I will conclude by briefly touching on the implications for the role of the United Kingdom. We concluded that the CMU project was a significant opportunity for the UK positively to promote the importance of capital markets, benefiting not just the UK economy

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but the EU as a whole. We encouraged the Government and the UK financial sector to share best practice with other member states while recognising that the United Kingdom could itself learn from others; I look forward to hearing from the Minister in a minute.

I did take the opportunity, when the Statement was repeated by the Leader of the House just now, to make a suggestion about capital markets union. The single market was the creation of Lord Arthur Cockfield in this House when he was the British Commissioner 20 years ago. I wonder whether the Government might become more positive about what they are intending to do by holding this referendum, get on the front foot and say that there are benefits from the single market which are considerable for the European Union and for the United Kingdom. In collaboration with the Dutch presidency, why not invite the noble Lord, Lord Hill, to be a chair or at a meeting which promotes and reports on the capital markets union, something where the Prime Minister might actually stand up and say, “This is why we are in the single market and in the European Union, because it helps the City of London, it helps small businesses, it helps consumers, and it helps us become abuzz and alive again as a trading nation”? I beg to move.

1.59 pm

The Earl of Caithness (Con): My Lords, first, I thank our late chairman—if I call him that it is in the right sense—the noble Lord, Lord Harrison, for his huge contribution to the work of the sub-committee, which I am privileged still to sit on. He did an enormous amount of work. This report is another testimony to the success he achieved, but he would not have done it without the support of the backroom team. I also give my personal thanks to Stuart and Katie for their hard work, and to John Turner, who is now filling that role.

At the seminar we held about a year ago on 10 February, Hugo Dixon said of the CMU that it is,

“a slogan in search of a policy prospectus”.

What an indictment. The principles of the free movement of capital were enshrined in the treaty of Rome, which is 59—nearly 60—years old. It shows how little has been achieved in those 59 years and how much has yet to be achieved to meet the aim of the principles of the treaty of Rome.

In that respect, we are extremely fortunate to have the present Commission. It is a vast improvement on the previous one, but they will not all be like this. In particular, we need to look at the role of my noble friend Lord Hill. His title is worth bearing in mind and is very relevant to the debate. He is the European Commissioner, Financial Stability, Financial Services and Capital Markets Union. For the first time, the Commission has given the right title for somebody to get on and do the job.

The noble Lord, Lord Harrison, mentioned some of the needs for a capital markets union. It is quite clear that the banks are struggling and not meeting their objectives. It is worth remembering that new lending in the eurozone is lower today than it was 10 years ago. That is a terrible indictment of our financial system in Europe and bad news for all our companies.

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The collapse in lending has now got to the state, as the noble Lord, Lord Harrison, said, where roughly 80% of companies’ debt comes from the banks, whereas in America it is under 20%. That is a huge area that the EU needs to improve on. We must retain our banks. The capital markets union must complement how the banking system works, but the figures I have given show that a huge structural problem needs to be addressed. A good capital markets union will address not just that structural problem but others, such as the pensions problem in Europe, which is grossly underfunded and needs finance, and the infrastructure problem. With the banks pulling back from infrastructure problems, how will Europe raise the €2 trillion of investment that it needs in telecoms, transport and energy infrastructure by 2020?

Europe needs to build bigger and better capital markets. According to figures that have been given to me, there has been a shortfall of more than $1 trillion a year between what European companies raised in capital markets and what they could have raised if we had operating in Europe a proper system of capital markets, as developed in the US. On 26 different measures, European capital markets are only half as big and deep as they would be if they were in the US. That is the size of the problem we face.

The action that the EU has already taken has been good. There has been substantial progress and I hope that my noble friend the Minister will update us. A regulation on securitisation and an amendment to capital requirements has been proposed, but perhaps more importantly, it is worth stressing that the drafting of the prospectus directive has been revised. This shows that the Commissioner is prepared to return to a problem to try to get a better solution. In evidence to us, which noble Lords can find on page 50 of our report, Jonathan Faull showed how difficult it was to get agreement on the prospectus directive. It was about getting the balance and what was required for the SMEs, and keeping investors interested without imposing excessive burdens. The fact that this has been revisited—we hope that progress will be made on it—shows that the Commission is more interested in listening to the concerns and in trying to get a sensible solution.

