This all matters. Police need to demonstrate that they are worthy of the public’s trust. This confers on the police moral authority to exercise their powers for the public good. The police gain their legitimacy through that public approval. If that approval is declining, as the surveys show, that legitimacy is damaged as the performance declines. Moreover, satisfaction surveys show that young people, and those from black and minority-ethnic communities and from the lower socioeconomic classes, were least happy after contact with the police. The commission’s conclusions are telling:
“We think that the ‘singular focus on cutting crime’ that has been placed at the core of the police reform programme, and the diluting of the role of neighbourhood policing, will exacerbate rather than stem these trends”.
Government policy is making it worse, not better.
The commission proposes that the broader social purposes of policing should be enshrined in statute and commends the national statement of purpose for Police Scotland that states explicitly that the main purpose of policing is to,
“improve the safety and well-being of persons, localities and communities”.
It says that policing should be,
“accessible to, and engaged with, local communities”,
and that it should promote measures to prevent crime, harm and disorder.
This needs to be coupled with changes in the policing mindset and greater professionalism from the police; and I agree that this should be enshrined in statute. The Stevens report recommends creating “a chartered police officer” as the basis of the police profession. They would be accountable to a new professional body building on the College of Policing, which should register and accredit police officers, with the implication that some officers might be struck off from the register if they fail to meet the standards expected.
The commission’s recommendations envisage that there would also be a new and enhanced body, combining features of Her Majesty’s inspectorate and the Independent Police Complaints Commission to monitor and impose standards on forces, and to conduct independent investigations into serious complaints. The report addresses the style and purpose of policing, and professionalism and standards. But what of the final pillar of those Peelian principles, governance and accountability?
At local level the report proposes that there should be an explicit local policing commitment so that communities would get a guaranteed minimum level of neighbourhood policing, with priorities, possibly even budgets, set and allocated by the local elected councillors for that area. This makes sense to me as a former local authority leader: local councillors, rooted in the communities that elect them, setting the direction for how neighbourhood policing resources should be used and deployed.
That leads inexorably to force-wide governance. The report is scathing about the present Government’s flagship reform of policing, the introduction of police and crime commissioners. The birth of these was badly botched. The noble Baroness, Lady Browning, who is staring at me over the top of her glasses, will
recall in detail that a last-minute coalition deal to hold the elections in darkest November delivered an average turnout of just 15%. This was not helped by the Home Office decision to penny-pinch on publicising the purpose of the elections and insist on confining the details of the candidates standing to an obscure website.
The results themselves are also instructive. Of the 41 police and crime commissioners elected, only six are women. I make no comment on that other than to note that it is surprising that there is such a bias. None is from a visible minority-ethnic community, and eight are former police officers. The latter is hardly a recipe for giving the public confidence in the independence of the accountability being offered. Of the 41, four have been or are being investigated by the IPCC for electoral fraud, expenses fiddles and other serious misdemeanours. That is a rather high hit rate of 10% of the total. Other elected PCCs have been criticised by the Home Affairs Committee for the way in which they have used their office. Several of them have tried peremptorily to fire senior officers without going through the due processes laid down in statute. The list of problems goes on and on.
There is no question that despite the good work that many of the new PCCs have done since their election, the system is flawed and needs to change. I have doubts that those changes can be implemented as the report recommends by the time the current terms of office come to an end. However, it is clear that some changes are needed. What is missing from the present arrangements is visible answerability at force level by the police for the actions that they have taken. While chief constables should answer to PCCs, they are not seen by the public to be doing so.
All that comes back to the building of trust. One of the pillars of that must be accountability and answerability to the public. Another pillar must be the improved professionalism and proper accountability of individual officers. The final pillar must be the close relationship between the police and the communities they serve—a partnership at neighbourhood level that underpins all that is done. The analysis, the diagnosis and the potential solutions are all contained in the Stevens report. That report more than vindicates the decision of my right honourable friend Yvette Cooper to commission the report when the present Government declined to have a full royal commission look at policing. It is now for a future Government to take it forward. I beg to move.
4.27 pm
Baroness Browning (Con): My Lords, I thank the noble Lord, Lord Harris of Haringey, for giving the House the opportunity to discuss policing again today. This is the second debate that we have had in a week, which is to be welcomed.
I very much regret that the noble Lord, Lord Stevens of Kirkwhelpington, is not in his place today, because my first point is something that specifically affects him. I will make a point of writing him a note. On the day that the report was published, he gave an interview on the “Today” programme in which he talked specifically about police and crime commissioners, which we have just heard about. He said quite categorically that they would not be abolished, but throughout the document
he says otherwise—the noble Lord referred to that. For example, on page 84—and that is not the only place—he rightly says why the commission does not believe that police and crime commissioners have been a success. However, the report goes on to say that,
“the Commission believes that the office of PCC ought to be abolished in its present form with effect from the end of the current term of office”.
Of course, the difficulty is that the report gives no categorical recommendations about what should replace them or what the finances involved in that would be. I am therefore disappointed that although the report is critical of police and crime commissioners, it does not offer an alternative. That, of course, does not solve any of the problems that he has mentioned.
The commission’s whole approach to police and crime commissioners, notwithstanding some of the individual problems that the noble Lord mentioned, is premature. I use that word quite deliberately; I have not just conjured it up. It was used by Tony Lloyd, the former Labour Minister, who is now the police and crime commissioner for Greater Manchester. He believes that the report is premature in what it says about police and crime commissioners. I would hope that those who sat on this commission would have recognised that it is still early days. Looking around the Chamber, I see some of the usual suspects who voted against police and crime commissioners when the House considered the matter only a short time ago, so I am somewhat suspicious that it is not quite as impartial on this particular aspect of the report as perhaps it should have been.
I want to move on to the question of trust in the police. That is something that we debated in this Chamber quite a lot. During my 18 years as a Member of Parliament, I worked with police forces, particularly the Devon and Cornwall Police, and I have a high regard for them. However, I am concerned, as are many other people in this country, at the way in which the public generally voice their reservations about many aspects of the police. It is a very dangerous thing. The noble Lord, Lord Harris of Haringey, quoted Peel who said that policing in this country is policing by consent. We do not have a military police, or a military police answerable to the Government; rather, we have,
“policing of the people, by the people”.
That is absolutely right. That is the gold standard of policing, and many other countries have copied it. Yet there is a lack of confidence, even mistrust, in police forces around the country. This is something that we need to address quickly. When it was expressed to me, as a Member of Parliament, by members of the public, I sometimes feared that that is what precipitates the public to feel that they need to take the law into their own hands. I am not talking about people who you might think of as being on the other side of the law. These were people who had kept the law all their lives and respected the police but had somehow felt that, when they needed the protection of the law through the police service, they were let down and the police were not there for them.
I turn to the point that the noble Lord, Lord Harris, raised, particularly in relation to the Home Secretary’s comments and the changes that she has
introduced. I think that he is misinterpreting her words when he says she has not taken account of the need for community policing. The front line of the police has increased since 2010, since this Government came to office. From March 2010 to March 2013, the front line increased from 88.9% to 90.6%. One of the big changes that this Government have made is that Theresa May, as Home Secretary, personally drove through very quickly the need to cut out a lot of the box-ticking and the form-filling that had previously kept police officers tied behind their desks in police stations, when what they and the public wanted was that they should be out on that front line. I believe that this has contributed to it.
I am very conscious that we are making those announcements. Speaking to the police themselves, the Home Secretary said,
“I am also scrapping the confidence target and the policing pledge with immediate effect. I know that some officers like the policing pledge, and some, I’m sure, like the comfort of knowing they’ve ticked boxes. But targets don’t fight crime”—
and I believe that that is the case—
“targets hinder the fight against crime. In scrapping the confidence target and the policing pledge, I couldn’t be any clearer about your mission: it isn’t a 30-point plan; it is to cut crime. No more, and no less”.
That was a very clear message. She cut out a lot of the bureaucracy that has hindered not only the police service. Bureaucracy has hindered all our public services. We see it in the health service; we see how targets have driven down standards in health. We see how targets have driven down the opportunity for the police to be out there fighting crime. It is endemic across the whole of our public sector. It is right that this Government have grasped that nettle.
It is true that certain types of target are needed. I say to the noble Lord, Lord Harris, though, that targets are all very well but outcomes are far more important. Targets are the receptacles of those people who like to process things; outcomes are the receptacles of people who like to achieve things. In getting rid of a lot of these targets, the Home Secretary has freed up police officers not just to fight crime at the front end, but to do all those things that lead to a reduction in crime. That, of course, involves crime prevention, awareness of crime and building on community relationships.
I disagree entirely with the noble Lord and perhaps the commission in their interpretation that the Home Secretary’s words on reducing bureaucracy and getting more people out on to the front line were made because she is concerned only about cutting crime and is not interested in the society that lies behind those criminals. I would say that this Home Secretary has addressed both in the policies that she has bravely implemented since she took office. What I think will be shared by the commission is her recognition that police officers, rather like doctors, should be professionals. She has introduced a consultation which is going on at the moment through the College of Policing to ensure that there is a code of ethics that police officers will abide by, while raising the professionalism of the police force in general.
4.35 pm
Baroness Henig (Lab): My Lords, I commend my noble friend Lord Harris of Haringey on securing this debate. I declare my interests as a former chair of the Association of Police Authorities and of the Security Industry Authority, and as an adviser to the British Security Industry Association. I was also one of over 40 commissioners who served on the Independent Police Commission.
I start by echoing my noble friend Lord Harris of Haringey’s point that this is an evidence-based report. It is heavily based on evidence, and I was pleased to be a small part of that evidence-gathering process when I co-chaired with the noble Baroness, Lady Harris of Richmond, seven regional meetings held in the north-east, the north-west, Yorkshire and Wales. I heard at first hand what local people had to say about what works and what does not work well in relation to their local policing service. I believe that it is the weight and substance of that evidence that make the report so significant and its recommendations so compelling in shaping future policing policy.
There is no doubt that the most contentious part of the report thus far has been the conclusion that the governance model of police and crime commissioners is systemically flawed as a means of democratic accountability and should be discontinued. Predictably this has caused dissention, particularly among the police and crime commissioners themselves, but I have to say to the noble Baroness, Lady Browning, that if one looks at the evidence rather than following ideology or party dogma, the logic based on the evidence that was collected is compelling. That point was demonstrated by my noble friend Lord Harris of Haringey in his remarks.
Noble Lords can read the report for themselves so I am not going to go into the detail any further, but the point I want to make is that it is not at force level that ordinary people engage with policing. The focus of the public so far as the police are concerned is on their own local area, which is why, following the evidence, the Stevens report suggests a local model of police accountability. So it is not true that nothing has been suggested: the commission’s recommendation is for a local model of police accountability, emphasising the importance of neighbourhood policing as an essential building block in establishing public confidence and support.
As we have heard, the report suggests legislation to give local government a say in appointing divisional police commanders, and to enable lower-tier local authorities to retain some of the police precept of council tax, which they could then use to commission local policing for their force. It is also at the local, divisional level that policing priorities for the neighbourhood need to be set by local people with councillors and the police, and that policing plans should be drawn up. To me, that was one of the big flaws in the police and crime commissioner model; it was a force-level model, and I would argue with anyone for any length of time that having one person representing a force that looks after millions of people is not my idea of democratic accountability, but I am not going to go there now.
I turn to the crucial issue of how to maintain and increase trust and confidence in the police because I agree that that is one of the major issues. As the report makes clear, we all need to agree on what we think the police should be spending their time doing. I accept that there is high policing, covering issues that must be dealt with at the national level, and there is low policing.
As the noble Lord, Lord Harris of Haringey, has emphasised, the police are not simply crime fighters. They have a core role in improving safety and well-being within communities, and in promoting measures to prevent harm, disorder and crime. At national level they co-ordinate policies to protect the public as much as possible from a range and variety of threats.
What is it that makes people have confidence in the police at local level? We need to know. Again, the evidence suggests that confidence stems from people’s concerns about disorder, from their sense of community cohesion and from their sense and their belief that the police are in control of their streets. It does not stem from levels of crime per se. Public confidence is also strengthened when the police treat people fairly, respectfully and honestly, when they take note of what people say and when they engage in local problem-solving alongside local people.
The report recommends a local policing commitment to provide a guaranteed minimum level of neighbourhood policing and a police response within a given time. It also calls for explanations if reported crime is not investigated, regular updating for victims and fair and respectful treatment of everyone who comes into contact with the police, be they victims, witnesses, offenders or complainants. It is recommended that this local policing commitment be guaranteed across the country. It cannot be right that, as at present, in some areas policing is delivered in partnership with local people very much along these lines, but in another neighbouring force the public may have little or no role or input.
There may be 43 police forces but there is only one policing service, and I have always believed that people are entitled to a minimum standard of policing and of police response. That is emphasised in the report and I heartily support it. The concept of there being only one police service also has serious implications for police procurement. I want to say something about this because the present procurement situation is totally unsatisfactory: only 2% of police procurement is carried out at national level. Why does every force need its own distinctive uniform, its own distinctive IT system and its own models of car? This is an area that I believe calls for decisive action at government level to bring as much police procurement as possible under the national procurement hub. We know that the savings could be substantial: the report says up to £50 million. Surely this is something we can all agree on—that where money is tight, we squeeze margins as much as possible and spend money on officers, rather than on having separate force uniforms and particular brands of force cars and equipment.
In this and in other crucial areas, the role of the College of Policing will be very influential and important. I support the creation of the college, and I hope it will become an established and strong feature of the policing landscape. It has a vital role to play in a number of
areas; in particular, it has a guiding role in helping individual officers to develop their skills, professional knowledge and expertise. I know that the idea of the chartered police officer has caused some disquiet in the ranks of the Police Federation but the reality is that a police constable, by virtue of his or her role and powers, has a unique and fundamental capacity to affect, for better or worse, the lives of ordinary citizens. Each officer therefore owes it to us, the public, to develop their skills and their expertise to the best of their abilities.
