been neglected, I fear, in the current crop of millennium development goals—and inclusive growth as a necessary precondition for jobs and the reduction of poverty.

My experience of growing up in Africa as the grandson of two African farmers—we should never forget that women play a greater role in agriculture in Africa than do men—has taught me, as has my experience outside this House in Africa, that in order to bring about the “profound transformation” to end extreme poverty and improve livelihoods, to which the report refers, it is necessary to do what it suggests: to harness innovation and technology to this end. The high-level panel is to be commended for that.

I ask the Minister—I warmly welcome him, as does the rest of the House, to his place—what can we do, what can DfID do, to support higher education, our research councils, our scientific bodies and our private sector in order to promote science, technology and innovation in Africa to underpin agriculture and agricultural growth.

If this report is a Christmas tree—and it is—it needs science, energy and infrastructure in order to bring it alight. Only with that can Africa fulfil its

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potential and the lion join the tigers as an engine of growth and prosperity, not only for Africa and Asia but for the whole world.

Earl Attlee (Con): My Lords, I am pleased to say that we are doing quite well.

7.56 pm

Lord Jay of Ewelme (CB): My Lords, I shall try to keep up that sequence.

In my view, the existing millennium development goals have been a success and not just a set of targets announced and forgotten. They have been a focus for development activities within the UN system and by bilateral donors. I agree with the noble Baroness, Lady Jenkin, that we must not let up on them between now and 2015. I am sure that the Minister, whose appointment, like others, I warmly welcome, will give us some reassurance on that. They must be replaced by an effective set of goals for the years beyond that. I welcome the high-level panel’s report but the existing MDGs were successful in part because they were simple, relevant and memorable, and because there were only eight. I urge the Government to keep the new millennium development goals to a maximum of 12, and, if possible, fewer.

I have two specific comments. First, I am glad that sustainable development is at the core. However, I urge the Government to ensure that the renewed MDG process and the UN climate change process are consistent and not contradictory and that they reinforce and do not cut across each other. I would welcome reassurance on that. Secondly, I greatly welcome the first principle in the high-level panel’s report—“leave no one behind”. That is as true for richer countries as for poorer. Think of food banks for hungry children in our own country. It shows that there really is a global agenda here and no longer a “them and us”. Leaving no one behind does not mean a lower priority for growth, quite the contrary. It means a policy that ensures that in all countries the fruits of growth reach those who need it. Making certain that that happens is key for all of us in the years to 2030 and beyond.

7.58 pm

Baroness Prosser (Lab): My Lords, I join others in thanking the noble Baroness, Lady Jenkin, for tabling the debate. The introduction of the millennium development goals in 2000 was greeted with enthusiasm by those involved in international development. A target-based programme designed to address poverty and exclusion in all their forms was a welcome step forward from disparate projects and unco-ordinated expenditure. The outcome document from the UN special event of 25 September this year, convened to review MDG progress and to chart a way forward, states:

“We will place a strong emphasis on all approaches that have a cross cutting and multiplier effect. In particular, we recognise that promoting gender equality, and empowering women and girls, underpins and advances progress across all the Goals. We will resolutely promote gender equality and eliminate the range of barriers to women and girls’ empowerment in our societies”.

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This is welcome news. While this concept has been recognised by many for a considerable period of time, programmes which include this approach have been few and far between.

It also has to be recognised that progress will be made only if broad-sweep statements such as the one above are developed into detailed plans which themselves recognise that women’s moves towards equality are stymied and frustrated by systemic hurdles and barriers, many of which have been in place for years and which will be moved only by determination and by educating the men involved as to the value to be gained by the whole community. In part this will be achieved by enabling women to move into positions of influence. This could be at local level, playing a part in the determination of priorities, or regionally or nationally. Decision-making bodies from which women are excluded are most likely to contribute along a traditional path, with little attention being paid, for example, to healthcare or educational needs. Women’s influence on sharing resources is essential to outcomes beneficial to all.

8 pm

Lord Crisp (CB): My Lords, I congratulate the noble Lady, Baroness Jenkin, on setting out so well the background against which we all speak. I want to make two points in two minutes. First, leaving no one behind, or the UN Secretary-General’s version of it, a life of dignity for all, are absolutely wonderful ambitions. I draw attention to how this applies to disabled people. I do so in part as chair of Sightsavers, which deals with blind people. I am very well aware that too often disabled children and blind children in particular are left behind in our current MDGs. The crucial point here is not just the political will. It is also about the data and about gathering the data so that we know how these things are being applied not just to disabled people but to other minorities. What is the Government’s assessment of how these data can be collected and how well they can be collected over the next period?

My second point, following others, is that the MDGs in health have not been fully met. HIV/AIDS is not yet beaten. Child mortality is too high and maternal mortality is absolutely appalling in too many places. I ask the Government two things. First, what are they going to do to ensure the implementation of the recommendations of the independent expert review group chaired by Joy Phumaphi and Richard Horton which is arguing for greater acceleration on progress to the health MDGs, particularly MDGs four and five at the moment? Secondly, how can the Governments of the world collectively ensure that the current MDGs are carried forward and progress continues to be made after 2015, as it will need to be?

8.02 pm

Lord Judd (Lab): I declare an interest as the former director of Oxfam and VSO, and also currently as a trustee of Saverworld. Congratulations are due to the noble Baroness, Lady Jenkin, on having secured the debate and on her highly effective speech in introducing it. She established the need for a major debate in this

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House, preferably in government time, because this is such an important part of their commitments and strategies that we need to have a proper, full debate.