A number of problems still remain, some of which the report drew attention to. I highlight the first one in particular. In paragraph 90 we refer to the fact that significant obstacles remain, and to the problem of the financial sector being treated as silos. Has any progress been made on this? If no progress is made on that front, the capital markets union will never be the success it should be.

Paragraph 11 addresses a more difficult area that the Government alone cannot tackle: the problem of culture. There is a big difference between the culture of the EU financial market and the UK financial market, as was pointed out to us by a number of experts. There are differing “entrenched cultural norms”, and saving trends tended to be “compartmentalised” within different member states. The attitude to business failure is very different and insolvency laws are different, as are cultural and legal traditions. I was particularly struck by comments made during our seminar by Sharon Bowles—now the noble Baroness, Lady Bowles—who,

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luckily, is with us today. It shows the advantage of this House that she is back in a legislative Chamber. She raised exactly these points, and I look forward to hearing what she has to say and hope that she will expand on them. Unless the culture can change, it poses a serious hazard to sensible implementation.

There are also problems, as I said, surrounding insolvency law, security laws and tax. I ask my noble friend: is the Commission being too slow in tackling this? Do we expect a speedier response in future? Is the Commission doing enough to protect the retail investor and the consumer? There has been limited progress on this front. These are difficult issues. It is quite natural for the Commissioner to tackle the easy problems first, but as you start to dig deeper these are the problems that need to be addressed. I would like an update from my noble friend on that.

Another problem area is the Government’s response, which was one and a half sides of A4. That in itself was not so bad, as they had given a full reply to the CMU Green Paper; my concern is that the Government are so in agreement with the committee. That makes me think this is quite an easy ride. It is not. This will be a long, slow, drawn-out process. Given the amount of enthusiasm shown, we have to pay twice as much attention to the detail—I see the noble Lord, Lord Harrison, nodding. I am reminded of the financial transaction tax: not until our report came along did the Government wake up to the hazards. We will need to be very certain that the Government are alive to any pitfalls before us.

I want to return to one other matter before I conclude. These are the problems in Europe. There have been a number of different measures assessing how the market works throughout Europe and the relative depth of the capital market across Europe. As I said, it is not even. In fact, on every measure the rest of Europe is behind the UK. Therefore, to a lot of the countries we are talking a language they do not understand. We take it for granted. We have been brought up with it in this country. We know what the financial sector is. For many in Europe, it is not as easy as we think it is: it is much more complicated. I ask the Government to make certain that when the Prime Minister is doing his rounds, he explains in words of one syllable what the differences are and how important this is.

I wish the CMU well. Industry has to play its part. The Government cannot do this alone. Industry has to change, adapt and be very proactive to get these measures, which will bring so much benefit, on to the statute book.

2.11 pm

Lord Davies of Stamford (Lab): My Lords, it is a pleasure to follow the noble Earl. I agree with the points that he made and agree particularly warmly with his very generous but justified tribute to our chairman, my noble friend Lord Harrison, in the previous session. He was a really perfect chairman and there was no day when we felt that we were not extraordinarily well chaired. This report is just one of the accomplishments of the committee under his chairmanship. I thought at the time that he would be

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an impossible act to follow, but we now have a new, very effective chairman, the noble Baroness, Lady Falkner, who is taking part in the debate this afternoon. Both these chairmen have the four qualities that seem to be essential for the role. They are always enthusiastic, they are always conscientious, they are always decisive and they are very fair. They may have differences in personality—they are well-known and respected Members of the House—but they have those qualities very strongly.

There are three important considerations in this issue of a capital markets single union. One is a central and obvious one for this country: we have a great deal of human and financial capital invested in the City of London. We stand really better than anybody else in the European Union to benefit from the emerging capital-markets union, if it is in fact a real success. That has obvious implications for growth in this country, and for the generation of employment. This is of considerable—indeed, exceptional—national interest within the single market for this country.