Having sat in a magistrates’ court for 20 years, I have seen how a variety of administrative and behavioural errors committed by individual police officers have resulted in the complete collapse of cases, some potentially quite serious. It was my experience on the bench that led me to the conclusion that the gap between the best police officers and the worst was too wide. That is why I believe that the College of Policing has a really significant role in the continuing professional development of individual officers—which, again, will boost public confidence in the police. I share with the noble Baroness, Lady Browning, the belief that it is confidence that lies at the heart of that strong partnership between the police and the public which characterises British policing, and on which we need to build for the future.
4.44 pm
Baroness Harris of Richmond (LD): My Lords, I, too, thank the noble Lord, Lord Harris of Haringey, for securing this debate. First, I need to declare my former policing interests, which appear in the register, and that I too was a member, unpaid, of the commission. I also need to tell your Lordships that, perhaps surprisingly, I shall speak on only one part of the report—that of forensic science. I am most grateful for the support and help given to me in this matter by Professor Angela Gallop, our leading forensic scientist, and Keith Fryer from the College of Policing, which is now responsible for training police personnel in this profession.
Forensic science in policing goes back many years. It was originally run by the Home Office from regional laboratories. It then merged into a sort of business arm of government in 2005 in order to make efficiencies and to cut costs. However, police forces were increasingly in-sourcing forensic services. So, by 2010, the Government decided to close the Forensic Science Service and transfer its responsibilities to the NPIA, the former National Policing Improvement Agency, which had been responsible for the forensic procurement to forces until that point. Then the NPIA was disbanded and its responsibilities were transferred to the College of Policing, which is where it now sits within the Home Office and where much of the work of training for in-force forensic specialists is undertaken.
In the mean time, excellent work was going on in the private sector. The national forensic framework agreement was introduced, which categorised services into 14 work packages open for tender to forces. This then became the National Forensic Framework Next Generation and is intended to run until 2016. Regional competitions are run to enable forces to select their preferred forensic science provider, from the 13 within the framework, following the tendering process. There
are between two and six providers for each work package. However, the contracts that the commercial providers will bid for are quite short term, which I believe could cause instability, especially when forces are trying to plan long-term. It also may mean that staff could end up moving between suppliers and contractors. There are just so many trained forensic scientists to go around. Indeed, a significant number of forensic science staff have already left the service. What proposals do the Government have to replace this loss of experience and talent?
Therefore, we now have a service to police forces which comprises different forensic science models. Some work is undertaken by the forces themselves. Scientific support managers oversee the use of forensic science in their force. They help to produce strategies for individual cases and with the collection and securing of evidence by scenes of crime officers et cetera. They also help with submissions to the forensic science provider laboratories. Clearly, a huge amount of work needs to be undertaken by forensic scientists but most of that now is provided by the private sector, which has a responsibility to its shareholders rather than to its customers. That is a subtle but vital point to make when considering who the end-user of the service should be.
Materials can be widely dispersed, being kept by both forces and forensic science providers—commercial organisations. DNA databases are back in the Home Office. The Biometrics Commissioner has responsibility for the National DNA Database and the IDENT 1 fingerprint database. The forensic regulator has published his codes of practice and ethics, which provide the standards that will apply to all remaining commercial forensic science suppliers. There is a European initiative to harmonise forensic science across Europe, which is based on the ISO accreditation and will include the police internal forensic services.
The College of Policing is currently developing competence assessments for police service forensic personnel, so it is to be hoped that this initiative will be successful. However, it hardly replaces the full-scale forensic science laboratories that I remember: police were able to be assured of superb quality from scientists trained exclusively to provide a bespoke service to Home Office police forces. I ask my noble friend the Minister: who now will do the research previously undertaken by the Forensic Science Service? Does he think that commercial pressures will stop suppliers sharing findings? For how long does he expect commercial suppliers to remain viable if the police continue to in-source services?
The report states baldly that,
“without a research and development capability, this country will be relegated from its world class status in forensic science innovation and perhaps even more importantly, there will be serious lapses in the quality of forensic interpretation potentially leading to lengthier less successful police investigations and miscarriages of justice”.
So there is a stark choice: invest in research and development or accept that standards may slip.
The House of Commons Science and Technology Committee produced a report in 2011 on the FSS closure, followed up by another report in 2013, to
which the Stevens report refers. It had serious concerns about a number of aspects of the service. There was lack of an obvious national forensic science strategy. It was concerned that the market was not robust enough to absorb the forensic science work being outsourced to it. There were threats to research and development, the maintenance of forensic archives, continuity of evidence, impartiality of forensic interpretation and the quality and independence of that evidence. In its most recent report, it stated that some police forensic science laboratories had failed to achieve accreditation to the agreed ISO standard, and that there was a lack of transparency of police expenditure on their in-house forensic science, making it very difficult to see whether any savings had been made. Its conclusion as interpreted by the Stevens report was that,
“in the absence of a strategy for forensic science, and given the present ‘pattern of short-sighted decision–making that led to the demise of the FSS and the creation of an unstable market for the remaining commercial providers’, the present state of affairs jeopardises public confidence in the criminal justice system”.
In short, there is instability in the market, contracts being too large and over a short term. Financial penalties for late delivery of services impact on the employment of forensic scientists, leading to a reluctance to give full-time contracts. There is also a tendency to take on younger, less experienced and therefore cheaper staff. No ISO accreditation is required by the CPS in the Code for Crown Prosecutors in assessing the quality of evidence put before it. There is no standard across all laboratories. Different suppliers are being asked to undertake tests on different aspects of the same case, and this fragmentation is a true recipe for failure. I could go on.
In conclusion I quote Professor Angela Gallop, one of the 40 distinguished independent members of the commission:
“far less work is being commissioned, partly anyway and partly because forces are doing increasing amounts of forensics in their own in-house units”,
“don’t have to be accredited to the same (very expensive) quality standards as external suppliers of these services. In addition, a procurement system has been introduced which has led to huge volumes of work being shifted between one supplier and another”.
In the future, she suggests that the consequences of the current state of affairs will be more cases which cannot be solved and many more miscarriages of justice. This is a serious matter, which I hope the Minister will address urgently.
4.53 pm
Lord Condon (CB): My Lords, I declare my registered interests in policing. For certain aspects of the Stevens report, I was one of the 40 commissioners, although today I shall speak for myself rather than for the commission as a whole.
I thank the noble Lord, Lord Harris of Haringey, for arranging this debate. I agree with almost everything he said in his eloquent opening speech about the Stevens report. This is a serious piece of work, and I hope party politics will not get in the way of giving it the serious consideration it deserves. The most important part of the report is the attempt to restate the role and the purpose of policing. In all aspects of life, form
should follow function. One should think about what one is trying to do before one thinks about how one is going to organise oneself to do it.
Policing can succeed and enjoy public confidence with or without elected police and crime commissioners. Policing can also succeed and enjoy public confidence within a national police structure, within a regional structure or with the status quo of over 40 local forces. Neither of these is the big issue. However, policing will not succeed and it will lose public confidence if the role and purpose of policing in the 21st century does not accord and resonate with the history and strengths of policing, and more importantly, with public expectation. That is the big issue and is what I would like to concentrate on.
The independent commission is right that policing should be about more than crime-fighting and should be about a wider agenda to promote safer communities. Preventing and detecting crime is, of course, at the very core of modern policing, and always will be, but it is also vital to promote and maintain order and safety. The noble Lord, Lord Harris of Haringey, and the report have quoted Police Scotland’s policing purpose. It is worth restating that it says,
“the main purpose of policing is to improve the safety and well-being of persons, localities and communities in Scotland”.
It builds on what many of us have been saying for 20 or 30 years. I have been retired now for more than 14 years, but during my time as commissioner I described the role of the Metropolitan Police as:
If this is the core role of policing, and it is restated and accepted, it should shape and influence future developments in accountability, organisation, leadership and so much more.
In 1989, I was appointed a young chief constable of Kent, based in headquarters in Maidstone. The week that I arrived all bright-eyed and bushy-tailed, the local newspaper had, on its front page, a picture and a large article about the new neighbourhood bobby policing Maidstone town centre. I featured in a small article on about page 8—a one-inch column. It was a valuable lesson for me. Members of the public might have a passing interest in who their chief constable is—or nowadays who is their elected police and crime commissioner—but what really matters to them is whether they have local neighbourhood bobbies with an ongoing responsibility for them, whether they get reassuring, visible police patrolling and whether they get a prompt and courteous response when they have an emergency. As the noble Lord, Lord Harris of Haringey, said, local neighbourhood policing is the vital, fundamental building block of good policing. It must be preserved to ensure public confidence and support. A remote and reactive model of policing, whether driven by philosophy or just out of budgetary need, will lose public support. Crime will rise and public order will be harder to maintain.
Reported crime has been falling since 1995, for which I would like to claim a little credit, having been commissioner from 1993 to 2000. The fall in crime has been based on a partnership model of policing: partnership between police and local communities, between police and local political structures, and between
police and local business. It is a truism that whichever party were in power at the moment would have to make draconian cuts to police budgets. However, unless there is a real focus on preserving neighbourhood policing, unwelcome and unintended consequences will follow. They are already bubbling up and starting to happen.
As I said, I was chief constable of Kent and have lived in that county for the past 30 years. Earlier this week, the current chief constable reported its latest crime figures, coinciding with the first year of the elected police and crime commissioner. For the 12 months to the end of October 2013, reported crime was up nearly 10%. Burglary, the crime which worries people the most—having their home or business premises broken into—was up over 25% in one year, which is unprecedented. These rises coincide with budget cuts of £50 million, a reduction of 500 police officers and a reactive form of policing being put in place. Anecdotally, I understand that more than half our police services are now beginning to experience rises in crime coming through in a similar way. You can get away with budget cuts; you can get away with huge cuts in policing; and you can get away with reactive policing for a while—but not for long. It is beginning now to come home to roost.
What, then, should be done, and what does the Independent Police Commission contribute to the debate? First, all parties should accept that the role of policing is broader than detecting crime: it embraces community safety and order. Secondly, neighbourhood policing should be protected and preserved at the heart of policing. Thirdly, one of the most vital partnerships—as others have said—is between local policing and local politics. Whatever organisational or accountability structures are put in place for policing, they must not inhibit police and local politicians sharing information, ideas, policies and the way forward on preventing crime and promoting community safety. Fourthly, as the noble Baroness, Lady Henig, has said, economies of scale, smarter procurement and innovation must start to mitigate the worst excesses of the budget cuts.
It is not impossible for the current elected police and crime commissioners to deliver those reforms. I am not doctrinaire about that; but the early signs are certainly not encouraging. My own view is that Northern Ireland and Scotland probably provide better examples of local policing enshrined within a national framework and I think a gradual evolution within “Police England” and “Police Wales” will probably be the way forward. Economies of scale, smarter procurement, career planning and development of leaders from within and outside the service would all be more effectively achieved within a national model that enshrines local policing—as would dealing with organised crime, terrorism and international policing.
However, I understand the party politics of this; that is probably too big a move to make. At the very least, police and crime commissioners must be relocated in a more collegiate, more productive structure that ensures they work more closely with the real aspects of local politics, local communities and local business to deliver safer communities. The Independent Police Commission is a valuable contribution to the debate.
I hope that all parties will respond to these big issues and ideas with the due consideration that the report deserves and I look forward to further debate.
5.02 pm
Lord Wasserman (Con): My Lords, I, too, thank the noble Lord, Lord Harris of Haringey, for initiating today’s debate on the much-heralded and long-awaited Stevens report.
I also congratulate the noble Lord, Lord Stevens of Kirkwhelpington, on managing to persuade 38 distinguished individuals, including 11 Members of your Lordships’ House, to put their names to a single document. Given what I know about some of the members of his commission, that was no mean achievement, but then I have known the noble Lord for a very long time and have always had the highest regard for his extraordinary leadership skills.
The noble Lord is, however, much more than a great leader. He is also a man of integrity and that, too, is evident in his report. Instead of the usual bromides about Britain having the best police service in the world, this report paints a worrying picture of a police service with serious problems. These include:
“organisational failures and scandals that have badly damaged public confidence in the integrity of the police”,
a system for dealing with competence and misconduct that, the commission says,
“suffers from both a lack of clarity and a lack of transparency to the public”,
and a laid-back attitude to diversity that has led to a situation in which,
“37% of local police forces do not have any women officers of ACPO rank”,
and an even larger proportion of forces—the exact proportion, interestingly, is not specified in the report—does not include any black and minority ethnic officers in their top management teams.
Sadly, the report does not tell us how to solve these problems, despite the fact that it concludes by stating that its recommendations,
“seek to set out a programme of radical reform”.
That must have come as a great disappointment to the Labour Party, which no doubt expected, when it established the commission, that it would be getting a clear, coherent and comprehensive policing policy that it could slot easily into its next manifesto.
Instead, what the report gives us is an extraordinarily interesting and well researched document full of fascinating historical insights and illuminating discussions of constitutional, organisational and other matters. I was particularly taken by the discussion of the challenges and dilemmas in police governance; by the review of the academic studies on the relationship between the size of a police force and its effectiveness; and by the reports of the latest changes in the structures of police forces in the Netherlands, other European countries and elsewhere.
I am sure that anyone who takes the trouble to read this document carefully will share my admiration for its erudition, historical perspective, theoretical underpinnings and thoroughness. This should come as no surprise,
given that the document is based not only on the testimony of expert witnesses—including five former Labour Home Secretaries—public hearings, attitude surveys involving members of the public, police officers, PCCs and others, but on 31 position papers produced by 47 academics from 29 different universities in the UK and abroad.
Of course, the noble Lord, Lord Stevens, did not produce this document as an academic exercise. As he says of the commission’s recommendations in his closing remarks:
“We hope they will offer a clear steer as to what changes are needed to ensure that the police service is able to meet the demands of the twenty first century”.
I very much regret that on this count the report falls short. Despite the efforts of 47 eminent scholars, or perhaps because of them, the report is strong on options but weak on practical solutions.