It is essential to recognise that we must ensure shared objectives. It is not us, the wealthy, telling the poor what to do, but ensuring that the poor themselves are involved in the ownership of the programme that is put forward and to which they are expected to respond and that they feel that it is theirs, not ours. It is is also recognising the interplay between specific targets and the matrix. What is the matrix? Let me rattle through the points to illustrate it: children and women, education, ecosystems and sustainable management of natural resources, climate change with the consequent vast movement of people, gaps in achieving MDGs within individual countries, and also the inequality and injustice in income levels between men and women, social groups and the able and disabled, universal public services, redistribution of wealth, effective and progressive tax systems, strengthening resilience and advancing human rights, sustainable peace and state building, conflict resolution, and analysing the causes of conflict. There is a huge list. We cannot possibly do it justice tonight. The sooner there is a full debate, the better.

8.04 pm

Lord St John of Bletso (CB): My Lords, I join in thanking the noble Baroness, Lady Jenkin, for introducing this short yet very topical debate. I agree with the noble Baroness that economic growth is a key enabler to reducing poverty. However, as several noble Lords have already mentioned, the goal of achieving sustainable development requires good governance, transparency and effective accountability. Development requires peace and peace requires sustainable economic development.

Continued rapid urbanisation in many developing countries poses problems of its own. It is estimated that in several African cities the population will treble in the next 35 years. That will have the inevitable result of the proliferation of squatter camps and displaced families. The recent global partnership report highlighted 12 goals to end poverty by 2030 but scant mention was made of what measures were being taken to improve effective communication. Measuring poverty continues to be a barrier to effective policy making. While more than 80% of Africans have access to a mobile telephone, less than 4% have access to reliable and affordable broadband. Africa is well serviced with undersea fibre optic cables but has totally inadequate connectivity to the mainland. My simple call today is for more measures to promote universal affordable broadband, which will by its very nature improve education, healthcare and job creation and ultimately reduce poverty.

8.06 pm

Baroness Tonge (Ind LD): My Lords, I congratulate the noble Baroness, Lady Jenkin, on securing this popular debate, which has been more like “Just a Minute”on Radio 4 than a debate.

The UN high-level panel report emphasises that future development should be sustainable. We must therefore ensure that we address the thorny problem of the growth of world population, which is leading to

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more and more poverty, conflict and migration. Bad press in the past makes us reluctant to mention it, but goals we set for development will never be achieved because the goal posts will have moved in the mean time, unless we do something about population growth. To tackle the problem, we can and must concentrate on the health and reproductive rights of women, ensuring for instance that the 220 million women with an unmet need for contraception have their needs met. If they can voluntarily—I repeat, voluntarily—limit their family size—and they will—they will then be able to access education and join in with economic activity in their own countries, which we know is key to development.

I implore the Minister to ensure that the Government build on the excellent initiative at the family planning summit last year and ensure that a target is set for universal access to sexual and reproductive rights and the continuing pursuit of women’s empowerment and gender equality. I feel passionately on this issue as a former family planning doctor and chair of the All-Party Parliamentary Group on Population, Development and Reproductive Health.

8.08 pm

Viscount Craigavon (CB): My Lords, I will go straight to what I believe—which the noble Baroness, Lady Tonge, also seems to believe—is the most important part of the MDGs and an integral part of sustainable development: population dynamics and reproductive health. In the recent special event meeting in September, heads of state and government confirmed that they will target the existing most off-track MDGs and those where progress has stalled, such as,

“universal access to reproductive health, including maternal health”.

That wording again emphasises the importance of reproductive health, and confirms that the existing goals have not been forgotten.

For post-2015 goals in this field, there has been widespread advocacy of a stand-alone target on universal access to sexual and reproductive health and rights. Those in this field believe that sustainable development can only be underpinned by meeting the widely acknowledged, unmet need for reproductive health services and by giving women the choice in freely planning the size of their families. At the same time, it has to be acknowledged that another side of sustainable development is reflected in our western overconsumption and excesses. However, to put it rather simply at this stage, the benefits of family planning do not have to wait until levels of education have improved or stable economies are in place. As Marie Stopes International in particular has shown, reproductive health provision, if provided in the right way at any stage of development, can be successful and beneficial to all.

For the new goals and the debate over the coming months, the UN Population Fund has produced a short and highly readable document entitled The Future UNFPA Wants for All. This contains seven key points, each summarised in a few sentences, for the post-2015 development agenda. In the time available, I can only recommend it and say that it demonstrates, in so many ways, how population and reproductive health matters must be an integral part of sustainable development.

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8.10 pm

Lord Collins of Highbury (Lab): My Lords, I will not cover all the points that I wanted to in the two minutes available. However, I thank all noble Lords for their contributions and in particular the noble Baroness, Lady Jenkin, for initiating this debate—and I welcome the noble Lord, Lord Bates, to the Dispatch Box.

I welcome many of the recommendations in the high-level panel’s report, especially its focus on inequality of opportunities. However, its failure to recognise the marked increase in income inequality is concerning, as the right reverend Prelate mentioned. That was a major omission from the MDGs. Many leading economists believe that tackling inequality will be essential to achieving the goal of eradicating extreme poverty. However, despite this, the Government have refused to back measures to tackle it. Perhaps the Minister will assist the House by explaining the Government’s reticence to endorse such measures.

On gender equality, the suggested target to eliminate discrimination against women in political, economic and public life is a positive start. However, nothing will change if we do not focus on the means to increase women’s participation. On current rates of progress, women will not be equally represented in parliaments until 2065, and will not make up half the world’s leaders until 2134. Perhaps we can start by setting a better example in this country. Will the Minister therefore back calls for specific measures across all political parties, to increase the number of women candidates at the next general election, including all-women shortlists?

To conclude, I will focus on another issue that is of particular concern to me: economic inclusion. Two and a half billion people do not have access to basic financial services—an issue not featured in previous MDGs. I therefore welcome its inclusion as an indicator for goal 8 on inclusive growth and goal 2 on gender equality. Will the Minister, in responding to the debate, indicate that he will work hard to ensure that these indicators will make it into the final framework? Specifically, will he ensure that they will be discussed by UK officials at the open working group on sustainable development goals when it meets in November?

8.12 pm

Lord Bates (Con): My Lords, I thank all noble Lords who have taken part in this debate. It has been an incredibly disciplined performance, which has allowed me more time to respond than I had anticipated. I will therefore try to respond to as many questions as possible.