Secondly, my noble friend Lord Harrison has made the point well that there is general agreement that it is necessary to try to provide a wider source of finance in the form of both working and long-term capital for British industry and commerce, as well as for continental industry and commerce. The 80% market share in the field of the banking system in the single market is a healthy state of affairs neither for business, commerce and industry, nor for the banking system. To introduce a greater measure of competition and greater sources of finance of this kind is an important undertaking. Again, there is strong welcome for it from both sides of this House and across the whole of the European Union. The noble Lord, Lord Hill, has a task and is being looked to by many people to accomplish it successfully, and I trust and hope that he will.

The third important consideration in this context is that there has been much talk about the relative inadequacy in the euro area of mechanisms allowing for some stabilisation in the event of asymmetric shocks. As the House knows, there is a lot of controversy about the degree of transfer payments that ought to be provided for to make a successful euro area. Whether or not we are members of the euro, we all obviously have an interest in the success and stability of that area.

What is immediately apparent to any observer is that in the United States, which is obviously a successful currency union by whose experience we ought sensibly to allow ourselves be guided, the capital markets play a major role in that stabilisation process. That is not to say that there are not elements in that process played, importantly in the United States, by federal funds and federal government money, but it is clear that the capital markets play the major role there. That is because in a single-currency area, you eliminate exchange risk for investors within the area, which is one of the automatic results in creating the currency area in the first place. One of the advantages of creating the euro in much of the European Union has been that that effect has been generated. People are therefore naturally inclined to hold more widely diversified portfolios, going across the whole of that area. If they want to

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buy a pharmaceutical, automotive or retail share for their portfolio, they will not be limited by what is in their own country—previously they would have been, because they would not have wanted to incur foreign-exchange risk in many cases—but they will look equally well at a share or bond in one of those particular sectors in any other country that is part of the same currency union. That process takes some time to develop. It would be unrealistic to expect that we would have achieved the same levels of diversification in the euro area as has been achieved in the United States, but the process is ongoing and it is an important one.

The United States is working very well at present. Texas and Oklahoma lose out from the fall in the price of oil, but California, New York and Massachusetts gain. At the same time a lot of people in Texas have shares and bonds in or other claims on companies in California, New York or Massachusetts. They gain that way. Equally, a lot of investors in those three states will have claims on Texas and Oklahoma; they will share in some of the losses. There is a sharing of risk and a stabilisation mechanism there, and it is desirable that these should develop in the European Union. It will do so pretty much automatically if we can make real progress in creating a capital markets union.

I would like to make two further points to add to the considerations in our report. One is a matter that has become more serious since we published the report. In many ways I am sorry that it has taken us so long to have this debate. Nevertheless, it gives me an opportunity to talk about a new threat. On a recent visit to Brussels I was informed that the Commission may well not be pursuing the idea of an insolvency directive, whose objective would have been to create a common insolvency law throughout the European Union. If that is the case it is regrettable, and a serious reverse for the prospects of the capital markets union. If the point does not appear immediately obvious, I shall explain why. Any investor is concerned with the claims that he or she will have in the event of insolvency. Insolvency does not preoccupy many people if they buy a triple A-rated bond or a blue-chip share, but logically it becomes a disproportionately important issue at the riskier end of investment. For example, private placements, peer-to-peer lending—that has already been referred to—and venture capital are precisely the areas that we want to see expand and where we are at a competitive disadvantage to the United States, where those sources of funds are much more developed. So that is quite serious.

If an investor is confronted with the possibility of such an investment in another country with whose insolvency laws he is not intimately familiar, or not as familiar as he is with his own, he probably will not spend tens of thousands of pounds or euros on getting legal advice on the regime and jurisprudence in insolvency in the country in which he is thinking of making an investment. He probably will just not make the investment there. He will probably make it in his own country, and will not therefore get the single market or the capital markets union effect that we are trying to go for. Insolvency is very important and in my view that objective must be pursued energetically. I hope that

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the Minister can tell us in his winding-up speech that the Government are committed to an insolvency directive and whether they are doing anything to push the initiative forward. That is very important. The Government appear to have quite a lot of influence in the European Union, if the events of the past two or three days are anything to go by, so I hope that they will add that to their agenda.