For example, the key issue of the structure of the police service of England and Wales has been a matter of contention for as long as there have been police forces in this country. The 1962 Royal Commission on the Police was unable to agree on it. The Stevens commission has done no better. It has no hesitation in saying that the present structure of 43 forces will not do because it is,
“no longer cost effective or equipped to meet the challenges of organised and cross-border crime”.
However, when it comes to suggesting a better solution, the commission leaves us with three familiar options: locally negotiated mergers and collaboration agreements, regionalisation or a national police force. As to which of these is to be preferred, we are told that the best way forward is for detailed proposals to be produced for each of these three options but not limited to these three, and that a wide-ranging consultation should be undertaken with a view to swift implementation. In short, it is the familiar academic proposal: further work needs to be done.
The same approach is taken to the contentious question of the governance of police forces. As noble Lords have pointed out, the commission is adamant that the PCC model is systemically flawed as a method of democratic governance, despite the fact that:
“In a democracy, it is right that the strategic priorities of the police are established by elected politicians not by unelected chief constables”.
Interestingly, as the noble Lord, Lord Harris, pointed out, one of the six reasons listed for rejecting the PCC model is that the present crop of PCCs are overwhelmingly white, male and middle-aged—that is, far too close in ethnic, gender and age composition to the present House of Commons. What does the commission recommend instead of PCCs? Except for ruling out police authorities, it cannot decide. Once again, we are offered three options and told that further work is required.
On diversity, the commission is again clear that the present situation is totally unacceptable, but it has no suggestion for a way forward other than to urge that:
“Greater use should be made of the powers of the 2006 and 2010 equalities legislation”.
Finally, I was particularly disappointed by the commission’s discussion of the present arrangements for providing forces with scientific and technological
support—particularly forensic science, which was mentioned by my noble friend—and ICT. I declare an interest as the Home Office official responsible for these services between 1983 and 1995.
On forensic science, the commission is in two minds. On the one hand, it believes that the previous Conservative Government’s policy of,
“opening up forensic sciences to the market has achieved some notable successes in previous intractable cases, reduced turnaround times and eliminated backlogs and resulted in a reduction in pricing of services”.
Notwithstanding these benefits, the commission is unhappy about the present state of forensic science provision, largely because there is no integrated national strategy, as my noble friend has pointed out. What, though, does it recommend? Only this: something needs to be done. That is all it says.
As for the procurement of cost-effective IT, an issue with which the police service has been grappling unsuccessfully since the invention of the computer, the commission says that it is,
“disheartened and dismayed by the recurring criticisms of the police service’s inability to rationalise its procurement of information technology”.
“cannot emphasise strongly enough the urgent need to”,
attend to and solve these persistent problems. As for a solution, however, the commission comes up with a classic ACPO approach to intractable problems: ask the Home Office to develop a national IT procurement strategy. In other words, this problem is far too difficult for chief constables to solve, even though IT is an operational tool and therefore their responsibility. So let us hand it to the Home Office and watch it fail to solve it.
I am sorry to have ended on a rather negative note. As I have said, there is plenty of interesting material in the Stevens report, and on the whole it is a very good read. Sadly, however, it raises more questions than it solves. For those of us who are impatient to tackle the problems that it identifies, this is disappointing.
5.11 pm
Viscount Simon (Lab): My Lords, I declare that I have been an associate of many police areas for many years and that some are in the register.
British Policing has at its heart the principle of policing by consent and, most importantly, the independent office of constable. Officers are held to account as individuals, answerable to the law. Any fundamental changes to policing must ensure that this independence is maintained and that the public understands that British policing is so much better than fighting crime in isolation. The report suggests that the social purpose of the police should be clearly defined. This is to be welcomed.
Closely linked to this social purpose is the concept of neighbourhood policing, which we have heard from many noble Lords. Neighbourhood policing is about social cohesion, prevention and public confidence. It is a resource-intensive model that, if managed correctly in the long term, brings with it real benefits and cost savings. Prevention is so much better than cure, whether
it be cases of anti-social behaviour, domestic violence or burglary. Motorways and airfields should of course be considered as local neighbourhoods, due to their construction, and need the resources accordingly to prevent crime from taking place.
As cuts to budgets to partner agencies take hold, it is of great importance that the police are not just left picking up the pieces of the consequences of a reduction in other areas. The strengthening of statutory provisions in local safety partnerships would assist in this regard.
The public want policing to remain public and to be held to account. The mission creep in private service provision in policing needs to be very carefully examined and considered. It should not be driven purely by a financial consideration. Somewhat outside the consideration of the report but highly relevant to the future of policing, I wonder how we are going to be able to attract the right sort of people to become officers when they will initially earn less than PCSOs and they will have only a five-year contract. Does this send out the right signal?
Policing is a highly respected profession. Any enhancement to provide chartered status or the membership of a professional body must ensure that the officers and staff in policing understand the benefits to them of such bodies. The status needs to be something that officers desire, rather than have imposed upon them. It must include realistic and achievable professional standards. The criteria must in no way interfere with the independence of the office of constable. This area will need careful consideration. An officer must be able to make an arrest based on their sound judgment and discretion, not the need to complete a development requirement.
The royal commission of 1962 examined the number of forces in the country, and there have been numerous suggestions about the correct number ever since. Crime and social mobility have changed beyond all recognition in the digital age, and the police forces need to be structured to meet this challenge in the 21st century.
With collaborations being forged among many forces due to budgetary constraints, the accountability envisaged by the introduction of police and crime commissioners has become blurred. There needs to be examination and debate to come to an agreement on revising the current 43-force structure, which provides local focus with national responsibility. At the same time, we need to look at revising PCCs. The provision of IT and procurement of equipment have long been approached in a piecemeal fashion, as has been mentioned. We need a single strategy to which all forces adhere. The benefits of commonality of systems, remote technologies and purchasing power bring with them efficiencies and improvements of capability, and the savings can be ploughed back into the front line.
5.16 pm
Baroness Jones of Moulsecoomb (GP): My Lords, I, too, add my thanks to the noble Lord, Lord Harris, for introducing the debate. The report is incredibly useful. Although it is in a sense an academic exercise, it is also a valuable contribution to our discussion of policing today. It also contains some solutions. I pick out, for example, the concept of chartered police
officers. That is a very good idea. I fear that the Government’s idea of a code of conduct does not go far enough. A code of ethics will not do as much as a system to charter officers to ensure that if they commit misconduct of any sort, they can be struck off.
The issue of databases is also interesting. There is a technological view of it, but there are much bigger problems with databases. For example, the Met itself has no idea how many databases it has and does not know what is in them. I recently paid £10 and got my police file. It was the most appalling mishmash of trivia that you have ever seen. I have a copy here, if anybody would like to read it. For example, it cites the Metro newspaper, which states:
“London Deputy Mayor Jenny Jones is also encouraging. ‘If you’ve never been’”—
“‘then come along’”.
I will not bore you with the others, which are moderately amusing at times. Here is one which is from a tweet of mine:
“Open-source research indicates that Green Party Member Jenny Jones has tweeted that she a Green Party Mayor candidate is attending the Critical Mass vigil”.
If that is the sort of thing that the police are keeping on their database, we are wasting a lot of police resources. We ought to find out a little more about those databases and what is in them.
There is also the question: why are they keeping a database on an elected person? That is inappropriate, irrespective of the inappropriateness of the information that they are keeping.
I thought before it was introduced that the system of PCCs was badly flawed; I argued against it in many places, but it has happened. Unfortunately, it is too soon to call it a failed experiment. It is failing in many places, partly because of the model of a very strong executive and very weak scrutiny. That just does not work. The PCC is often failing to hold the police to account, and then we have panels that cannot hold the PCC to account. From a democratic and accountability point of view, this has been the most appalling mishmash. Honestly, it is too soon to say that it has failed completely, and it would be appropriate to find a better system before we scrap it altogether.
There is also the suggestion of melding the HMIC and the IPCC into an independent police standards commission. That is an interesting idea, but the fact is, of course, that the IPCC has done some valuable work. What it might be appropriate to do is perhaps to fund it properly for a couple of years and see what it can achieve. It has recently been given more funding, which means that it can employ more inspectors. It also perhaps ought to employ fewer ex-police officers. If it were funded properly, it could probably do its job properly. That is one recommendation that perhaps lacks a little sharpness.
Although this was, in a sense, an academic exercise, policing is not academic; it is a reality. As we debate today, there are real policing problems around SOAS and the University of London, where students are protesting, and where a lot of messages, tweets and e-mails are going out saying that the police are being brutal. This is happening here on our streets in London
now, and we, I think, are failing the Met by not giving it very clear instructions about how to behave in circumstances like these. It is extremely worrying that this is happening at the moment. I would probably normally be up there and not here. I would be up there trying to talk to the Met and to students to find out what is going on, and if anything can be done to make the situation better.
The report is interesting to read. It has lots of valuable stuff in it, and one or two of the things, I think, could be done immediately. It might be a gesture of real solidarity across the Chamber if some of these suggestions were taken up.
5.21 pm
Baroness Berridge (Con): My Lords, I am grateful to the noble Lord for obtaining today’s debate, and many of my comments on the roles and responsibilities of the police are informed by my experience at the moment on the Parliamentary Police Service scheme. I am thoroughly enjoying this insight into the amazing work that our police do, and I have serious respect for teams like Team A at Peckham, who take a risk every time they answer a 999 call.
I was warned that I would hear a lot about the Winsor Review from the police, but I did not. I have heard much about kit. A Met police kit is like Marmite. They either love it—“Great kit!”—or hate it—“Rubbish kit”. I commend the recommendations concerning procurement, to which I will return, along with Policing Generation Y: Governance and Diversity in the Police.
First, I will speak about the report itself. I was curious about this commission, which said it was independent but had no statutory or parliamentary basis; nor was it conducted under the auspices of the All-Party Policing Group, which the noble Lord so ably chairs. I tried to read the results with an open mind. As I read, I thought my main concern would be the lack of female involvement in the report. Perhaps 11 women out of 39 commissioners is considered enough, but I thought it was disappointing. As only four out of the 26 witnesses who gave evidence to this inquiry were women, I wondered if it was truly representative. Liberty, I note, was helpful, as it brought 50% of the women who gave evidence to the commission.
What holes this report below the plumb line, in my view, is that it fails to live up to the basic tenet that the police are the public, and the public are the police. I looked carefully at the appendices to see who had inputted, and most of the written submissions were from the police themselves. There is much academic input, as the noble Lords have noted. Surveys of police personnel totalled more than 20,000 responses. Along with all these inquiries, the best evidence is always live witnesses. None were members of the public, victims or representatives of victims’ groups. Again, they were police, politicians or NGOs. The main vehicle used by the commission to obtain evidence from the public was a telephone survey by YouGov of only 2,000 people—less than 10% of the number of the police in their survey.
This mistake is easily made. On the Joint Committee on Human Rights, on which I serve, at the eleventh hour we realised that, to prepare a report on
unaccompanied migrant children, we needed to hear from unaccompanied migrant children. I recognise fully the academic expertise in this report, but, with so much evidence from the police and a few NGOs and so little from the public, this imbalance causes me to treat any conclusions with a considerable degree of caution.
“For most people it is likely that their own ward, town or village is the more meaningful unit when considering local policing than whole force areas”.
This comment brings into focus an issue not covered by the commission: what is this “meaningful unit” of policing for Generation Y, who live socially networked lives and are not primarily geographically connected, and where crimes committed via their phone or through Facebook are perhaps more likely than crimes in their neighbourhood? The report contains no serious engagement with technology as a means to report crime, which is what younger generations are going to require. Reporting a crime via an app to British Transport Police is much safer than calling if an incident is taking place in the train carriage in which you are sitting.
More helpfully, the report considers the lack of ethnic diversity in the police service. As this is such a key issue, I would have welcomed much more comment and analysis on it, and more input from black and minority ethnic officers, who responded in very low numbers to the survey. If the recommendation for further involvement of the Equality and Human Rights Commission would help matters, it should of course be taken up. Reflecting the people whom you police should be specifically included in any new Peelian principles, as it is essential nowadays to policing by consent. There is urgency to this issue, as I wonder for how much longer all-white surveillance teams, which I have seen, will not stick out like a sore thumb. The commission does not deal with the lack of ethnic diversity on the board of the College of Policing, which contains no black person, or the lack of independent members. This is a serious concern if, as the commission suggests, the college is to take on some form of registration or regulatory role.
The commission seeks to resurrect the issue of the governance of the police. On page 87 of the report, it indicates its preferred option of,
“an indirectly elected Policing Board”.
It would comprise the leaders of local authorities. The police and crime commissioners have not yet served a full term; it is just not sufficient time to judge whether the new model works. The proposed police board, with only the leaders of local authorities on it, is going back in time to the days when only local politicians and magistrates were involved in governance. That did not work and independent members were added to authorities. Leaders of local authorities are no less susceptible to the “recipe for conflict” cited by the commission as a reason to reject one of the models; namely, an elected chair and the indirectly elected board.
There will probably be deep political divisions between those local authority leaders, especially if there is any future merging of the 43 police areas. The policing board in the report would set the overall budget, which risks the same kind of shutdown that the USA
sees when the parties fall out. The main argument raised against the PCCs is that the size of constituency is a problem. That argument is not substantiated in the report. As the introduction by the previous Government of the London mayoral office has shown, such an office can cut through the local government boroughs that can hamper a vision for an area. I see no reason why the PCCs cannot do just that.
Finally, I return to kit. It is obvious that money can be saved by national procurement of equipment, but it must be practical and it must be tested. Is the Met Police uniform really suitable for modern-day policing? Carrying kit on belts causes back problems for officers in foot chases, and if you are buying two pieces of technology to bolt together, you should check that they work when they are bolted together—which is a complaint of the traffic police. One of the basic tools is the CAD system—Computer Aided Dispatch—which feeds the information to screens in the car from the 999 call at the centre. I am informed that this is an old British Airways baggage handling system. I think that that says it all.
I have commended what I can of this report, but may it serve as a lesson to all in your Lordships’ House that inquiries and commissions should seek directly the views of the public if they are to have any long-term validity.