I join noble Lords in paying tribute to the noble Baroness, Lady Jenkin, for the way in which she introduced this debate and for her consistent support for this issue as the co-chair of Conservatives for International Development. The noble Baroness talked about my charity endeavours, but I seem to be for ever receiving e-mails from the noble Baroness about her charity endeavours, and I know that many other noble Lords have incredible track records as well. The noble Baroness spoke powerfully and knowledgeably about the issues and in particular highlighted what had happened already through the millennium development

23 Oct 2013 : Column 1073

goals. Sometimes there is a certain cynicism about goals and targets. However, the fact that since 2000 we have seen the level of extreme poverty reduced by half and that 3 million fewer children under the age of five die each year is quite an extraordinary progression. Much has been done, but as the noble Baroness reminded us, much still needs to be done.

I also thank noble Lords for their warm welcome to me in this position. I was just reminded that exactly five years ago, when I came to this House, I made my maiden speech in a debate on the UN millennium development goals, and here I am making my maiden speech from the Government Front Bench on this same subject. I appreciate that, because when you look at those statistics—and remember that behind each of those statistics, as we were reminded, there are human beings—I can think of no more important issue before your Lordships’ House than this one.

The Government strongly welcome the report of the High Level Panel on Post-2015 Development Agenda. The members of the panel, including, of course, the Prime Minister, came with the very bold target of trying to eradicate poverty by 2030. The noble Baroness, Lady Jenkin, talked about the need to tackle the root causes, as well as the symptoms, of poverty. Noble Lords will know that there is no record of a single conflict-affected country that has achieved one of these millennium development goals. We should therefore remember, as the noble Lord, Lord McConnell, said so passionately, that there can be no development without peace—and there can probably be no sustained peace without development. It is very important to us to see those recognised in these millennium development goals.

The noble Lord, Lord McConnell, also referred to the importance of including women and girls, in particular, in the development targets, as they are critical to a whole range of cross-cutting measures to the reaching of wider goals. The noble Lord, Lord Dholakia, referred to gender parity. Again, we see that that is included in the proposed targets, and the goals to back them up. Specifically and rightly, it is focused on the need to have a target for reducing violence against women and girls. The noble Earl, Lord Sandwich, made a very good point about the number of goals that are increasing, although the proposed targets beneath them are being reduced. This is, of course, a report to the UN General Assembly, so there will be a process through which they will be prioritised and sharpened. However, it was very important to get the maximum amount of consensus around what the targets needed to be. The noble Lord also pointed out that contributions and aid from EU member states had fallen because of the recession. What can the Government do about this? They can use persuasion; and in many areas of life the best way to lead is by example. Her Majesty’s Government, in being the first of the G8 to reach the 0.7% goal set out some 30 years ago, is leading in the right way.

The right reverend Prelate the Bishop of Ripon and Leeds asked two very specific questions on climate change. Of course, on climate change we have in goal 7 the aim to secure sustainable energy, while goal 8 is to create jobs, sustainable livelihoods and equitable growth. The report highlighted some very important issues.

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One of the most staggering figures was that the bottom billion, to which we referred, consume 1% of the world’s resources, while the top billion consume 72%. It is therefore axiomatic that it is unsustainable. You can argue that you want wealth and prosperity to increase—and we do—but if it happened at that rate, there would be major problems. It is right, therefore, that there is a sustainable dimension to this. That a parallel track is going on here with the Rio+20 initiative is the big contribution. Linking them both together, I think, gives the right balance between development and the environment.

My noble friend Lord Patten spoke with great experience about the importance of businesses in this regard. I would say two things. First, the high-level panel took the approach of trying to include voices from business; 250 representations were received from businesses. This had to be part of a global partnership between NGOs, between businesses and between Governments. My noble friend will be aware that one of the key recommendations to come out of it was the golden thread argument that it all is dependent on economic growth, development and trade. I thought it was a very important point.

The noble Lord, Lord Boateng, spoke from his immense experience in this area about Africa and agriculture and again referred to areas of innovation and technology. There is some good news here in the goals and specific targets, about how technology can be used to deliver the progress that we all seek and the contribution to the Global Fund. Of course, the global partnership will also help move towards this, as will higher education and science. The developed world can do this by attracting and inviting more students and making it possible for more students to benefit from world-class higher education.

Everywhere you look in this Chamber you see people who have been at the forefront of pursuing this agenda over many years. The noble Lord, Lord Jay, talked about the importance of climate change and development. I thought that he spoke very astutely, as a distinguished former Permanent Secretary, of ensuring that the two sides are actually joined up in their thinking as they move forward with their recommendations.

The noble Baroness, Lady Prosser, talked about the cross-cutting issues and in particular about empowerment for girls and women. Again, we see that set out in the second of the goals with a number of new proposals and targets, which I think will make progress in the area that we want.

The noble Lord, Lord Crisp, talked about disabled people and about the data collected. Data are one of the key elements in this. I was reading the excellent contribution from the noble Lord, Lord McConnell, on Lords of the Blog about the quality of data in development. It is a very big issue. That is why there needs to be a partnership. It cannot just be down to the Governments to collect those data. There is a role for NGOs and civil society to provide data that can help us in measuring that.

The noble Lord, Lord Judd, has immense experience in this area from his time with Oxfam, which he mentioned. He talked about a number of things, probably the most important being that we need more time to

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discuss this. As a business manager as well as a Minister on this occasion, I cannot dodge that. I assure the noble Lord that I will take up that issue and perhaps through the usual channels come back with more time for us to debate this.

The noble Lord, Lord St John of Bletso, talked about the importance of internet connectivity. This is absolutely critical. Mobile telephony has transformed prospects in the developed world through banking and communication. The same could be done through the extension of smart grids, efficient transport, storm-water management, energy-efficient buildings and particularly broadband and internet connection. That is a point very well made.