My other point is that at present there are two initiatives in the EU in the capital markets and financial area that currently are separate, but that separation is not sustainable, viable or logical. There is a project of banking union and a project of capital markets union. It so happens that we are part of the capital markets union—a very big part, I hope—but not of banking union. I do not quite understand why we are not a part of banking union; in our sub-committee, presided over by the noble Baroness, Lady Falkner, I have asked many experts why we are not and I never get a very respectable answer except politics, which in my view is not a respectable answer to an important issue affecting the national interest. First, if we are not members of banking union, it seems that we shall face higher compliance costs in this country because banks operating across the EU will have to have compliance operations covering their activity in the euro area, or in the banking union area, and different compliance arrangements in this country, which is not part of the banking union. That is very undesirable.

Secondly, there will be the inevitable temptation to go in for regulatory arbitrage, which is bad from an economic point of view because it is distortionary and, of course, makes a mockery of the whole system. Thirdly, I do not think that the distinction is robust, viable or sustainable. Take, for example, shadow banking, money market funds, securitisation and indeed the development of a secondary market in securitised bank loans: are those to do with banking union or with capital markets union? The answer could be both as they could be categorised as either, so it is not a very sensible distinction to make. If we try to make it again, we will have regulatory arbitrage, costs, confusion and a lack of transparency and certainty—all the things that we are trying to avoid by creating a capital markets union in the first place. That would be very perverse and unfortunate, and I hope that people will think very seriously about that because this is an area where there is unfinished business and which is very important to this country.

2.22 pm

Baroness Falkner of Margravine (LD): My Lords, it is a great pleasure to follow the two senior members of the committee, the noble Lord, Lord Davies of Stamford, and the noble Earl, Lord Caithness, who I am delighted to see is on the road to recovery after his recent illness.

Listening to what the committee says about the noble Lord, Lord Harrison, it feels, sitting in the chair as I do now, as if he is a very hard act to follow. However, it is a stellar committee served by a stellar secretariat, and I have great pleasure to be leading it at this point in time.

The noble Lord has covered the main elements of the proposals that foreshadowed the subsequent action plan launched by the noble Lord, Lord Hill, in late

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September last year to bring about an improvement in capital markets in the EU. Given the wide spread of issues that other noble Lords have spoken about, I shall confine my remarks to one or two current issues that have come to light since the report was published.

In commenting on the publication of committee’s report, I express the committee’s frustration that the business managers of this House do not seem able to schedule business in any sort of timely manner. I am sorry that the noble Lord, Lord Boswell, is not here to hear this. That is a widely repeated refrain across the sub-committees yet just the other night we rose at 7 pm, and there have been many similar previous occasions. So we come to a situation where, by the time we finally discuss matters covered by a report as long ago as 20 March 2015, a lot of water has passed under the bridge regarding things that are of huge import to this country’s financial sector.

I should add that the UK’s financial sector does not hold back. On the Commission’s Green Paper consultation on capital markets union, which is the subject of this report, 95% of the responses came from the United Kingdom, with 65% from Belgium—presumably because organisations based there have an interest in it—and 57% from France. This demonstrates that the UK not only engaged actively but did so because it will be a huge beneficiary of the proposed changes, as we were told across the board when we visited Brussels last week.

To quote the noble Lord, Lord Hill, in the Financial Times last September when he launched the Action Plan on Building a Capital Markets Union:

“This is a good example of the practical benefits that membership of the single market can bring. But to make the most of it, and to help influence the rules which will set the terms of engagement for years to come, the UK needs to be shaping the system—not looking on while others set the rules”.

These are very wise words in the now excitable atmosphere of the UK renegotiation.

We have seen over 40 legislative and non-legislative measures in the area of financial regulation since the crisis of 2008. Many of them have been necessary, but it has taken some time for the scale of the problem of illiquidity in capital markets to become apparent, for the rigidity of national insolvency laws regarding capital markets—something commented upon a moment ago by the noble Lord, Lord Davies—to be overcome, and for the retail financial services sector to be kick-started across the EU, which is sorely needed. The EU economy is roughly the same size as that of the US but its equity markets are less than half the size. I think that the noble Lord, Lord Hill, estimated that if European venture capital markets were as deep as those in the US, over the past five years EU companies could have raised an extra €90 billion of badly needed investment.