5.29 pm
The Earl of Lytton (CB): My Lords, I too welcome the opportunity to debate this report. I am grateful to the noble Lord, Lord Harris of Haringey, for that and to the noble Lord, Lord Stevens of Kirkwhelpington, for his work and for the work of his commission members as far as it goes.
We can all agree that good policing is of vital importance to all of us. My starting point is the historic understanding that policing would not be subject to political interference but would be self-governing. This meant that the police were also self-co-ordinating and self-managing in policy and operational terms.
The Association of Chief Police Officers—ACPO—effectively moved into that role as the embodiment of senior ranks, guardians of its professionalism and integrity and of police management. That embodiment remains pivotal. It advises the Home Office, represents Britain abroad in Interpol and Europol and co-ordinates the 43 police forces across England and Wales. In this role it issues guidance, directions and advice which carry great authority and are used in legal proceedings. It seems to me still to have a controlling if no longer a monopoly influence in the College of Policing and thereby a major say in policy, while retaining operational matters to itself. Its members and directors are senior police officers.
Given this unique and authoritative pan-police oversight, why do we continue to see instances of widespread and critical failings, manipulation of crime figures, falsification of evidence and perversions of the course of justice that are routinely reported and have attracted the scrutiny of two if not three of the major Select Committees in the other place? For all the inquiries, codes of practice, reports, debates and
judicial investigations over many years, why is ACPO membership apparently unable to manage policing and why has police-on-police investigation persisted for so long?
ACPO Ltd, as I believe it is properly called, with its trading subsidiaries and affiliates, involves serving officers. They include areas of procurement, and I will pause there, road safety, vehicle crime, data on individuals—I will pause there, too—security systems, security accreditation and many others. I know of about 20 but I believe that there are far more. Many are commercial enterprises for gain. They derive from paid public office but where does the money go?
Recently, the Association of Police and Crime Commissioners, whose members pay about £4.2 million into ACPO Ltd and have been asked to stump up more, commissioned General Sir Nick Parker to advise on value for money for that sum. He was not asked to look at the wider issues or allied commercial operations of ACPO Ltd, which in 2009 generated over £9 million from the sale of data alone. Neither does this ICP report look into that. But there are many question marks. For instance, ACPO Ltd Criminal Records Office merchandises data on individuals derived from police national computer records. Its website curiously stipulates that payments for search services go through the Hampshire police and crime commissioner’s bank account. I am not clear whether parallel arrangements affect other areas of activity or how they affect PCC independence but I am curious.
The application of the harassment Act seems to be another area where, despite ACPO guidance, forces give an impression that they do as they please, and there are similar queries in many other areas of ACPO and police activity. The legality of some ACPO guidance has been queried by the courts. It is not therefore just a question of individual professionalism; I believe it is one of corporate integrity that we need to concentrate on. In all this there are huge potential conflicts of interest—commercially, professionally and in operational self-governance at the most senior level. I do not believe that the measures suggested in this report will overcome these. Furthermore, I believe that trustworthy and diligent officers are afraid to speak out because there is an utterly inadequate whistleblower facility. Such a situation clearly cannot continue. Political courage and resolve are needed. I therefore have several questions for the Minister, starting with some on transparency.
First, how can we ensure that senior officers are seen to be and remain free from bias? Secondly, should they be involved at all with parallel commercial activity, especially in the areas of procurement, accreditation and selling data? Thirdly, is there a case for a mandatory register of officer interests via an independent registrar with a power to insist on divestment in appropriate circumstances? Fourthly, how many ACPO Ltd operations, subsidiaries and affiliates are there, what do they do and what happens to the money they generate? Can we have a list of them and details of their accounts placed in the Library?
Fifthly, how many directives, guidance notes and advisory documents are issued by ACPO to police forces and to others, how are they used, what peer
reviews occur and what is their status in legal proceedings? Can we have a list of the current ones in the Library, please? Sixthly, what are the principles for the gathering, storage, use and merchandising of personal data by the police and how many databases are actually in use, centrally or by individual force, or indeed by ACPO Ltd, its subsidiaries and affiliates? Who is being allowed access, on payment or otherwise, to this information? What further steps to ensure proper oversight do the Government intend to put in place?
Finally, on the other point that I have raised, can the Minister tell us whether a fully independent ombudsman or whistleblower commissioner cannot be set up so as to be a safe, confidential and effective conduit for concerns? In the round, does the Minister not agree that it is high time for a thorough, fully independent and rapid investigation into these matters, perhaps by a senior criminal judge unconstrained by the terms of reference? If so, it seems to me that before we go much further with the recommendations of this report, there is some more fundamental work to be done so as to restore confidence in a vital national institution.
5.37 pm
Lord Rosser (Lab): Like other speakers, I am grateful to my noble friend Lord Harris of Haringey for securing this debate. Although it was us who asked the noble Lord, Lord Stevens of Kirkwhelpington, to set up the commission on the future of policing in England and Wales some two years ago, because we believed a positive vision of policing for the 21st century was needed, it has been an independent commission, and the report and recommendations are those of the commission and not of any other individuals or organisations.
We are extremely appreciative of all the hard work over a two-year period that the noble Lord, Lord Stevens, and his colleagues have undertaken, and also wish to thank all those many people who so willingly gave their time and the benefit of their expertise and knowledge, whether through surveys, public meetings, written submissions and papers or evidence-gathering sessions.
I have also listened with interest to the key points of the welcome contributions to the debate—contributions, of course, of differing enthusiasm for the commission’s recommendations. The report contains 37 recommendations. Some of them propose further work, some include options. We have already said that we will consult widely on the recommendations made before we set out details for our manifesto, recognising the need to ensure that measures are fully funded. We expect, though, to implement the vast majority of these recommendations.
In its report, the commission referred to the dramatic changes there have been in British society since the Royal Commission on the Police reported just over 50 years ago in 1962, and the inevitable impact that such major economic, social and political changes have on policing. The commission also set out the challenges facing policing. The social transformations, new forms of criminal activity and changing patterns of crime, anti-social behaviour, damaged public confidence in
the integrity of the police as a result of individual high-profile cases where policing has gone wrong, and the impact of budget cuts are among those challenges.
The commission also draws attention to some of the government reforms that have directly affected the police. It regarded some, such as changes to police officers’ pay and conditions, and the creation of the College of Policing, as important and necessary. It was less enthusiastic about others, such as elected police and crime commissioners. The commission concluded, however, that the Government have created a stand-off with the police service that has left officer morale at rock bottom.
On structures, the commission concluded that few believed that 43 separate forces were either cost-effective or adequately equipped to meet today’s challenges, while recognising that there was no consensus on a better alternative. Among the commission’s other fundamental concerns was the risk of outsourcing to the private sector key aspects of policing in an ad hoc and unprincipled manner, and the danger of the police service retreating to a discredited model of reactive policing, with neighbourhood policing responsive to the concerns of local communities being threatened.
The commission concluded that the Government had made the wrong calls in areas where they have acted over police purpose and governance, while not addressing key issues, such as police standards, misconduct and structures, where reform was required. The commission has set out its vision of how to deliver fair and effective policing, taking into account the fact that there is unlikely to be more money to spend on the police service. This is a vision of a police service with a social purpose that combines catching offenders with work to prevent crime, and the promotion and maintaining of order with the local policing area as the core unit and building block of fair and effective policing.
It is clear from the commission’s findings that British policing cannot continue on its current course and that significant reforms are needed. The shadow Home Secretary has already indicated our position on a number of key points in the commission’s report, which I intend to reiterate.
Policing should be rooted in local communities, and we endorse the commission’s emphasis on neighbourhood policing and the wider social justice purpose of policing. We agree too with the importance of local accountability, building stronger partnerships and greater democratic accountability at a more local level. As with all public services, policing is most effective when it reflects the views and voices of those that it needs to serve.
On force governance the commission has set out options to replace the current model of police and crime commissioners. The question is not whether to reform, but how to reform, and that is an issue that will be an important part of our consultations. We also believe in the importance of effective partnerships; at a time when all public services face financial pressures, working in partnership and collaboration matters more than ever.
The commission has set out options for reform on structures and partnerships between forces. Our preference is for a voluntary and collaborative approach involving
local communities, and we want to see more work done on savings that can be made to plough back into policing. We will not support a national force, as that would be too large, too centralised and the wrong approach.
On standards and professionalism there is a need to deal quickly and effectively with problems when they arise to ensure that confidence in the police and policing is not undermined. The present system does not do this. The body in charge of misconduct is not strong enough; the remedies are not clear; too often in serious cases the police are perceived as investigating themselves; and the whole system takes too long.
We welcome the commission’s proposals to value and develop the professionalism of officers and staff, and agree that the College of Policing should be strengthened and extended. We welcome the measures to deal swiftly with problems, to ensure that police officers found guilty of serious misconduct can be struck off, as professionals are in other fields. We welcome much stronger powers of investigation and inspection. We have argued for some time that the IPCC should be replaced by a stronger body. The commission’s proposals for bringing together the work done by the Independent Police Complaints Commission and HMIC also provide a valuable way to deal with the gaps and the duplication in the current system, and better to focus resources on standards.
We welcome the recognition that there should be limits on private contracts in the interests of public confidence. Private companies should not be patrolling public streets. We welcome too the emphasis that the commission has placed on new technology, addressing growing cybercrime and making the police more efficient. In helping to ensure a safe and decent society, our police are of crucial importance. Having seen some of the realities of police work at first hand, I certainly have great respect for police officers, including those who have to deal with situations that very few of us would wish to have to confront. While the evidence that the commission gathered revealed a number of problems and challenges that confront the police service it also, as the commission said, highlighted success stories of which the police service can be proud such as counterterrorism and the policing of the Olympics.
The need now is to deliver a positive vision for policing for the future with policies based on evidence, and to deliver reforms, which will be most effective if they can be built on a broad consensus. That is what we believe the Stevens commission has delivered, and that is what we will seek to take forward.
5.45 pm
Earl Attlee (Con): My Lords, I congratulate the noble Lord, Lord Harris, on securing this timely debate as it gives me an opportunity to update your Lordships on progress. I pay tribute to the noble Lord’s work, even if I do not always agree with his views.
Our police are among the best in the world. They maintain law and order, often by putting themselves in harm’s way, but maintain a strong sense of fairness and duty. This is my first major speech on policing, either in government or in opposition. I want to put on record my sincere appreciation for the work of the
police, especially at a junior level at the sharp end. Your Lordships will be aware that I have some experience of disciplined, uniformed service as a volunteer in our Army Reserve. However, it is important to understand that we keep the two services separate and that they are very different. There is no organisational connection between the two as there is in other countries. As the noble Lord, Lord Harris, observed, our police are purely civil.
Police organisations are generally always operational, and every day that a PC goes on duty he does not know what will happen. I wish at this point to offer my condolences to the families of the officers who lost their loved ones in Glasgow last Friday: Police Constable Tony Collins, Police Constable Kirsty Nelis, and Captain David Traill. In addition, our thoughts are with the officer who was shot in West Yorkshire yesterday.
Policing is a vital public service. The noble Lord, Lord Stevens, himself a distinguished former Commissioner of the Metropolitan Police, has spent two years looking into policing. I welcome his views and I join the noble Lord, Lord Harris, in praising him. However, I would not go as far as to call it a royal commission. I can well understand the gentle tease that came from my noble friend Lord Wasserman.
The Government are undertaking the most radical reforms in the history of policing. We inherited a system of policing that was out of date in modern society. It was out of touch with the public it served and was out of shape. The tough fiscal climate demanded better ways of working. My noble friend Lord Wasserman touched on several problems with BME and female representation, as did my noble friend Lady Berridge. To put that right we scrapped targets, restoring officers’ ability to use their professional judgment on how to fight crime. We gave people a real say over policing by introducing directly elected police and crime commissioners. We empowered local communities to hold policing to account through crime maps via the police.uk website. A more independent Inspectorate of Constabulary shines a stronger light on police performance. We are improving policing skills and professionalism through the College of Policing and we are reforming pay and conditions. We have established the National Crime Agency, which builds on and improves on SOCA, which the party opposite created to lead the fight against serious and organised crime. The noble Lord, Lord Harris, referred to some of the emerging challenges for policing.
We have delivered this while having to reduce Home Office police funding by 20% over four years. Our reforms are working. Recorded crime has fallen more than 10% and the independent crime survey shows crime has more than halved since 1995. However, as the Economist noted in July, there is less agreement about why crime has fallen. The report benefited from the input of several prominent criminologists, and I think that the House will be disappointed that we did not get their take on why this is happening—because it is happening all around the developed economies in the world—and what it means for our policing.
There is strong evidence that effective, targeted policing can reduce crime locally. We are tackling the underlying drivers of crime—for example, by reshaping
our approach to alcohol, tackling illicit and harmful drug use, and legislating to give the police, councils and others more effective powers to nip anti-social behaviour in the bud.
Our reforms are not complete. The next phase will transform front-line policing to ensure it delivers more effectively. We have set out a vision of digital policing by 2016. This goes beyond the Stevens recommendations of mobile access to police systems—many forces already have this potential. We are harnessing technology to enable officers to spend more time out in communities, providing a better service to the public. Thirty forces have signed up to be digital pathfinders; they aim to become fully digital by testing and developing the required capabilities.
We are improving how policing works with other parts of the criminal justice system. A Strategy & Action Plan to Reform the Criminal Justice System, published in June, sets out how this will happen, including through improved use of technology, streamlining processes and ensuring a joined-up approach. For example, pilots are under way to develop and test digital case files which will mean that information on cases can flow seamlessly between CJS partners.
The report rightly makes much of the need for integrity in policing. I welcome its recognition that our reforms of police pay and conditions are “necessary and overdue”. The report endorses our aspiration to enhance the status of policing as a profession, and welcomes the creation of the College of Policing. The college will introduce a national register of officers struck off from the police; it is consulting on a draft code of ethics that will be issued in the new year which will make clear the standards of behaviour expected of officers, and make them more worthy of the public’s trust. The college is consulting on membership, but it is important to understand that this is a professional body for the police, and not an inspectorate or complaints body. I am grateful to the noble Baroness, Lady Henig, for her support for the college’s CPD role.