My noble friend Lady Tonge referred to the importance of population. Of course, when the original millennium development Goals were set out, there were 1 billion fewer people on the planet. If those goals are to be achieved, they will have to be achieved at a time when there will be another 1 billion, by 2030. That is why the provisions on access to sexual and reproductive health measures in the report are so important and why the Government are committed to try to see them through to reality. The noble Viscount, Lord Craigavon, made the same point about population. This is absolutely at the core of what we are talking about.

The noble Lord, Lord Collins—I thank him for welcoming me to the Dispatch Box—talked about the importance of us leading by example in appointing more women candidates and having a greater role for women in this country. I totally agree that that is very important. Probably the best thing that I can say in the Government Benches’ favour is to point to my noble friend Lady Jenkin, who secured this Question for Short Debate; not only has she worked in international development, she has done so much to get more women engaged at the highest level of government.

This has been a very important debate. There have been some immensely strong contributions and, going forward, we can reflect on what has been done, which is substantial in real lives and real progress. We can also be excited by those striving goals of seeking to eradicate poverty within this generation; that will be historic, and we will all have played our part.

8.27 pm

Sitting suspended.

Financial Services (Banking Reform) Bill

inancial Services (Banking Reform) Bill8th Report from the Delegated Powers Committee10th Report from the Delegated Powers Committee

Committee (3rd Day)(Continued)

8.32 pm

Amendment 98

Moved by Lord McFall of Alcluith

98: Before Clause 16, insert the following new Clause—

“Whistleblowers’ compensation

(1) After section 206A of FSMA 2000 (suspending permission to carry on regulated activities) insert—

“206B Whistleblowers’ compensation

23 Oct 2013 : Column 1076

(1) If as a result of an investigation carried out in accordance with this Act the appropriate regulator is satisfied that an authorised person has mistreated a whistleblower, the appropriate regulator may require the authorised person to pay to the whistleblower compensation of an amount determined by the appropriate regulator to be appropriate having regard to the financial implications of the mistreatment for the whistleblower.

(2) In this section “whistleblower” means an individual who works or worked for the authorised person (whether or not as an employee) and who—

(a) gave information to the appropriate regulator for the purpose of initiating or facilitating the carrying out of an investigation in accordance with this Act, or

(b) gave to a colleague information relating to any matter which might be relevant if the appropriate regulator were deciding whether to initiate the carrying out of such an investigation or were carrying out such an investigation.

(3) In this section a reference to mistreatment includes a reference to any form of discriminatory or unfavourable treatment.

(4) A payment under subsection (1) is to be made only if the whistleblower chooses to accept it; and a whistleblower who accepts compensation under this section may not bring civil proceedings (including, but not limited to, proceedings before an employment tribunal) in respect of, or in reliance on, the mistreatment in respect of which the compensation is offered.

(5) The procedural provisions of this Act in relation to the imposition of a penalty under section 206 apply to an award of compensation under this section.””

Lord McFall of Alcluith (Lab): My Lords, it is my pleasure to move Amendment 98 on behalf of my parliamentary banking standards colleagues, the noble Lords, Lord Lawson and Lord Turnbull. Essentially, the Parliamentary Commission on Banking Standards is saying that banks must put in place mechanisms for employees to raise concerns when they feel discomfort about products or practices, even where they are not making a specific allegation of wrongdoing. It is instructive to note that during the whole financial crisis, not one whistle was blown. Why was that? The issue of fear of damage to one’s career is central. Therefore, we must ensure that we have a system that rectifies those deficiencies.

One recommendation from the parliamentary commission is that a non-executive board member, preferably the chairman, should be given specific responsibility under the senior persons regime for the effective operation of the firm’s whistleblowing regime. We would like the Government to consider that. I am sure that the noble Lord, Lord Lawson, and I feel that that recommendation does not go far enough, particularly when one considers the situation in America. My noble friend Lord Brennan informed me earlier that under the Dodd-Frank Act, the SEC has an Office of the Whistleblower within individual companies. The United States is far ahead of us on that, and, if we do not allow the chairman to undertake this, we are ducking one of the main responsibilities that we want to give to the chairman, which is to accept individual accountability.

We were littered with examples of chairmen putting their hands up and saying, “Nothing to do with us. We didn’t know about the mis-selling scandals. We didn't know about the LIBOR scandal. We didn't know about the interest-rate scandals”, et cetera. If the system is to work properly, the chairman must be responsible. We consider that it is important that the chairman

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should be held personally accountable for protecting whistleblowers against detrimental treatment if we are to have a system that is worthy of the name in this area.

We recognise that whistleblowing reports should be subjected to an internal filter by the bank to identify those that should be treated as grievances. Banks should be given the opportunity to conduct and resolve their own investigations of substantial whistleblowing allegations.

The regulator should also have a part to play here. It should periodically examine a firm’s whistleblowing records in order both to inform itself about possible matters of concern and to ensure that firms are treating whistleblowers’ concerns appropriately.

The FSA’s evidence to the committee appeared to show little appreciation of the personal dilemma that whistleblowers face. It should regard it as its responsibility to support whistleblowers.

We also noted the regulator’s disquiet about the prospect of financially incentivising whistleblowing. As a commission, we call on the regulator to undertake research into the impact in the US of financial incentives in encouraging whistleblowing, exposing wrongdoing and promoting integrity and transparency. Two representatives of the SEC gave evidence at one of our hearings on how incentivising whistleblowing was going in the United States.

It is the financial sector that must undergo a significant shift in cultural attitudes towards whistleblowing, and change its view from one of distrust and hostility to a recognition that whistleblowing is an essential element of an effective compliance and audit regime.

We note that the Government did not reject our proposals, but do not propose to address them in the current legislation, instead placing the issue of whistleblowers in the context of a wider piece of work led by the Department for Business, Innovation and Skills. We feel that the FSA should be right at the centre of the issue. As a commission, we concluded that not only did internal compliance and formal control structures fail to uphold proper banking standards, but a culture of fear prevented employees from speaking out about serious wrongdoing.