I said I would update the House on one or two of the measures, and the House has already heard from noble Lords on both of them. One of them concerns securitisation, the first major piece of work undertaken under this heading. It is intended to create a simple, transparent and standardised framework for the regulation of securities in order that a prudent and diligent investor in asset-backed securities will be better able to

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analyse and price the risk involved. This should considerably reduce the capital charges imposed on banks and insurers when they invest. It will also bring much-needed transparency to the pricing of risk through standard templates and require originators, sponsors and original lenders to retain risk of not less than 5%. In other words, it will ensure that those investors and insurers have a dog in the fight, albeit a very small dog at 5%. That shortcoming was exposed during the sub-prime mortgage crisis in the US in 2008.

The UK has a significant interest here: it accounted for 22% of European securitisation issuance in 2014 and 46% of the investor base. However, the proposals have come under fire as they do not envisage an overarching regulator determining whether a securitisation meets the criteria required. This criticism is mainly from France, I should add, where the concern is that only the biggest investors would have the expertise and resources to enter the market, but his remains a valid concern, as the urgent need is also to enable SMEs to access capital markets more readily. I hope that in due course, as the proposals bed down, the secretariat of the noble Lord, Lord Hill, will have another look at this.

A further change has come about with agreement on Solvency II, which came into force on 1 January and will impact the insurance industry hugely as it revises and updates the current solvency framework in the EU. It does this through reducing the risk of insolvency, reduces losses to policyholders and gives an early warning to supervisors so that they can intervene promptly if capital falls below the required level. It intends to promote confidence in the financial stability of the insurance sector though creating a more level playing field. It has taken a long time to get here—its origins go back to 2002—and its effects will undoubtedly take some time to work through, but overall, despite the reservations of some parts of the UK insurance industry, I argue that it can only be a good thing to level the playing field.

We are in the middle of scrutiny of the Prospectus Regulation and it is too early to say where this will end up. However, since the Minister is here, I hope that he will take on board the following thoughts: that we as a committee find it a little frustrating that we do not receive more feedback from relevant Ministers as to their consultation with stakeholders. This regulation will considerably impact on the SME sector raising the threshold definition of an SME from €100 million to €200 million in market capitalisation. It would be important for us—particularly in the case of regulations where we are the backstop of scrutiny—to hear what industry voices have said and what their discussions with the Treasury have revealed in terms of our scrutiny function.

Finally, let me turn to the issue of economic governance as set out in President Tusk’s detailed proposals on Tuesday. The section of economic governance says that eurozone members should respect the rights and competences of non-participating member states. He goes on to argue that facilitating the coexistence between different perspectives within a single institutional framework is important and that the equality of member states before the treaties should be upheld.

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I accept that it is still early days but there is a need for clarification on a number of fronts. Mr Tusk refers to discrimination in the text but goes on to say that different treatment must be based on objective reasons. The question arises as to how we define objective reasons and whether it is to be left to the court to adjudicate between objective reasons on the one hand and action arising on the basis of financial stability on the other, an area where differential treatment is allowable. I suspect that differential treatment will be allowable but only up to a point, and the question will be: which point? I hope the Minister will be able to relate these concerns back to the negotiating team.

Today’s Financial Times says in its headline that the safeguards’ impact on the City remains unknown. This is not a party-political point; it is imperative that we gain clarity on this before the European Council and its final conclusions on the negotiation on 18 and 19 February.

To conclude, the sub-committee’s report is titled Capital Markets Union: A Welcome Start. The noble Lord, Lord Hill, has started on this exercise. We wish him all success in delivering the capital markets that Europe so badly needs.

2.32 pm

Lord Dykes (Non-Afl): My Lords, I am not so sure that the noble Baroness, Lady Falkner of Margravine, will actually get an answer to the question she has just posed in time for the onset of the referendum campaign and the declaration from the European Council negotiations, but I hope she will. I hope the Government will be able to respond because it is a very pertinent question.