The noble Baroness, Lady Jones of Moulsecoomb, suggested that the code of ethics did not go far enough. The code is based on standards of professional behaviour which are binding on the police, as are the police regulations. The code will be embedded in forces and present throughout officers’ careers.
There is plenty in the report about what is wrong with policing, and about management. However, I was very surprised that there is very little about leadership. This is an unfortunate omission. Through direct entry, we seek to attract the best people into policing from diverse backgrounds, and the college has a key role in providing leadership across policing. My noble friend Lord Wasserman also explored what was missing from the report—which was quite a lot. He said that it was a very good read; I agree with that sentiment. My noble friend Lady Berridge had something to say on that as well.
On outsourcing, I can assure the noble Viscount, Lord Simon, and others that the Government have made it clear that there is no intention for private companies to carry out activities that require warranted powers, except to the extent already legislated for by the previous Government. On procurement, we already
require the police to buy vehicles, body armour, and off-the-shelf IT through national agreements. Better procurement has saved more than £100 million to date. I also point out that it is much easier for adjacent PCCs to co-operate on procurement than it was under the old police authority model. We are already seeing examples of this.
There are, however, some important points of divergence between the Government and the report. We do not believe that the police need a statutory social purpose. It is precisely by cutting crime that the police make a wider positive social impact—not the other way around. Neighbourhood policing is not under threat, as was suggested by the noble Lord, Lord Harris. The Government have no policy against neighbourhood policing; that is a matter for the PCC and the chief constable. The proportion of officers in front-line functions has increased under this Government, from 88.9% in March 2010 to 90.6% in March 2013, as observed by my noble friend Lady Browning. We slashed red tape so that officers can spend more time in neighbourhoods rather than behind their desks.
An effective PCC will work closely with many stakeholders: the police are only part of his remit. I am sure that a competent PCC would not allow his police force to retreat into becoming a purely reactive force. As the noble Lord, Lord Harris, implied, it would be a recipe for disaster in the short term, and in the longer term it could create problems at the ballot box.
My noble friend Lady Browning told us about the danger of bureaucracy in the police sector and the benefits of outcomes, and how a good PCC will set outcomes, not targets. The noble Lord, Lord Harris, when he was talking about social purposes, pointed out that the code of ethics is clear that officers must engage with their communities and understand their priorities.
We disagree that PCCs should be abolished, and so does the Labour PCC for Greater Manchester, Tony Lloyd, who is an experienced parliamentarian. Last week he told the Home Affairs Select Committee that the Stevens report did not take account of the kind of things that PCCs are doing now that would not have been done under the old police authority model. Many noble Lords have claimed that the report is evidence based, and the noble Baroness, Lady Henig, said that the evidence was compelling. But it is not clear to me how that can be in respect of PCCs, given that they have been in place for only about a year.
My noble friend Lady Browning suggested that the report was premature. However, we agree that local democratic accountability is important and needs to be defended and extended. This does not square with the recommendation to replace the simplicity and visibility of directly elected PCCs with a bureaucratic smorgasbord which splits accountability between lower-tier local authorities and a new force-level policing board, each with overlapping responsibilities. This takes power away from the people and puts it back in the hands of committees. Furthermore, as you take bureaucracy down even more to a local level, you run the risk of getting into operational matters.
We face tough and immediate challenges that cannot be delayed. We learnt lessons from where others had failed, and we put a statutory duty on PCCs and chief constables to collaborate in the interests of efficiency and effectiveness. It is working. For example, according to HMIC, Warwickshire and West Mercia’s strategic alliance will allow them to achieve 75% and 94% of their respective spending review savings by 2014-15. We are introducing a police innovation fund worth £50 million a year to stimulate further collaboration from 2014-15, with a £20 million precursor fund available in 2013-14.
Standards and integrity are vital to maintaining public trust in policing, but collapsing two separate organisations with distinct missions—the IPCC and HMIC—into one super-regulator is not the answer. A new name plaque will not tackle the underlying issues. This is why the Government legislated to make the inspectorate more independent and strengthened the IPCC. It is also why the Home Secretary announced a package of measures in February to improve police integrity, committing to transfer resources to the IPCC to enable it to deal with all serious and sensitive cases. The IPCC will begin to take on additional cases from next year, which will put an end to the police investigating the police in such cases. I hope that that will please the noble Earl, Lord Lytton.
I will try to answer as many questions as possible, but where I do not, I will write to the noble Lord, Lord Harris, and to all other noble Lords who have contributed to the debate. Some noble Lords have suggested that there is a fall in confidence in the police, but even at the height of the Andrew Mitchell affair, 82% of respondents to a survey said that they were very likely or fairly likely to believe officers speaking either on television or on the streets while on duty. But we are not complacent. The noble Lord, Lord Condon, referred to the Kent crime figures. However, it was the Kent PCC who called in HMIC to examine Kent’s crime statistics. HMIC’s findings led to a review of Kent’s crime recording practice, which led to the rise in local recorded crime levels that the noble Lord referred to. Thanks to the PCC and HMIC, Kent is now judged to have a much improved adherence to crime recording guidelines.
My noble friend Lady Harris of Richmond made an important contribution about forensic science. The lack of a single strategy on forensic science does not prevent providers and Government working together to make improvements. For example, recent successes include electronic transmission of fingerprints, the Forensic Science Regulator code of practice and the use of mobile devices to check fingerprints out on the streets.
My noble friend Lord Wasserman talked about BME and female representation. The Government want the police to be more representative of the community they serve. Direct entry into the police brings the opportunity of a new route into the police, which may have the potential to improve the numbers of underrepresented groups in the higher ranks. My noble friend will know that the College of Policing is responsible for the direct entry schemes that will start next year.
The noble Lord, Lord Condon, suggested that we need more partnership working in policing. The Police and Social Responsibility Act 2011 requires PCCs and community safety partnerships to co-operate. PCCs are already working with community safety partnerships to make communities safer. That is one of their roles other than policing.
The noble Baroness, Lady Jones, talked about police databases. While I cannot comment on the particular databases that the noble Baroness mentioned, I can say that the Government would expect the police to use databases to fight crime, not to collect trivia. As for the police national computer, I can reassure the House that it is illegal to perform speculative searches or to pass information to those who do not need to see it or know about it.
The noble Viscount, Lord Simon, asked whether we would attract the right police recruits, in view of what he suggested was low pay, and the five-year contracts. Police officers will continue to be better paid than most comparable workers, and chief constables have discretion on starting salaries to ensure that officers can always be paid more than PCSOs. There is no plan, and no proposal, to introduce fixed-term contracts for officers below chief officer ranks, and FTAs will apply only to chief constables and deputy chief constables.
My noble friends Lady Harris of Richmond and Lord Wasserman talked about the Forensic Science Service. The noble Baroness asked me what proposals the Government had to replace loss of experience in the FSS. Private sector forensic suppliers are now carrying out the work formerly done by the FSS. The Government’s priorities are clear: to ensure that the police have the services they need to solve crime, and to provide value for public money. Employment of scientific staff therefore has to reflect the size, shape and make-up of the forensic market that the police and the criminal justice system require.
My noble friend Lady Harris asked who would now do the research previously undertaken by the FSS. The UK’s criminal justice system will continue to be fully supported by the necessary technology, with research and development driven by commercial providers in response to the needs of the CJS. I understand that more than £3 million has been spent on research by the largest providers. She also asked whether the Government thought that commercial pressures would stop suppliers sharing research findings. As in other scientific fields, forensic knowledge is built up through publication of research findings. There may be occasions when suppliers will wish to preserve confidentiality or to obtain patents on new technology for commercial reasons, but this is also true of the FSS. The accreditation of laboratories was also mentioned; I intend to discuss this with the appropriate Minister at the Home Office.
The noble Earl, Lord Lytton, talked about whistleblowing. The code of ethics makes it clear that officers are required to report and challenge unacceptable behaviour in their colleagues. It emphasises that they will be supported by the force when they do so. He also asked a number of important questions about ACPO and some commercial activities of ACPO-controlled organisations. Since the move of national
business areas to the College of Policing, ACPO does not—or should not—issue any directives, guidance notes or advisory documents. An exception to this is the ACPO central FOI unit, but it offers guidance to forces merely on FOI responses, not on operational matters.
The best way of dealing with some of the other issues that the noble Earl raised would be in a comprehensive letter. However, officers of chief officer rank are under the same ethical obligations as other officers. The noble Earl also asked about ACPO control of the college and ACPO business areas, but he will have to look forward to my letter.
I have just received further advice which will enable me to be more forthcoming. Business area leads will work co-operatively with the college in the interests of the police and the public. Guidance will be published and taken forward by the college. ACPO no longer has responsibility for such guidelines. The three ACPO members of the board of directors of the college will be distinguished, experienced officers and will not act in the capacity of ACPO officers.
In conclusion, I welcome the opportunity that this report has provided to reflect on the priorities around police reform. There is more in the report than I have been able to address, but I have no doubt that the debate around how to reform one of our most important public services will continue. When the Government embarked on their reform programme three and a half years ago, there was much disagreement about the need for reform. This report now shows us why reform was required.
6.06 pm
Lord Harris of Haringey: My Lords, I am grateful to all noble Lords who have contributed to this interesting and important debate. We should congratulate the noble Earl, Lord Attlee, and welcome him to the world of policing. I am sure that we will hear many more contributions from him on this subject. I am sure that the whole House would want to add its voice to the condolences he expressed for not only the police officers killed in the Glasgow helicopter crash but all the others who died as a consequence and, of course, we express our sympathy for the officer who was shot in a separate incident.
Perhaps I may make one or two comments in response to the debate. From time to time, there was an implication that the commission was not genuinely independent. Having spent four years as chair of the Metropolitan Police Authority trying to keep under control or to restrain the noble Lord, Lord Stevens of Kirkwhelpington, I have to say that anyone who thinks that he will not be independent, and would not have been independent under all these circumstances, is living under some misapprehension. I also note with interest that although members of the Conservative Party were invited to participate in the commission, none were prepared to do so.
I also note that the commission went out of its way to consult the public about some of the issues that it raised. My noble friend Lady Henig and the noble Baroness, Lady Harris of Richmond, were responsible for taking a sort of roadshow around the country,
listening to voices. In that context, I think that the Labour Party is planning a roadshow of at least 50 meetings around the country to look at some of these recommendations, which demonstrates the commitment that there needs to be to consulting the public about making major changes in their police service.
I was interested that there was such a preoccupation about structures, and government structures in particular, in the debate. Perhaps it was my fault for even mentioning the subject in my speech, although most of it was about other matters. I was also interested in the suggestion made by the noble Earl, Lord Attlee, that it was a bad idea to merge public bodies such as Her Majesty’s inspectorate and the Independent Police Complaints Commission. I remember many happy hours in your Lordships’ Chamber debating what is now the Public Bodies Act, which seemed to consist largely of merging various public bodies. That argument by the Government needs to be looked at again, although the wider issues of whether this merger should go ahead would be part of the consultation.
A number of your Lordships suggested that it was premature to abolish police and crime commissioners because the jury is still out. I hope that the jury will return fairly soon. I understand that the Government are contemplating bringing forward legislation in the next Session of Parliament to extend the powers of police and crime commissioners. If that is the case, perhaps the same argument should apply and we should wait a little longer to see whether this experiment should be extended.
However, the key issue in the report and in this debate for me is what the police do, the style of policing and the need for a focus on the neighbourhood. That is the message which comes across throughout this full, extensive and, in my view, independent report, and which we all need to take forward from today’s debate.
Banking: Parliamentary Commission on Banking Standards
Motion to Take Note
6.10 pm
Moved by The Archbishop of Canterbury
That this House takes note of the Reports of the Parliamentary Commission on Banking Standards (1st Report, Session 2012–13, HL Paper 98), Banking Reform: towards the right structure (2nd Report, Session 2012–13, HL Paper 126), Proprietary Trading (3rd Report, Session 2012–13, HL Paper 138), “An accident waiting to happen”: The failure of HBOS (4th Report, Session 2012–13, HL Paper 144) and Changing Banking for Good (1st Report, Session 2013–14, HL Paper 27).
The Archbishop of Canterbury: My Lords, your Lordships are asked to take note of the work of the Parliamentary Commission on Banking Standards. I speak not only on my behalf but on that of some of the commissioners who, for various reasons, cannot be
here. I should add that it is coincidental and owing to constraints of the diary that this debate falls so neatly between Report and the Third Reading next week of the Financial Services (Banking Reform) Bill. I am particularly looking forward to the maiden speech of the noble Lord, Lord Carrington of Fulham. I am sure his contribution will be significant given his vast experience in another place, especially on the Treasury Select Committee.
In 2008, the Chancellor of the Exchequer found himself faced late one night with the choice of commitment of large sums of money—hundreds of billions of pounds—or of the collapse of almost everything in our society that makes money real, as the banks ran into a collective wall. In the years since, scandal after scandal has become apparent. Out of these vast events arose what was described as,
“a profound loss of trust born of profound lapses in banking standards”,
and thus the formation of the Parliamentary Commission on Banking Standards. The breadth of the task laid at the commission’s feet is hard to overstate. As one can read on the first page of each of the five reports published by the commission, it was appointed,
“to consider and report on professional standards and culture of the UK banking sector, taking account of regulatory and competition investigations into the LIBOR rate-setting process, lessons to be learned about corporate governance, transparency and conflicts of interest, and their implications for regulation and for Government policy and to make recommendations for legislative and other action”.
As further incidents came to light and Bills came forward, the commission was tasked with investigating the incidents and with pre-legislative scrutiny of the Bills. It was initially said that it would be all over by Christmas—last Christmas. I hope we shall hit it this year. The work was extensive. It involved many hundreds of hours of oral evidence and thousands of questions asked, with a majority answered. Seven volumes of our final report, Changing Banking for Good, are dedicated entirely to the written and oral evidence received.