There are a number of examples to which we could refer, but the FSA did its own investigation into Barclays at the time of LIBOR. In June 2012, it came out with its final notice in which it imposed a financial penalty of £59.5 million on that bank. Because,

“Barclays agreed to settle at an early stage … [it] … qualified for a 30% … discount under the FSA’s executive settlement procedures. Were it not for this discount, the FSA would have imposed a financial penalty of £85 million on Barclays”.

When we looked at the evidence that was presented to us on Barclays, we found that there were dozens of people in open trading desks for several years while this practice was going on. At UBS we found that there were up to 100 people who were there for a decade and that there was a clear e-mail trail on the issue. We could only conclude that if one is asked to do something wrong, there has to be whistleblowing so that the company can develop a better culture and better process to enable it to deal with it. We do not wish people to feel that their career will be threatened if they do whistleblow or, indeed, if they do not.

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When we looked at the LIBOR situation at Barclays, we asked witnesses what this behaviour meant about the culture of Barclays and of the banking industry. As I mentioned, the final notice from the FSA painted a picture of a close-knit group of people who were colluding to try to manipulate LIBOR. For example, the following conversations were noted:

“Trader C requested low one month and three month US dollar LIBOR submissions”.

That was on 7 April 2006. Trader C was quoted as saying to his colleague:

“If it’s not too late, low 1m and 3m would be nice, but please feel free to say ‘no’ … Coffees will be coming your way either way, just to say thank you for your help in the past few weeks”.

Then the submitter replied:

“Done … for you big boy”.

In October 2006, an external trader stated in an e-mail to Trader G:

“If it comes in unchanged I’m a dead man”.

Trader G responded he would “have a chat”. Barclays’ submission on that day for three-month US dollar LIBOR was half a basis point lower than the day before, just as requested. The external trader thanked Trader G for Barclays’ LIBOR submission by saying:

“Dude. I owe you big time! Come over one day after work and I’m opening a bottle of Bollinger”.

Those are clear, open e-mails and no one can tell any of us, particularly the banking commission, that others in Barclays did not know what was going on with that situation. The noble Lord, Lord Turner, in one of the most understated comments, said that the actions over this period indicated a cultural weakness with Barclays. One might say: “You can say that again”. We read many submissions covering the direct exchanges. I will repeat just one more. Trader C said:

“The big day [has] arrived…My [New York desk] are screaming at me about an unchanged 3m libor. As always, any help wd be greatly appreciated. What do you think you’ll go for 3m?”.

The submitter said:

“I am going 90 altho 91 is what I should be posting”.

Trader C came back and said,

“when I retire and write a book about this business your name will be written in golden letters”.

The submitter, maybe with a little bit of common sense, replied:

“I would prefer this not be in any book!”.

Those comments are in e-mails—that is the trail. That is why we need whistleblowing. People were scared to give their point of view to those further up the management trail. Barclays is just a case study of all that has gone wrong with the culture. We on the commission are asking for disclosure of significant supervisory correspondence and matters considered. It would be helpful to know how many of these went to enforcement.

When I was investigating this in the last Parliament, I spoke to senior individuals in the FSA. They were very clear with me. They said that Barclays’ legal and compliance team were intimidated by Bob Diamond and others. They said that the senior legal and compliance team should be sacked because they knew about LIBOR and the capital raising for a long time. Not one legal or compliance officer at Barclays ever graced the door of the FSA to complain about that situation.

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It happened down the line as well, particularly at the front-line, retail-desk level with PPI, with individuals being pressured in that regard. At a breakfast conference this morning, Martin Wheatley was very clear. He said that these individuals at the front-line level were trying to eke out a salary of £16,000 to £18,000 a year. They had been asked to sell PPI alongside loans and other products and would receive an extra couple of thousand pounds a year for doing so. At the top level, however, huge sums were involved. Distorted incentives led to a situation where, as a result of PPI mis-selling—deliberate mis-selling by companies—the banking industry could face a bill of £30 billion. Financial stability could be threatened as a result of these perverse incentives. The PPI scheme went on for 18 years. I suggest that if a rigorous, appropriate whistleblowing regime had been in place whereby individuals did not feel that whistleblowing would end their career, the PPI scandal could have been stopped well before that length of time had passed. As has been mentioned, a culture shift at the top in terms of accountability would help to increase confidence in this regard down the line. The chairman must be accountable and take responsibility in this area and must ensure that the whistleblowing regime works well.

Martin Wheatley said this morning that the Financial Services Authority had lost its focus on the moral compass and on being honest. Perhaps if we have an appropriate whistleblowing scheme we will start to reinject honesty into the system, to ensure a better culture and better ethics whereby individuals in a company feel free to serve the interests of the company and the customer and thereby help society.

8.45 pm

Amendment 98A (to Amendment 98)

Moved by Lord Phillips of Sudbury

98A: Before Clause 16, line 16, at beginning insert “directly or indirectly”

Lord Phillips of Sudbury (LD): My Lords, Amendments 98A and 98B stand in my name. They seek to tease out a little more detail in relation to the amendment just moved by the noble Lord, Lord McFall, on whistleblowing. I say at once that I am wholly in favour of that amendment. The position of whistleblowers in our country is not satisfactory. Amendment 98 would widen the portal to offer assistance and compensation for whistleblowers by giving the appropriate regulator the power of initiative with regard to getting appropriate compensation for whistleblowers.

My amendment is designed to widen the scope of that initiative as, at present, I feel that it is unnecessarily limited in that the whistleblower is defined by proposed new subsection (2) in Amendment 98 as a person who gives information directly to the appropriate regulator or gives it to a colleague. I notice that the amendment does not define “colleague”. Suffice it to say that many of the circumstances in which whistleblowers are sometimes encouraged—and feel morally compelled—to speak out are extraordinarily complex.