Despite the fact that it has taken a long time for this debate to be held—I agree with the complaints about that—I add my thanks to the noble Lord, Lord Harrison, for opening this debate and for having been such a successful chairman of this sub-committee. I do not want to embarrass him but I am reminded of that famous joke about a human cannonball who was injured—not seriously, I hasten to add—in a circus in Britain some years ago, and the ringmaster wrung his hands in panic and said that it would take him years to find another man of the same calibre. We thank the noble Lord, Lord Harrison, for having been such an excellent chairman of this committee. In this case there is another person of the same calibre—in this case a woman—namely the noble Baroness, Lady Falkner of Margravine, so we welcome her and wish her well in this committee.

It is not an easy task to promote this document and these recommendations because the timetable is long, and that is likely to mean that it is going to be depressing as well, but we have to really press hard, particularly with our natural authority as one of the leading marketplaces of the European Union and the strength of the City of London, where as we know the biggest dealers in the euro are found. It has to be pressed very hard and I hope the Government will do so, perhaps in contrast to their rather restricted enthusiasm about being an integrated member of the single market syndrome for financial markets as we are for the single market in physical products. They are not so keen on

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other aspects of the European Union membership obligations that we have in respect of the items that have been enunciated in the negotiations for the referendum campaign.

I regret that very much because I think we need to maintain our enthusiasm for the European Union anyway. In this field it is much more difficult because, as other speakers in this debate have said, the level of development in other countries is much lower. This is one where we are ahead; while Britain has improved in recent years, none the less we sadly find that we are behind other member states in industrial performance and behaviour. The Government talk in the referendum negotiations about the need for enhancing competitiveness in Europe, and I agree entirely. They mean different aspects of course but it is amusing to reflect that we are the only large member state that has a huge trade deficit of rather ominous size, whereas the other large members states—Germany, Italy, France and, I think, Spain—have a considerable trade surplus with Britain. A little bit more modesty in that context would come in handy, but in this particular area we are ahead.

I was a long-standing practitioner many years ago in the stock markets in the City of London. It is interesting to see how we have always maintained that lead by bringing size, capacity and influence of operation together; then the big bang really enhanced that. To some extent this is a kind of European-wide big bang exercise, not promoted just by private enterprise but also by legislation, as was the case in Britain. France followed with its own big bang a year after Britain and other countries followed suit. However there are still areas of lack of development. For instance in Germany, the biggest and most successful economy, surprisingly we find that financial markets are much less developed, notwithstanding the promulgation 14 years ago, I believe, of the Finanzplatz Deutschland scheme which helped to open up German stock markets. They opened up quite considerably at the margin but only a little bit proportionally. Therefore Germany also needs to take an interest in this field, because there are very strong beliefs there in the single market aspects in general and there should be on financial things as well. Their industry and smaller, Mittelstand companies are dominated by their relationships with the banks.

That is an aspect of how the culture takes a long time to change and patience is needed for that to happen. In other countries it can be quicker, particularly in the new member states where these matters may be much less developed, and therefore are more likely to be able to operate on the basis of new proposals coming from the Commission, which would gradually integrate these markets more and more.

I was delighted too when the noble Lord, Lord Hill, went to be the Commissioner for Financial Services and Markets. We were sad to lose him as Leader of this House—a very capable Leader with a sense of humour, which you need in that position—and he is now becoming a very successful Commissioner with exactly the right portfolio from the point of view of this country. We wish him well on his very hard-working and patient track to success, which will take some time.