Neither the quantity nor the quality of the material produced could have been achieved had it not been for a commission made up of such outstanding colleagues, with a great deal of experience, who worked so determinedly together. Their dedication and insight has been immense. I pay special mention to the Member for Chichester, under whose chairmanship we were led with great expertise and forthrightness, and a certain amount of sheer nerve and chutzpah in the way that the commission went forward. I also put on record the enormous debt of gratitude that I and my colleagues at both ends of the Palace owe to the staff that supported the work of the commission. They came from government and the private sector and included counsel. They worked night and day, in a new form of inquiry. We are also much in debt to the work already done by Sir John Vickers and his Independent Commission on Banking, whose recommendations on structural reform were the foundation of our own work.
Our first report provided the pre-legislative scrutiny for the Financial Services (Banking Reform) Bill. We made recommendations to strengthen the
proposed legislation, as well as suggesting further necessary measures to enhance the stability of the banking system.
In our second report, Banking Reform: Towards the Right Structure, we considered the Government’s response to our first report and, somewhat unusually, proposed amendments further to improve the Bill in a number of key areas, many of which have now been accepted. Our third and fourth reports focused on specific examples from the banking system that were especially concerning to us.
In the report entitled Proprietary Trading, we examined the effect of one particular banking activity on the culture and standards in banks. We welcome the breadth of the review into proprietary trading that the government amendments announced today appear to allow for. We hope that nothing will delay the timetable that is set out within the amendments, so that the PRA and independent reviews of proprietary trading can be completed most effectively and any necessary action taken as quickly as possible. I will return to that point in a few moments.
The next report, ‘An Accident Waiting to Happen’: The Failure ofHBOS, is a case study of bank failure—and one of remarkable quality. The work on this was led exclusively by the noble Lord, Lord Turnbull, whose vast experience and forensic skills were stretched considerably as the paper mounted up, but whose work is foundational to understanding this crisis. While not making specific recommendations, it serves as a stark reminder of the many aspects of poor banking standards and culture that pervaded the industry in the run-up to, during and following the great crisis of 2007-08.
Our fifth and final report, Changing Banking for Good, outlines the radical reform required to improve standards across the banking industry and presented Government, the regulators and the industry with a package of recommendations which, taken together, will raise standards and drive positive cultural change, ultimately changing banking for good.
Although we have made progress on structural and regulatory aspects of banking reform, through an enormous amount of work by your Lordships in this House, if we think that by changing the law we have solved the problems revealed by the crisis, we are profoundly mistaken. In this light, I wish to focus on those parts of our work that cannot be implemented through legislation or regulation but require cultural change within our banks.
As any vicar will tell you, a sermon should have three main points. I hope that your Lordships do not feel that you are being preached at today, but I wish to ask three questions which must be answered if we are to cut to the heart of how the rotten culture was found to be in the banking industry and how it can be changed for good.
The first question is the most essential: what is our vision for banking? We—not only the commission but legislators, regulators, bankers and society at large—have been tasked to find a once-in-a-generation leap of imagination that does not simply attempt to repair what was destroyed in 2008 but to replace it with
something that is of substantial and lasting value. A vision for banking that is sustainable and of value needs to offer the possibility of a flourishing society at every level of the economy, through investment, lending and understanding the communities in which the banks work—a vision that enables all banks to respond better to their customers and to the well-being of society. Without good banking, savings stagnate in fetid pools of hoarding, and good ideas and entrepreneurial vigour wither without the water of capital and liquidity. Such is the state into which we have been growing for many years, which is one—although only one—contributory factor to inequality, social immobility and areas of the country being condemned to generations of poverty and deprivation.
However, secondly, when we asked witnesses, “What is the social purpose of banking?”, worryingly, it seemed to be a question that often stumped them and which they had never asked themselves. Activity without social purpose is ultimately anarchy. The work of the commission, in my view, fundamentally has been about enabling the financial services industry to retrieve its basic purpose of supporting the common good and social solidarity. Banking is ultimately a utility function. It is of course one that is especially important to our economy, but there is a danger in treating the industry entirely differently from other utilities. It is necessary that a culture of service and social purpose is renewed in our banking industry. Banks must assert their roles in both national and local economies for without their investment in and service to local communities everywhere, there will be no durable and universal recovery.
Finally, we must ask: what ultimately will drive cultural change? Taken together, the commission’s recommendations are an effort to encourage positive cultural change. Proprietary trading, in the opinion of many of us—and it is subject to review—should be banned. Remuneration should be reasonable and proportionate. Regulation should be effective and accountable. The implementation of the ring-fence is a clear and welcome effort to ensure that distinctive and possibly irreconcilable cultures are kept separate. The ring-fence will, we hope, make the development of good culture more possible—and with the right safeguards, we hope also that it will be more durable than the walls of Jericho, so that not even the trumpets of Joshua’s army could find a way through.
However, it is clear that law and regulation cannot cause people to be good: making people good by law has been—to put it mildly—tricky since the days of Moses. Read the Epistle to the Romans to see why. Culture is set by leadership, training and implementation. In a recent report, the City of London emphasised remuneration and shareholder activism. Such recommendations illustrate the problem. Good culture is good through virtue, not out of hope of reward alone, although of course that must play a part. Shareholder activism also has had little or no impact historically, with the average share traded five times a year.
For a culture to become dominant, it was clear to us that it must be internalised by employees at all levels. A set of values governed by a deeply-held belief in what is right and wrong is foundational to long-lasting
cultural change. Such beliefs are caught and also taught. If no one inside a bank believes that some of the practices we have heard about, some as recently as last week, are wrong, or if they believe it has no adequate way of expressing their concerns—the commission, by the way, has recommended improvements to facilitate whistleblowing—then cultural change will never take place, and poor standards will continue to fester.
Introducing informal mechanisms to catch poor standards early on was one of the commission’s recommendations—it can be found in paragraph 786 of our final report—but in situations like this, once the principle of the recommendation has been accepted, the responsibility for bringing it about must be on banks themselves. That is why the commission recommended that, as well as the essential reforms to regulation and law, the industry must professionalise the sector in a similar way to the medical and legal professions. This recommendation has been much overlooked, but provides a convincing long-term answer—complementary, not an alternative, to the other things in the report—as to how culture can be shaped and styled, and virtue measured, understood and valued.
The banks have started on this work and it is especially clear that the chief executives of the major British banks are working very hard in this area. The struggle to change the culture has begun. It will be a long one. In our view, we are talking of years—decades, a generation perhaps—to embed a completely different culture to replace the one that seeped slowly away over the years after big bang. On the outcome of this struggle hangs to a considerable extent the flourishing of our society and the re-establishment of the reputation of our most successful industry.
For all these reasons, Parliament must hold regulators and market participants to account, not only for their adherence to written laws and regulations but, perhaps more importantly, for their commitment to the common good and to a culture of virtue, so that, possessing extraordinary power and influence, they may enable extraordinary good and development.
I wholeheartedly commend the work of the Parliamentary Commission on Banking Standards to the House. I hope that its work will not be in vain but will continue to be drawn upon as a new system is built in place of its failed and discredited predecessor. I beg to move.
6.26 pm
Lord Brooke of Sutton Mandeville (Con): My Lords, it is a privilege to be the first participant in this important debate to congratulate the most reverend Primate the Archbishop of Canterbury on having secured it, and for the manner in which he introduced it. His qualifications for it are enviable. Having read his mini-biography in wonderment at where he found the time to achieve so much, I hope he will forgive my language if I say that I think he is playing a blinder. I thank him, too, for having arranged the packaged provision of relevant papers in the Printed Paper Office.
My own participation in this debate is for three reasons. The oldest of these is that when, long ago, I spent two years at Harvard Business School acquiring
an MBA, my highest marks were in a course titled “Business Responsibilities in American Society”, which I supposed played some part in determining my subsequent career. My second reason is that for 24 years I was the third longest serving Member of Parliament for the City of London since 1283. Those years included the paradigm shift of Big Bang, from personal contact to largely screen and telephone business. Although the dramatis personae of that era are not an interest to declare, Sir Nicholas Goodison, the chairman of the Stock Exchange who negotiated and navigated Big Bang so well, was and is my oldest friend. My third reason is the debate on banking standards during Report stage of the Financial Services (Banking Reform) Bill on 26 November 2013, not least the most reverend Primate’s comments.
I must allude to a longstanding friendship with the honourable gentleman the Member for Chichester in the other place, who chaired the Parliamentary Commission on Banking Standards—henceforth referred to as the PCBS—and who has been a mentor to me on this, as he was earlier on the development of the euro. I say “mentor” because during the four years that I was a Treasury Minister under my noble friend Lord Lawson of Blaby, I was the only one of eight Ministers in the department in that period who had never worked in the City of London. Thus my responsibilities were concentrated on what Sir Douglas Wass once defined to me as the housekeeping end of the Treasury—a more fascinating portfolio than it sounds.
After leaving government, I was briefly a director of an investment bank but my comments hereafter reflect the views of the City of London Corporation. When the issues of this debate were discussed on Report for the banking reform Bill, your Lordships’ House heard, as we have heard again today, informed talk of standards, ethics and culture—not, I have to say, unknown at the Harvard Business School. One institution that spans this arena is the City Values corporate forum, a collaborative project supported by the Lord Mayor and the City Corporation. It draws on learning from the professions, academia and, happily on this particular occasion, clergy-based as well as secular sources. A report recently published by the forum provides a guide to help chairmen and boards to calibrate their approach to the oversight of values. Its goal is the achievement of ethical behaviour in the financial and business services sector.
We learnt from the PCBS that some banks tried to encapsulate values in their businesses by creating human resources handbooks running to in excess of 1,000 pages. I share the PCBS’s scepticism about mechanistic expressions of values. If we had consulted the Delphic oracle, I suspect that it would have found a discreet way of conveying a conclusion based on the criticism faced by the Financial Services Authority for just such a modus operandi.
The forum’s preference was for half a dozen building blocks that cumulatively would help institutions to build and maintain values. As an example, one building block would seek to cause a board to develop ways of measuring values, behaviour and culture and to deploy internal audit to renew and enforce them. The board would receive regular misdemeanour reports. This process would lead in due course to the board agreeing its
values with its customers and employees as well. Finally, there would be an annual values report to the board for wider publication.
All this will need to go further than discussion in your Lordships’ House but I hope that the process that I have described, and other initiatives like it, will stimulate the debate. Existing mechanisms can also be deployed more prominently. For example, the rights and duties of shareholders also have an important part to play in influencing board behaviour. As other noble Lords have pointed out in numerous debates on governance in this House, they are frequently underused controls. The All-Party Parliamentary Corporate Governance Group, of which I am a member, now has four or five years of informed debate in this area literally under its breakfast belt. The rights and duties of shareholders are frequently underused controls.
In conclusion, I shall borrow some words from the forum’s report to which I referred earlier:
“Governing values well is a prerequisite for a truly sustainable business … The need for the board of any financial services business to govern values is now central to its agenda—not an ‘optional extra’”.
I owe to the Harvard Business School the wise observation that if you do not know where you are trying to get to, any road will get you there. From 18 years of running an international business outside the financial sector before I entered Mrs Thatcher’s first administration as its absolutely most junior member, I can confirm the virtue of that corporate satnav.
The participation in this debate is nicely balanced around the Chamber. In particular, I wish my noble friend Lord Carrington of Fulham well in his maiden speech, to which I look forward
6.33 pm
Lord Brennan (Lab): My Lords, the most reverend Primate has spoken with great force and clarity about matters of considerable moment to our society in a speech that will no doubt inspire the noble Lord, Lord Carrington, in his maiden speech.
We owe a deep sense of gratitude here in Parliament, here from the Government and outside from the public for the work of this Parliamentary Commission on Banking Standards, first, for its impartiality—the 10 members, nine of them politicians, could not be accused by any fair observer of having put party interest above public interest in the work that has been done here. The fact that the most reverend Primate has been described throughout the reports as “unaffiliated” is politically accurate but a graceless way of describing a Minister of religion. No doubt in future some other term can be found for that. Impartiality is exceptionally important. A great commission of this kind should be seen and respected at the end of its work, as this one is, because it represents the best standards of parliamentary behaviour.
The second reason for gratitude is the extent of the investigation, which is remarkable. There were many witnesses, yards of documents, innumerable meetings, specialist advisers and expert staff, all working together in a most effective way.
Thirdly, there is the speed of the commission’s deliberations, which is commendable. To examine the banking system of our nation after a disaster in July of one year and then by June of the following to have delivered five comprehensive reports is a real achievement.
Lastly, the quality of the commission’s analysis and conclusions is convincing. For all those reasons, gratitude, yes, but let us look at the process that produced its conclusion. First, there is the parliamentary power given to it to send for persons, papers and records: “You will come to Parliament to explain”. Secondly, there is the quality of inquiry of those who came to Parliament to explain. Fortunately, it was thought unnecessary to take evidence on oath, but the very threat that you might have to is an extremely good instigator of honesty by witnesses before the commission. Lastly, there was the use of specialist advisers; I understand that there were about 20 of them. That provides an administrative and process base of high quality. Most important is the fact that this was an evidence-based inquiry, it was in public, society knew what was going on and the conclusions have been regularly debated.
Such an inquiry has a continuum over 10 or 11 months, where the participants have a quality of intellectual dynamism lacking in those who subsequently, in Parliament, in government or in the public criticise or debate the contents of their conclusions. That work fully vindicates the view of the Commons Public Administration Select Committee when in 2008 it called for parliamentary commissions of inquiry in these terms:
“Proper parliamentary scrutiny should include the ability to undertake inquiries into significant matters of public concern. Parliament has, in the past, conducting investigations of this kind—and, as the great forum of the nation, should be expected to do so”—
not often, but when it does, to speak as part of the great forum of the nation. Indeed, only a few months ago the same committee asked for a parliamentary inquiry to be commissioned into the Civil Service.