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I have had the good fortune to do work for the charity Public Concern at Work. Indeed, I set it up 20 or so years ago. That charity continues to do extremely valuable work. I spoke to people at the charity a couple of days ago and, believe it or not, they had been approached by roughly 2,500 whistleblowers in the past year. Astonishingly, I think that scarcely any of the whistleblowers were from the City. There are particular issues around that and we can underestimate the extraordinary pressure that a whistleblower or would-be whistleblower feels under in the context of the City, particularly as it is a very tight community in many ways. At the moment, the only recompense that a whistleblower can get, if he or she is discriminated against and suffers loss, is by using the provisions of the Public Interest Disclosure Act 1998. However, the whistleblower has to take the initiative. This amendment, as I say, gives the initiative to the regulator, which can be of enormous help and assistance to the whistleblower.

The Public Interest Disclosure Act 1998 scores over this amendment by having a much wider entrée to the remedies than is provided by the amendment. In particular, my amendments put the words “directly or indirectly” into the beginning of the two subsections that define how a whistleblower gets into the circle of potential compensation when they talk about giving information to the appropriate regulator or to a colleague. This is because—and I have checked this with Public Concern at Work—a lot of those who want to speak out are really anxious, if not fearful. What very often happens is information gets to the regulator in a really indirect, round-the-houses way, sometimes anonymously. My simple amendment is designed to open up the door but it is also a probing amendment in the hope that between now and Report we can have discussions with the Government on the optimum way of finding the remedy which the amendment seeks to supply.

I finish by giving some idea of how much wider the Public Interest Disclosure Act is regarding “getting into the remedy”. Clause 1 of the Act inserts a four-page amendment into the Employment Rights Act 1996 and provides a multiplicity of definitions of who is a whistleblower for the purposes of the remedy. An example of its sensible provisions is that a “qualifying disclosure” is one that is made in good faith, is substantially true, is not made for personal gain and,

“in all the circumstances of the case, it is reasonable for him to make”,

and so on.

It may be possible, at the next stage of the Bill, to import some of the language of the 1998 Act or, indeed, insert this amendment as an amendment to the 1998 Act.

Lord Eatwell (Lab): My Lords, I am sure that the Treasury has studied carefully the experience of a measure developed in the United States which is very similar to this and which has been remarkably successful over the past three or four years in bringing forward very important information to the regulatory authorities. When the noble Lord replies, perhaps he would reflect on the American experience and say how valuable it might be to replicate it here.

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Lord Brennan (Lab): My Lords, I support the amendment because it recognises the obligation of society to protect and deal justly with people who report serious wrongdoing, often at personal cost. The 1998 Act recognises that in its statutory effect. This modest amendment is designed to deal with the relationship between the whistleblower and his employer in relation to an employment claim. I invite the House to look at the question of whistleblowing in a much broader context. The more monolithic the organisation, the tighter its internal process controls, the less likely it is you will find out about wrongdoing. Almost paradoxically, the whistleblower becomes more important —single though that person usually is—according to the size of the enterprise about which he makes revelations. That explains to a considerable degree the point raised by the noble Lord, Lord Phillips of Sudbury, about the effects upon these people of taking such a step.

As I said at Second Reading, the four major banks are, in a broad sense, in charge of four times our gross domestic product. Whistleblowing in organisations as big as major banks is a highly exceptional event. In considering the role of the whistleblower in this context, the Government should, I suggest, have regard to public reaction if it is not seen to be the case that whistleblowers are not only protected but encouraged by legislation such as this. Regulators are there to regulate, not to police in the sense of investigation, detection and prosecution. That is not their usual role—certainly not historically—in this country. Therefore, the whistleblower in this country has even greater importance than he or she has in the United States.

In the United States, the Dodd-Frank Act—the US counterpart of this legislation—introduced special provisions for whistleblowing, not just in banking but in financial institutions generally. It provided for payment to whistleblowers according to the extent of the misconduct that the whistleblower had revealed, as assessed by the SEC—the equivalent of our regulators. So, for example, if a whistleblower had disclosed LIBOR, the payment would reflect the importance of the discovery in relation to the economic loss that had been suffered.

That is exceptionally important. The greater the danger to the whistleblower within his or her employment or in relation to their future and that of their family, the more they should be protected, including financially —but within reason, I accept. If you do not do that, you expose the whistleblower to what almost amounts to serious persecution. One has only to look at some of the events that have occurred in the National Health Service, where whistleblowers in different hospitals or hospital trusts have had their careers ruined, and there was even, I suspect, a suicide a year or two back. This is serious stuff. These are citizens revealing misconduct by great institutions, and no more civic an act could you expect an ordinary person to perform.

In the United States as a result of Dodd-Frank, which was enacted in 2011, in the financial year 2012—the first full year after its enactment—there were 3,000 reports to the SEC. My enthusiasm and that of my noble friend Lord McFall led us to misunderstand each other. The Office of the Whistleblower is a permanent office within the SEC, and its purpose is to investigate claims and to co-operate with and look after the

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whistleblower. It works. When the new chairman of the SEC said publicly, “Now we are not only felt; we are feared”, one of the main reasons was the whistleblower threat. If we want to change culture, this is a very effective way of doing so. Good intentions count for a lot, but in changing culture, an intuitive fear of finishing up in jail counts for a lot more.

9 pm

The amendment seeks to protect the whistleblower only within the context of their employment—to test compensation against the degree of mistreatment they have suffered. There is no element of reward for their virtue in revealing misconduct that we intend to categorise in the Bill as a serious crime, meriting up to seven years’ imprisonment. I suggest that the analysis of both US experience and ours calls for a change of culture on our part as legislators, as well as through the executive and the regulators. If we do not take this seriously, we will be allowing the risk that that kind of thing will happen again.