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I agreed with the noble Lord, Lord Davies of Stamford, when he was referring to the advantages in the United States of the open market system, the vast amount of money raised in the capital markets and the various desirable and productive effects of that. However, perhaps he should not get too carried away because in contrast to that the worrying problem in the United States is the level of debt that has been accumulated in the public sector and by Government, as well as elsewhere. The level of debt in the United States is a very serious problem and we need a balanced view of that. As long as everybody in the world is prepared to accept the greenback as the world’s leading reserve currency, then it is all right, but as the federal debt alone in the United States is $17 trillion, and half the states and 40 American cities are technically bankrupt, then that has to be held in check because one day it might collapse if an alternative reserve currency comes along. Lo and behold, look how close the euro is getting to the US dollar in terms of international banking payments transactions—the measurement of all transactions throughout the world every day. It is now six points behind the US dollar whereas a few years ago it was miles behind. The euro, therefore, is in reality not like it is in the view of the chauvinistic British press; it is a very successful currency in general, with three or four members who find it difficult to keep in recently, and most of them are solving their problems—now even Greece, with eight parliamentary votes in favour of the strict measures, has been able to do that.

I therefore hope that the Minister will reply to the various questions he has been asked. This is an excellent report, and I wish the Government well in pursuing this portfolio.

2.40 pm

Lord Flight (Con): My Lords, I add my great appreciation of the noble Lord, Lord Harrison. I spent four years on the EU Economic and Financial Affairs Sub-Committee, which he chaired. There were, shall I say, widespread views among the members of that committee, but we never had any problems in putting together sensible papers, and it was very much due to his most courteous and constructive chairmanship. I am sure that the noble Baroness, Lady Falkner, his successor, will be an equally good chairman. I always thought that it was wrong that the committee should just be a sub-committee of the EU Committee, because it is an incredibly important committee. It is at the front line of looking at all the stuff that comes through, such as whether we will have a financial transaction tax, and goodness knows what; it is a crucial part of our interface as a member of the EU. I also add my congratulations and appreciation that my noble friend Lord Hill got the job—he is a decent and sensible person and will cope with some things that urgently need doing.

To me, the “EU” bit of the capital markets is in fact not so fundamental; Europe needs more capital investment—it does not matter where it comes from. London has been the key place for channelling international capital, much of it into Europe, and America is probably the largest private equity and venture capital investor in Europe already. As we know, the problems are that the banks cannot lend

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more and that there is a super-rated dependency on banks anyway, but debt problems and so forth limit what the banks can lend to SMEs anyway, and the euro crisis killed cross-border bank lending within the EU. Therefore what is left, which is crucial, is the need to get more equity money to SMEs. I think my noble friend Lord Hill described his task as channelling savings from anywhere in the EU to be invested anywhere in the EU; I would amend that to say “to channel investments from anywhere to be invested anywhere in the EU”.

I pick up the point which the noble Lord, Lord Harrison, made, which is that there is a pretty strong lack of willingness within the EU to invest in other countries; I think 94% of EU citizens very much shy away from any sort of financial involvement in other countries. That task of just increasing capital flows in the EU will very much come from London, and on the back of the US. I hoped that I would learn today about how my noble friend Lord Hill has been getting on in achieving the action plan that he drew up last September, and indeed, I have learned some quite important points. However, something slightly disappointed me.

I remember when we had our session with my noble friend Lord Hill, I made the point to him that the enterprise investment scheme—I declare an interest as chairman of the EIS Association—has raised a lot of high-risk equity capital for SMEs: about £12 billion or £13 billion. France wisely came over to look at what the UK was doing, copied us and put in a similar scheme, which is gaining some momentum. I suggested to my noble friend Lord Hill, “Why don’t you try to persuade each of at least the main economies within the EU to put in their own EIS-type scheme?”. However, not only has nothing happened, but, unfortunately, the EU Competition Commissioner has decided to attack the UK’s EIS schemes, holding a sort of pistol to our head in terms of state aid approval, and has required a great deal of complications and for money which a company can raise under EIS to be significantly reduced. Worst of all, she has required us to put in a 2025 date for ending the enterprise investment scheme. Who knows whether that will happen? I thought it quite extraordinary that, where the EU desperately needs more capital flows for SMEs, you have the Competition Commissioner of all people deciding that she wants to get rid of the EIS arrangement for raising risk equity for small companies. As regards the measures, a small company—the size is determined by the number of employees and the size of the balance sheet—could raise up to £5 million a year under the EIS scheme, but now it has a cap it cannot raise more than £12 million over its lifetime, whereas it was £5 million a year unlimited.