The importance of that is not to be underestimated. Select Committees serve a purpose, which is basically to keep up with the regular, day-to-day activities of Parliament and the Executive. Joint Committees—there are five permanent ones—have specific objectives. Ad hoc Select Committees, such as the one that I sat on about the Chinook helicopter inquiry, are almost quasi-judicial. None of them performs the function that this commission has performed. Parliament challenged its membership through this commission to meet the concerns about the banking world. The commission has met that challenge. By its title, it has confirmed that the challenge is not just for Parliament; it is for banking and the community.
“Not everything that counts can be counted. Not everything that can be counted counts”.
That elementary proposition should be the opening remarks in every inaugural lecture at the beginning of an MBA course at any university in the world. We should start with education. A couple of years ago the Yale Business School demolished its traditional mathematics-led, behaviour-ignorant course in business administration. It changed the title to “Honesty, The
Value of Labour, Profit: Service to the Community”. Applications to the Yale Business School doubled in the first year. If you prescribe for greed, you will incentivise greed. This kind of course changes that at the beginning. Afterwards it is for bankers themselves to meet that challenge—the cultural challenge.
This commission has been a model of its kind, for the following reasons. First, it has been generally accepted by the public. Secondly, a great many of its recommendations have been accepted by the Government. Thirdly, it has given Parliament confidence in its own processes. Lastly, it provides a basis, as the most reverend Primate has reminded us, for a continuing challenge and for cultural change for the future. Changing banking for good is a challenge for us, not a conclusion for Parliament.
6.42 pm
Lord Razzall: My Lords, like all noble Lords I very much welcome this debate introduced by the most reverend Primate and indeed look forward to the contribution of the noble Lord, Lord Carrington, with whom I last had an involvement when canvassing for the noble Lord, Lord Liddle, now not in his place, in the famous by-election in Fulham in the early 1980s. I am sure they look forward to renewing their rivalry over the Benches.
As the various reports from the most reverend Primate have indicated, it is clear that 2008 was the culmination of a series of problems within the banking industry. The 2008 crisis exposed problems not just with the regulatory regime but also, as he said, with the culture of the industry. Banks had become unable to manage risk properly, had lost sight of their responsibilities to customers and were seriously over-leveraged. In addition, they had not guarded against other long-term problems in the economy, particularly the housing bubble.
The result is a significant loss of confidence and trust among the public in the banking industry and huge harm being caused to the UK economy. As somebody memorably said, recently we moved from a culture of inky-fingered bankers to a culture of sticky-fingered bankers.
It is interesting that those banks which received bailout money from the taxpayer are often those which have the highest level of customer dissatisfaction. A recent survey by Which? found an overall customer satisfaction rate with RBS of only 50%—and that was before the recent allegations against it—and that Lloyds had a satisfaction rating of 56%. The highest-rated bank, First Direct, had a rating of 85% satisfaction in services provided. A recent YouGov survey asked people which three aspects of British banking, from a list of eight,
“have damaged your view of the UK banking industry the most”,
and found that the top two concerns were excessive bonuses and the LIBOR scandal. Notwithstanding this, the financial rewards handed to the City’s highest paid bankers rose by a third last year, with more than 2,700 of them paid more than €1 million in 2012.
The Government have addressed these issues in a number of ways. The first is through the banking
reform Bill, which will ring-fence the retail banking services of banks away from the high-risk trading that they may also conduct and to which the most reverend Primate referred—he would go further and ban that entirely, but that is not what the legislation says. In addition, in response to a recommendation by the commission, the Government have amended the Bill to allow regulators completely to separate the retail aspects of a particular bank from the rest of the business where that bank seeks to breach or get around the ring-fence. This is known in the jargon as electrification of the ring-fence.
On the regulatory system, the Government have sought to learn the lessons of the financial crisis. They have listened to the banking commission in setting up a new regulatory system via the Financial Services Act 2012. I shall not bore noble Lords with the detail of this, but there are three separate bodies aimed at fixing the regulatory problems: the Financial Policy Committee, the Prudential Regulation Authority and the Financial Conduct Authority. The Act also creates clear channels of communication and decision-making in the event of another financial crisis. This is because—and I think that we are all agreed on it—in 2008 there was concern that the powers available to regulators, the Bank of England and the Treasury were not clearly defined, making it hard for any one body to react quickly to events. In addition, the Act ensures that the Treasury is ultimately to act as the “point” in event of a financial crisis and can ensure that others act.
As the most reverend Primate has indicated, trust is the most fundamental issue, which cannot be dealt with by legislation. I make no apology for relying on a lot of the evidence that was given to the commission. The commission indicated:
“The loss of trust in banking has been enormously damaging; there is now a massive opportunity to reform banking standards to strengthen the value of banking in the future and to reinforce the UK’s dominant position within the global financial services industry”.
“It is essential that the risks posed by having a large financial centre do not mean that taxpayers or the wider economy are held to ransom. That is why it is right for the UK to take measures … which not only protect the UK’s position as a global financial sector, but also protect the UK public and economy from the associated risks”.
We have to remember that the overwhelming majority of people working in banks undoubtedly wish to serve their customers well and are as angry as the wider public about the activities of a minority of their colleagues.
“The mis-selling of IRHP and PPI demonstrate what can happen when banks exploit information asymmetries between them and their customers. However, providing too much small print to customers, effectively drowning them with information, may be as detrimental as not providing enough information to them”.
Peter Vicary-Smith gave the following example to the commission:
“To open an HSBC packaged account, the consumer is expected to read 165 pages of information. No one is going to do that. As long as banks ... provide so much gobbledegook that the real things you need to know are hidden, we will continue to have these problems”.
Many people said that it had been more than 25 years since Tom Wolfe had used the term “master of the universe” to describe a New York bond trader, but that it had never been more apt as a description of bankers than in the past decade. I have often relied in comment on this subject on the wise words of the noble Lord, Lord Turner, who is not in his place. He told the commission that:
“One of the most dismal features of the banking industry to emerge from our evidence was the striking limitation on the sense of personal responsibility and accountability of the leaders within the industry for the widespread failings and abuses over which they presided. Ignorance was offered as the main excuse. It was not always accidental. Those who should have been exercising supervisory or leadership roles benefited from an accountability firewall between themselves and individual misconduct, and demonstrated poor, perhaps deliberately poor, understanding of the front line. Senior executives were aware that they would not be punished for what they could not see and promptly donned the blindfolds. Where they could not claim ignorance, they fell back on the claim that everyone was party to a decision, so that no individual could be held squarely to blame—the Murder on the Orient Express defence. It is imperative that in future senior executives in banks have an incentive to know what is happening on their watch—not an incentive to remain ignorant in case the regulator comes calling”.
6.51 pm
Lord Carrington of Fulham (Con): My Lords, I rise with some trepidation to give my maiden speech, particularly in this debate introduced so ably by the most reverend Primate the Archbishop of Canterbury. First, I wish to declare my interest as a non-executive director and deputy chairman of a bank, as declared in the register of interests, but I shall return to that later. No, the reason for my trepidation is that it is a bit cheeky to intervene in a debate on a detailed and comprehensive report which I had no part in preparing. My only justification is that, when not being a politician, and indeed sometimes when trying unsuccessfully to be a politician, I earned my living as a banking practitioner.
First, I would like to thank my sponsors, my noble friends Lord Trefgarne and Lord Patten, each of whom has been hugely kind to me both now and over many years. Since I took my place in your Lordships’ House, they have given me invaluable advice, some of which I have taken. My mistakes and blunders, however, are my own, although I am delighted to give them the credit for anything I might have got right.
I would also like to thank the staff who look after your Lordships’ House so well. Black Rod and his staff and the Clerk of the Parliaments and his staff have been hugely friendly and willing to answer even the silliest of questions with good humour and patience.
As some of your Lordships may know, I spent some years in the other place. As has been said many times before, the contrast between the Chamber down the Corridor and here could not be greater and is almost universally in your Lordships’ favour. Noble Lords on all sides of your Lordships’ House, who I knew as sparring partners and controversialists before they came to the Elysian fields, have been mellowed by the transformation and have treated me with friendship
and kindness. Your Lordships will understand that I found this at first a confusing contrast with past attitudes but a huge and welcome relief.
One of the other joys in this place is the Chamber itself. Although the Chamber in the other place is a delight, the Luftwaffe removed much of its history. Your Lordships are fortunate to have a Chamber where it is still possible to see the ghosts of our great predecessors—perhaps Lord Beaconsfield sitting impassively, watching events cynically through his monocle, or the great third Marquis of Salisbury making one of his many speeches in favour of social reform with his back turned firmly towards the Woolsack, the better to address the Press Gallery.
As I mentioned earlier, I am deputy chairman of Gatehouse Bank. It is a small and very specialised institution. It is a Sharia-compliant bank, providing services that are often called Islamic banking. Its client base is Muslims who wish to live their lives and conduct their business affairs in accordance with the precepts of their religion. We expect our staff, a mix of Muslims and non-Muslims, to act in a highly ethical way. We are also forbidden by the Sharia from entering into some of the more complex hedging instruments which caused such devastation to conventional banks.
Banking has gone through traumas. One of the puzzles is what went wrong and why. We understand the trajectory that has brought us where we are. We will be able to see how we get back on to a better path. The excellent report of the Parliamentary Commission on Banking Standards highlights many problems and provides many remedies. I want to look at only two.
The first is the role that regulation played in the banking crisis. The regulators did not, of course, cause the banking crisis but neither did they prevent it. I am a regulated person and have some first-hand experience of the excellence, as well as the limitations, of the old FSA. Part of the problem is that they took the understandable approach of developing a detailed rule book, which led to what my honourable friend Andrew Tyrie, the Member of Parliament for Chichester, has referred to as the box-ticking culture.
The problem with a rule book is that, if an action is not specifically forbidden by the rules, it is assumed to be allowed. Banks employ very clever people, often recruited from the regulator itself, who did and do ensure that the banks’ unacceptable risk-taking rarely breaks the rules. So I am delighted that the new regulator, the PRA, is taking the view that it has rules but that it also has opinions and will rely on what it calls a “judgement-based, forward-looking supervision”—which I think and hope means that if, in the opinion of the PRA, something a bank is doing is unacceptable, even though it is not forbidden, it must stop. This is the way the old Bank of England banking supervision regime used to work when I first started my career in the City. It may be the only way to regulate banks, which are ever changing and innovating. Unless a regulator can say, “What you are doing may not be illegal, but I will not allow you to do it”, another banking disaster will sooner or later occur.
The second issue I want to comment on is the culture of the banks. The culture of payment by results and of large bonuses dependent on doing deals leads to all sorts of unintended consequences such as
short-termism and disguised risk-taking. Other than for staff who took short-term risks, such as money market and foreign exchange traders, it was only in the late 1980s that bonuses in banks became substantial multiples of base salary. I accept that deferring bonuses is a way of curbing these disasters in waiting, but in reality the motivation of employees to take unacceptable risks will be removed only if the long-term risk-takers are paid through salary rather than bonus.
This is an excellent report, but we are on a long path to resolve the issues in banking. Ultimately, it will require international agreement, which will be hard to achieve. My last thought is that, whatever we do here in the UK, we must ensure that London—and the UK generally—retains its place as one of the three global banking centres. Our country’s tax receipts and hundreds of thousands of jobs depend upon it, so whatever changes we propose in the future must make London the centre most trusted in the financial sector and not give less scrupulous financial centres an opportunity to take away jobs from the UK.
6.58 pm
The Lord Bishop of Birmingham: My Lords, I welcome warmly the noble Lord, Lord Carrington, to your Lordships’ House and congratulate him on a most succinct but wise and constructive maiden speech. His knowledge of finance and banking is exemplary. We have already heard from my friend the most reverend Primate of the noble Lord’s service in the other place, notably as chair of the Treasury Committee. He also brings a wealth of experience in banking. The particular bank mentioned, Gatehouse, of which he is deputy chairman, has this remarkable attention to Islamic finance. As someone who serves in Birmingham, that is of course well known and much appreciated.
Your Lordships may also like to know that the noble Lord, Lord Carrington, is a trustee of the St John’s Notting Hill restoration trust. That is something that he did not find time to mention in his maiden speech, but about which I hope that we will hear more in the future. It is a beautiful Victorian building which, at the same time, has a new community hub associated with it, bringing together a reimagination of ministry and parish outreach to ordinary people. On these Benches and across the House, we wish the noble Lord, Lord Carrington, great success in that project and a most enjoyable time as he serves here in this place.
I welcome the enormous contribution of the Parliamentary Commission on Banking Standards, and recognise the structural and technical details contained in our extensive debates over the past few months. I want to focus on the imperative of driving change in our culture, which many noble Lords mentioned, including the most reverend Primate—as the noble Lord, Lord Brooke, said, he played a blinder. I am sure that although he had the privilege of visiting Birmingham last night, it was not a peaky blinder—if your Lordships are aware of that television programme and early 20th-century behaviour.
The debates that we have had are about the balance of regulation and freedom. They have included a realistic approach to our position in global capitalism,
and its benefits and dangers—the benefits and dangers, too, to our national economy—and to the remarkable achievement of the banking industry over the years. At the same time, there is an underlying desire to see enterprise, which develops wealth, continue. Those who know the parables of Jesus know that wealth for the ambitious and successful farmer was in no way criticised; what was criticised, and ultimately judged fatally, was the farmer’s use of the abundant wealth that he had created and his selfishness in keeping it for his own use.
The reports before us have serious recommendations about increased responsibility, greater and clearer accountability, more competition in the industry, better business judgment and a vision for the long term. Coming from a business city such as Birmingham, outside London, I would like to reflect for a moment on the perception of our progress so far in these areas. What we have done and are doing here will be judged by whether it makes a difference to the tens of thousands of employees of the industry, and to the hundreds of thousands of clients and customers who are necessarily dependent on its success.
What about increasing responsibility? I have noticed that in each of these areas we are encouraged to see the responses to the detail of the commission, as well as that of the Government to its recommendations, in a constructive and positive way. The Deutsche Bank chief executive, who was at a conference the other day of all the risk managers for the global company, said that his bank will combine a culture of performance with a culture of responsibility. This is a great ambition for a commercial operation, and one that the chief executive says will do good for the world.