The understandable but eventually unattractive repetition from the Government Front Bench of, “This is not necessary,” surely does not apply to this sector. This is necessary. Parliament said that it was necessary in 1998, and it is now necessary on a much grander scale than we ever envisaged at that time. If we come back to this subject at Report stage we may find a whistleblower clause that is more wide-ranging, that takes into account the previous Act, and which is designed to achieve the change in culture that I and others have remarked upon.

Whistleblowing takes place at different levels. In a perfect world, when there were imperfections and misconduct the whistleblower would report to the chairman, because there would be a system of trust and protection. That should be enough—enough, often, to stop things happening before they start to get really serious. That would be the perfect example of how whistleblowing should work. But until we reach that stage, we have to work on the basis of deterrence—people whistleblowing about what is happening, which results in such serious offences being detected and stopped, people being punished, rewards being given, and the creation of the atmosphere of deterrence and the expectation of future good conduct for which we are all aiming. I seriously suggest to the House that if we do not make special provision for whistleblowers in the Bill, people—society in general—will feel that we have failed to enact a specific, effective and necessary measure to protect them.

Lord Watson of Invergowrie (Lab): My Lords, I support my noble friend Lord McFall and his colleagues on Amendment 98. I am also in favour of the two amendments tabled by the noble Lord, Lord Phillips of Sudbury. My noble friend drew on his experience as a member of the banking commission when he talked eloquently about the serious matters behind LIBOR and the other issues that contribute to the need for serious whistleblowing legislation to protect those who are, in effect, doing the country a great service.

In reading out those e-mails, my noble friend Lord McFall described the situation very graphically. At one stage I thought that he was going to break into the

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voice of Robert de Niro or Al Pacino, but his dulcet Dunbartonshire tones were sufficiently menacing to get across the message that the people involved in this crime were playing no games at all, and that it was very serious.

The seriousness of the whole question of LIBOR was brought home to many of us yesterday when we opened our newspapers and saw photographs of people who had been appearing in court charged with offences related to the LIBOR scandal. The first thing that struck me was that the people were relatively young. The “ringleader”, if that is the appropriate term, is barely in his thirties now and was in his twenties in 2008 when the offences were committed, and the other two are not much older. Surely there were older, more experienced people further up the chain who must have known what was going on. If they did not know, they certainly should have done. That is the heart of the matter with regard to whistleblowing. Those responsible have to be held to account.

Amendment 98 works by adding excluded activities under FiSMA or the Financial Services Act 2012 to the list of justifications for making what is known as a qualified disclosure. As noble Lords may know already, the list includes reporting that someone’s health and safety is in danger, damage to the environment, and a criminal offence that a company is not obeying the law or that someone has covered up wrongdoing. Those are generic terms, but many of them would apply to the finance sector. For the new banking system to work well and be policed effectively, protections have to be in place for staff who believe that wrongdoing exists in their organisation and they are not prepared simply to sit on their hands or, as happens in many cases, simply leave the job in the hope of finding employment somewhere else because they fear the consequences of raising the issue.

This amendment is a further attempt to trigger a cultural change in financial services, which I think noble Lords on all sides have acknowledged is necessary. A bank employee may well wrestle with their conscience before deciding to break ranks; it is inevitable that they would. If an honest trader suspects that wrongdoing is under way and is considering informing the authorities, surely protections have to be in place for him or her to guard against a situation where they are held to be at fault. They are the victim because they perhaps lose their job, which in banking, of course, could be a very well paid job indeed. Once the word goes round that someone has left a bank or financial institution for this reason, how difficult will it be for him or her to find other employment?

The LIBOR scandal illustrates the importance of making it easier to report wrongdoing. At the time that we now know the LIBOR rate was being manipulated, certain newspapers did speculate about the accuracy of those claims, and indeed about the accuracy of the LIBOR rate itself. But as we know, no one came forward because no one had the confidence, even if they had the evidence, to break the surface and bring the scandal out into the open. It would have been much easier had it been brought into the open then rather than when it eventually emerged. Surely it is essential that people feel confident about being able to do that in the future.

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Amendment 98 simply seeks to bolster the maintenance of law and order, something that I suggest we are entitled to expect that the Minister and his colleagues would agree with. The amendment would make it easier for the regulator and banks’ own compliance teams to do their job. We have heard from my noble friend Lord Brennan that this is being done very effectively in the USA. How could the coalition oppose it being introduced in this country as well?

Lord Newby (LD): My Lords, the amendment would introduce a system under which the regulators would be able to award compensation against a firm that mistreated a whistleblower. Whistleblowing is an important issue and the Government agree that we need to have a proper system for protecting whistleblowers in the financial services industry as elsewhere. However, I do not think that the noble Lord’s amendment would be a helpful addition to the legislative framework, particularly at this point. Let me explain why.

In the summer, the Government launched a call for evidence on the whistleblowing framework to see whether there was a case for reforming the law protecting whistleblowers. This will be able to take account of submissions from the financial services regulators as well as from other interested parties. The call for evidence closes on 1 November and, once the evidence has been assessed, the Government will consider what if any action needs to be taken. It would not be sensible to prejudge the outcome of the call for evidence and implement changes without first looking at all the evidence available to support any changes. Moreover, the Government do not think that it would be appropriate to have different laws or protections for whistleblowers in different sectors. It would not be right to suggest that whistleblowers were more deserving of protection in some sectors than in others. I am sure that this is not what the noble Lord intended, but there is a risk that giving the regulators a special role in protecting whistleblowers in the financial services sector will be seen as special treatment for that sector.

Finally, this power does not seem consistent with the role and competence of the financial services regulators. There is a comprehensive system of protection for employees in employment law, which applies across the board, protecting workers in every sector. It provides a route of redress using employment tribunals for individuals who have suffered a detriment or dismissal as a result of blowing the whistle.

Lord Lawson of Blaby (Con): I think my noble friend may have slightly missed the point. It is well documented that what happens normally is not that the whistleblower is dismissed—then, of course, there is the protection of employment law—but that he is stuck in that job and will never ever have any further promotion. I may be wrong, but I do not think there is any redress under employment law for that.

Lord Newby: My Lords, to the extent that there is or is not redress for that, the review which is under way will be looking at that element of the system as well as everything else. The evidence submitted, including by those who are keen to see the law changed and strengthened in that respect, will be able to take account of all that.

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Lord Phillips of Sudbury: I am sorry to interrupt my noble friend again but it is important for the House to know a little more about this public consultation. I suspect that not one single person here tonight is aware that there is a consultation out there and that it is closing in a matter of a few days. Can the Minister tell us how widely this has been advertised, because it is news to me?

Lord Newby: My Lords, I am very happy to write to the noble Lord about the process that has been followed up until now. The whole process of this Bill has demonstrated, as the noble Lord has said, that there is tremendous activity—whether in terms of the regulators producing documents or of other regulatory initiatives, which are very hard to keep up with. I will ensure that we write as a matter of urgency to all noble Lords about this exercise.

Before coming on to what the regulators are already doing in this area, I want to stress the basic point about this review. First, it is wide ranging. Secondly, it aims to beef up the current system. Thirdly, it will apply across the board because the Government do not believe that the financial services sector has a different status in terms of whistleblowing to, say, the oil and gas sector or the pharmaceutical sector. What we need is a common approach across all sectors.

The FCA is already extremely active in supporting and encouraging whistleblowing. The number of whistleblowing contacts received is growing rapidly. There was a 370% increase between 2007 and 2012. The SEC has done very well. It received 3,001 reports in 2012. In the same year, the FSA received 3,929 reports. The impression has been given that the Americans have this system which is generating huge quantities of people coming forward and that the City is absolutely in fear to the extent that no one is coming forward. The figures totally contradict that view. I am not saying for a minute that the system is perfect, cannot be improved or will not be improved, but that the numbers of people coming through in the City are higher than is the case in the States. The FCA’s whistleblowing procedures have been revised to actively track whistleblowing outcomes across the FCA while cases are actively monitored to provide feedback, wherever legally possible, to whistleblowers.

On the point that the noble Lord, Lord Brennan, raised, the regulators have a role in enforcement and protection. The Dodd-Frank Act brought in protections for whistleblowers which, to a considerable extent, already existed in the United Kingdom. The American scheme is of course not what is proposed in the UK, as the noble Lord said. Under that scheme, whistleblowers can receive a proportion of any penalty received from successful enforcement action arising from tips that they provide. That is different from what this amendment proposes. Although the PCBS said that it would like research to be undertaken in this area, it did not suggest an incentive scheme. The regulators are undertaking research, as requested by the parliamentary commission.

The regulators are therefore already doing a lot, including undertaking research, while the Government are undertaking a review of the whole issue across all the sectors. In the light of that, I hope that the noble Lord will withdraw his amendment.

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9.15 pm

Lord McFall of Alcluith: My Lords, the Government’s response to every amendment is, “Manana, manana”. There is nothing in the response but, “Tomorrow, tomorrow”. There is, for example, a public consultation that we know nothing about. As noble Lords have said tonight, this is a very modest proposal. The Minister really has the wrong end of the stick here when he asks why we should protect whistleblowers in the financial services industry and what is different here from in the oil and gas industry. The Government themselves think that it is different. Why? Because they appointed the noble Lords, Lord Lawson and Lord Turnbull, and me to a Parliamentary Commission on Banking Standards, along with Members of the House of Commons. We spent a year of our lives—10,000 questions and 180 hours in committee—before presenting a report to the Government. That is why the financial services industry is different from others.

Lord Newby: My Lords, is the noble Lord seriously suggesting that whistleblowing in the financial services sector—we are talking about whistleblowing here—is of a different order of public interest from whistleblowing in, say, the pharmaceutical or oil industry?

Lord McFall of Alcluith: We have had the biggest financial crisis ever but not one whistleblower. That is the magnitude of the problem which the Minister does not grasp and that is why we looked at this issue. Goodness gracious, look at the fines: £85 million for Barclays and £13 billion for JP Morgan today. There is a litany we could go through, so what is the problem?

The Government set up a commission to look at culture and standards. What did the Parliamentary Commission on Banking Standards find? It found that the culture was rotten and the standards were abysmally low. This whistleblowing amendment—a modest amendment—is being put forward to ensure that we have a better culture, and that we have legal and compliance teams in companies that might have the nerve and confidence to go the FCA and say, “Look, there is wrongdoing in this company and we do not feel that we can assuage our conscience on this. We need to report it to the FCA to ensure that we have a better organisation here”. This has failed totally. That is the magnitude of the problem facing us and that is why we have this modest amendment.

The USA was mentioned. We had two witnesses before us from the USA who were very clear that we did not scrape the ground with the FSA. My noble friend Lord Brennan has given his wisdom on the situation in the USA tonight. We are asking the Government and the FCA to look at the experience in the USA to see if that aspect can be adapted. As the noble Lord, Lord Phillips, said, his charity did not have one person from the City. That backs up the evidence that we heard and gives the initiative to the FCA. That is the purpose of this amendment.

We received representations from trade unions in a sub-committee evidence session. The trade unions were very clear to us that their members at the grass-roots level felt pressurised but were scared stiff to do anything about it. I have a number of examples but will give the

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Minister one in particular. An individual I have known in my own town of Dumbarton for years, who worked in one of the banks for 25 years, left to become a care worker at less than half the salary. I asked her why she left. She said, “John, I was being forced every week to sell products that were not only unsuitable for people but were making their lives miserable. I could not partake in that, so I left”. There was someone who had been committed for 25 years being pressured on issues like that. Surely we should have a system to say “That person has given loyal service. That’s a person who wants to serve their bank and their community. Let’s establish an appropriate structure so that we protect that person, and also make the company better”.

I suggest to the Minister that there is a link between the almost £30 billion that we will be paying out in fines for PPI and the conduct of a company. If the proper procedure was in place and that information came up from the bottom, we probably would not have the abysmal situation we have with the £30 billion.