Increasing responsibility is being taken at corporate level, and much of the detail of our work has been on that. It is also being taken at the individual level. For example, regionally in the Royal Bank of Scotland, local directors are responding to their chief executive’s advice that to know their community as well as their business and retail clients, is good for business, but also that it is the right thing to do in exercising power and success. Greater accountability is part of our debate, and we have heard about the regulations and regulators. The Ecumenical Council for Corporate Responsibility’s report, The Banks and Society, which was published and ignored in March 2011, is now on the agenda of regional and perhaps national bank leaders, along with its main recommendations—particularly the desire for transparency in the business activity of a bank in a region that is trying to develop the economy as whole. That kind of approach and permission from the centre will be much welcomed.
More competition can be seen in the regional banks that may be emerging. From my own interest in the Church Commissioners, I know that the proposed Williams & Glyn’s Bank, which is emerging from the 300 RBS branches, may have an opportunity to demonstrate how to be a good bank in the terms that we have already heard about, but at the same time that it will be freed from some of the responsibilities of the bigger banks and respond to people’s needs locally. The background to that bank’s ambitions touch on most of the areas that we have been dealing with in
these debates, whether that is to do with remuneration, a reluctance to indulge in—or even a ban on—proprietary trading, the participation of all the staff, appropriate levels of leverage, and whether, simply, as all the banks seem to say, that it is important to treat your customers well.
Would we get better business judgment? We heard again recently of another series of bad debts, and of the difficulties one of the major banks had in dealing with them. However, to follow, for example, the recent discussion led by Andrew Whittaker of Lloyds Bank, the approach of proper risk management is something that people, both locally and nationally, expect to operate at a very high level of skill and attention. In a healthy and successful business one would expect certain things—the nuances of avoiding looking the wrong way at the wrong time, self-deception that gets going when we have a lot of power and adventure, opportunity taken without due diligence, misplaced assumptions about the future, lack of contingency, and so on—to be part of the bread and butter of how the governance is operating.
In conclusion, I will touch upon that discussion in the reports about longer-term vision. As the noble Lord, Lord Carrington, said, we not only hope that we will have a vigorous and world-beating industry here, we expect in the regions and localities that the powerful engine of the economy will also attend to bringing more of the poorer and less powerful people into the economy. It can do that by attending to credit unions and to the needs of people by removing and managing unmanageable debt, and by the ability to go into all the communities and schools and enable young people from the very start to know that money is a very good and wonderful thing if it is managed responsibly for their own good and for the good of their community.
I hope that the areas of expectation that are woven through these reports will build up, as noble Lords have said, that elusive and most precious gift of a renewed trust in one of our most fundamental industries, for the good of community and of society. I hope that people will begin not only to say, proudly, that that industry is a good mega-engine driver for the economy, contributing to rather than drawing from taxpayers’ money, but also that their participation, as an ordinary citizen or a micro, small or medium-sized enterprise—which is how most of the people in this country begin to participate in the economy—will be one of the long-term fruits of all your Lordships’ work. I trust that we ourselves will continue to remain accountable for making sure that banks exist to enable the economy to work and not to be the economy itself.
7.08 pm
Lord Sharkey (LD): My Lords, I start by warmly congratulating the noble Lord, Lord Carrington of Fulham, on his excellent and insightful maiden speech. He set a formidably high hurdle for those of us who follow him. I also congratulate the most reverend Primate the Archbishop of Canterbury on securing this debate. I congratulate him and his fellow commission members on the reports that they have produced and the use to which they have put them. I know that the
commission no longer exists, but listening to its members in the House in the debates on the banking reform Bill, is surely conclusive proof that there is life after death.
I know that it is conventional to praise the work of our committees—sometimes before going on to qualify that praise—but I will make it plain from the start that I have an unreserved and unqualified admiration for the work of the commission and the reports that it has produced. I am struck by the force of its analytical inquiry. I am struck by the force of its criticisms and by the essential simplicity of its recommendations. I am struck, too, by the clarity and simplicity of the language in which all this was expressed.
The commission’s reports deal with all aspects of the banking crisis and many of its recommendations have been adopted by the Government. The focus and debate has, quite rightly, been on legislation to produce better regulation. Although banking culture formed a prominent part of the commission’s report, it played, perhaps, a less prominent part in our debate. It is the issue of banking culture on which I wish to focus my remarks.
The commission was clear that there was, and indeed is, a problem with the culture in banking. It is worth quoting paragraph 754 from volume 2, which states:
“Poor standards in banking are not the consequence of absent or deficient company value statements. Nor are they the result of the inadequate deployment of the latest management jargon to promulgate concepts of shared values. They are, at least in part, a reflection of the flagrant disregard for the numerous sensible codes that already existed. Corporate statements of values can play a useful role in communicating reformist intent and supplementing our more fundamental measures to address problems of standards and culture. But they should not be confused with solutions to those problems”.
In other words, fine talk will not solve real problems—and the problems are very real.
It is a sad reflection that there is no need to rehearse the consequences of the banks’ corrupt culture in any great detail; it is all too appallingly familiar. Nevertheless, we should not forget the scale of the problem with the ethics and behaviours of the banks. There was the mis-selling to SMEs of products that were completely inappropriate; there were the LIBOR and the EURIBOR scandals; there were the HSBC money-laundering scandals; and there is now the possibility of another huge scandal if the allegations about RBS’s treatment of small businesses prove true. All these were bad enough, but much worse was the PPI mis-selling scandal, because it was the clearest example of a deliberate exploitation by the banks of their customers.
John Lanchester wrote in the London Review of Books recently:
“PPI was about banks breaking trust by exploiting their customers, not accidentally, but as a matter of deliberate and sustained policy. They sold policies which they knew did not serve the ends they were supposed to serve and in doing so treated their customers purely as an extractive resource”.
There is a common thread running through this criminal, or near-criminal behaviour. It is a kind of contempt that the banks have had for their own customers. It is clear that the banks have not behaved in the interests of their customers—nor, for that matter, in the interests of the rest of us. The banks are almost unique in doing
this, and they are certainly unique in getting away with it. Many huge and complex commercial concerns exist, but they do not systematically loot their customers.
My own long experience as an adviser to the senior management of very large, complex, commercial companies suggests a reason for this. One factor common to all the multinationals I have worked with was a fundamental belief in competition—a word that has so far not played much of a role in our debate. Competition in the service of customers was the key. That belief was not just a form of words, or just the shared view of senior management. It was the belief that defined the company at every level and in everything it did. It formed a strong cultural bond, where the obvious question to ask about anything was: is this really in the interests of our customers? No one in our banks asked this question about the introduction of PPI.
What makes the belief in serving the interests of customers a culture, and not just jargon, is competition. In all normal enterprises, large and small, what keeps companies focused on their customers is competition. If you do not serve the interests of your customers, your competitors certainly will—or at least they will if you operate in a competitive marketplace.
I have heard it argued that our large banks really did want to compete with each other. If that was ever true, it is certainly not true now. They do not compete and they probably will not because they do not need to do it to make money, and they make more money for themselves by not competing. Why do they not need to compete? It is because they effectively form a cartel. The EU Commissioner for Competition said yesterday:
“What is shocking about the LIBOR and EURIBOR scandals is not only the manipulation of the benchmarks, which is being tackled by financial regulators worldwide, but also the collusion between banks which are supposed to be competing with each other”.
“If you take the opportunity to see the conversations between these cartel traders, you will be appalled”.
A cartel means no competition, and no competition means no need to serve the customer, who does not have many real choices anyway.
It is now a bit easier to switch banks, but where do you go? Which bank is better than the other, which is different, and which has senior management that will put your interests firmly before its own? As long as there is a banking cartel there will be no competition, and as long as there is no competition there will be no reliable driver of sustained cultural change. As long as banks are too big to fail, as long as they are too big to manage, and as long as there are too few of them to be competitive, the chances of real and sustained cultural change are very low.
Of course we will see, as we are beginning to see, banks trying to say plausible things about customer focus. We will see new codes of conduct, new mission statements and reassuring advertising. But the sad fact is that without real competition, the banks have no real and sustained incentive to change, and the consumer has no real choice and no real chance. There is only one way to fix this, and that is to break up the banks. They are too big to fail, so let us make them smaller. They are too big to manage, so to make them easier to
manage, let us make them smaller. There are not enough banks to really compete, so let us make more by breaking them up.
I realise that we have had to give priority to fixing the obvious regulatory failures, and we are well on the way do doing this. Now we should turn our attention to failures in culture and in competition. Unless we do this, I fear that in 10 years’ time our successors will be looking at yet another series of banking scandals, and at yet another PCBS report on our failures in both culture and competition.
7.17 pm
Lord Turnbull (CB): My Lords, I join noble Lords in welcoming the noble Lord, Lord Carrington, to this House. I suspect that the smaller, innovative banks like Gatehouse are going to make a disproportionate contribution to the improvement of banking services in this country, so his knowledge and wisdom in that area will be valuable to us.
The final report of the PCBS opened with the following summary:
“Banks in the UK have failed in many respects. They have failed taxpayers, who have had to bail out a number of banks including some major institutions with a cash outlay peaking at £133 billion. They have failed many retail customers with widespread product mis-selling … They have failed their own shareholders, by delivering poor long-term returns and destroying shareholder value. They have failed in their basic function to finance economic growth, with businesses unable to obtain the loans that they need at an acceptable price”.
That is a harsh verdict that poses a number of questions. Is it a fair verdict or is it just banker-bashing, providing politicians with a smokescreen for their own failures? Were other players also to blame? Are the remedies appropriate? Has something gone wrong with bank culture and can something be done about it? Lastly, will we kill the golden goose and drive away banks and/or bankers?
On the first question, it is certainly the case that the banks were not uniquely to blame for the financial crash. Top of my list of contributors is a major intellectual failure. The model of the financial world that was taught in our universities and business schools, and championed by Alan Greenspan among others, presumed that capital markets functioned efficiently. In fact, almost all of those assumptions proved to be wrong. Financial markets were riddled with serious flaws, such as major externalities, misaligned incentives, irrational herd instincts and asymmetry of information.
Secondly, there was the connivance of western Governments, particularly in the US and the UK, who actively promoted access to credit for their citizens as a way of promoting the appearance of rising living standards. Thirdly, there was the widespread use of inflation targeting of price indices based on a narrow basket of consumer goods while ignoring asset prices and underlying credit conditions. The list goes on—there were all the players that should have provided checks and balances but did not, such as regulators, auditors and rating agencies—but it is clear that the banks played a powerful role as an accelerator and transmitter of these forces, taking greater and greater risks.
Initially, the response to the financial crisis was largely a structural one. The first phase was to restructure the regulators. A twin-peak structure was put in place in the first Financial Services Act 2012. In my view this is not necessarily the only, or perhaps not even the best, model, but it has been done and we should get on with it and make it work, rather than continuing to debate the alternatives.
The other part of the structural response was through the Independent Commission on Banking led by Sir John Vickers, set up in June 2010, which reported its conclusions in September 2011. The ICB set itself four objectives. The first was to make banks more resilient and better able to absorb losses, through higher capital and lower leverage. The second was to make it easier and less costly to sort out banks that get into trouble by dividing them into ring-fenced entities carrying out the core functions of taking deposits, supplying overdrafts and operating the payments system, with other, riskier investment banking activities being kept in a different entity, though still within a banking group.
The third objective was to curtail incentives for excessive risk-taking. In particular, the ICB wanted to cut back the implicit guarantee that arises if banks, and those investing in them, come to believe that banks are too big to fail or too complex to be allowed to fail. Finally, it wanted to strengthen competition and consumer choice by creating a more diverse, less concentrated banking market and by making switching easier.
By mid-2012 the debate was still dominated by these structural issues. Some people argued that if incentives and structures were improved, if the implicit guarantee was curtailed and if the banks were properly capitalised, behaviours would improve. If that view was ever true, though, it was blown away by a series of revelations about conduct in the summer of 2012. The straw that broke the camel’s back was LIBOR fixing. At this point the patience of politicians snapped and we moved on to a different agenda, one concerned not just with structure but with behaviour, standards and culture. The PCBS was created to investigate this.
I should at this point record my thanks to my colleagues on the commission and to the clerks and advisers who supported us. Not only did we pioneer some new approaches to committee evidence-gathering, such as the use of counsel, but we demonstrated how much can be achieved within the discipline of unanimity. Even as the commission began its work, reports of misconduct multiplied. They came more or less weekly.
There was widespread mis-selling to consumers and SMEs of retail products such as PPI and interest rate swaps, there was mis-selling of complex mortgage securities in the wholesale market and there were poorly supervised rogue trading, aggressive tax planning, money laundering and sanctions busting. This time even the survivors of the crash, such as JP Morgan, HSBC and Standard Chartered, were implicated. The list of abuses grows even to this day, with rumours that there may have been fixing in foreign exchange markets and claims that RBS has exploited some of its SME customers.
The PCBS has produced five reports but its findings on conduct can be summarized briefly. First, there was a lack of personal accountability. The approved persons regime was found wanting, as it served only to control
entry into senior posts—although, as the Reverend Flowers’s case indicates, at times it did not even achieve that. It was ineffective in influencing conduct and in enforcing standards. In this crisis only one senior banker has been fined, and no action has been taken against any CEO.
Secondly, there was remuneration that was widely perceived as excessive and incentivising poor behaviour. Thirdly, there was an erosion of professional standards and a decline in the status of chartered bankers. Fourthly, there was a loss of customer focus.
Anthony Salz, once of Freshfields and then of Rothschild, was asked by Barclays to review its business practices. He found a,
“culture that tended to favour transactions over relationships, the short term over sustainability, and financial over other business purposes … remuneration systems that tended to reward revenue generation rather than serving the interests of customers and clients”,
“within the letter of the law but not within its spirit”.
In a few words, he pretty much captures it, and the same could be said of most other banks.