I do not know how successful things such as peer-to-peer lending or crowdfunding have been on a cross-country basis. Mostly, what has happened has been organised through London and some of it through Guernsey. However, I have some reservations about such arrangements, because I cannot help feeling that, when a bad economic period inevitably comes, there will be significant losses on peer-to-peer lending; for some people it does not matter if rich people lose money, because “They can afford it”, but if it is not

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rich people, people will claim that they were misled and did not know what would happen. I also got a huge shock when I noticed that peer-to-peer lending had been exploited in China to develop a Ponzi fraud that has involved 880,000 people and £5.3 billion, so there is some vulnerability to fraud there.

The Government have not exactly shouted from the rooftops but have been realistically supportive of the capital markets initiative. They have been keen to kick-start securitisation, develop the private placement market and to enhance SME credit information through non-legislative means. The UK Government have been strongly opposed to any attempts to establish a system of pan-EU supervision on the grounds that this would be prolonged unhelpful distraction, which is probably true.

To come back to London and its importance and contribution, just yesterday afternoon I spoke at a conference on the most esoteric subject imaginable: the difference between what is known as NPPR—the old, historic rules, under which if a fund wanted to market itself in Europe, it got permission from the Government directly—and AIFM passporting, which is supposed to enable you to market a fund across EU members. To my amazement, 350 people turned up at this seminar, not to hear me in particular but because of the subject. That is a classic example of what London is doing. In this case, London has a mixture of UK, US and other nationality funds raising money and marketing themselves in Europe and then very much investing the proceeds in Europe, so the middleman role in London is actually happening loud and clear. I ended up thinking that it is motherhood and pie. Of course we want a much bigger and more effective capital market across Europe. We want to have as effective a market as the USA. What the EU could do to improve things is limited—quite a lot of the constraints are cultural—but it is happening slowly and London is completely at the centre of it.

Going back to my comments about EIS and the Competition Commissioner, the EU can shoot itself in the foot and, by what it has been doing, damage the very objective it is seeking, which is more capital flows for SMEs. Let us hope that we do not get any more of that. Otherwise, let us get a move on and do things.

2.50 pm

Baroness Bowles of Berkhamsted (LD): My Lords, I declare my financial services interests as entered in the register, in particular as a non-executive director of the London Stock Exchange Group and Prime Collateralised Securities ASBL.

I welcome this report. It is now some time since it was published and events have moved on, as envisaged and suggested in the report. I have been widely quoted in it, including a contribution from the seminar on pages 31 and 41, so I feel somewhat as if I am being given a fourth and fifth bite at the cherry.

I thank the previous sub-committee chair, the noble Lord, Lord Harrison, the new chair, my noble friend Lady Falkner of Margravine and all noble Lords who have served on both the former and present committees for their interest and attention when I have given evidence on this and other reports.

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The most frequently asked questions about CMU, especially in the early days, were “Why?” or “What’s changed?” or “What’s new?” I will dwell on those for a moment because I think they answer some of the questions about culture that were raised earlier. As has already been pointed out, CMU is founded on the freedom of movement of capital set out in the Treaty of Rome, so one way or another we have been aspiring to it for rather a long time. There has always been deep envy of the liquid capital markets in the United States. To try to emulate those, we had the financial services action plan which was a big step in the right direction.

More recently, the financial crisis and major international initiatives on systemic risk, coupled with the review of that financial services action plan, stimulated the 40 or so pieces of financial markets legislation between 2009 and 2014 which I had the privilege of negotiating. Consumer protection, culture, systemic risk and limiting both contagion and arbitrage were key objectives in that legislation.

One might ask what is left; in one sense the answer is “Not a lot”, other than getting all that legislation fully functioning and tweaking it where necessary. A stocktaking consultation has just closed, but quite a lot of what has been legislated still awaits secondary rule-making. It will not be operational until 2017 or 2018, in just the same way as the UK’s own legislation on ring-fenced banks is taking a while to get fully functional. So stocktaking needs to be an ongoing story.

However, the response to the great financial crisis—to give it its historic name— shifted shape over time and eventually turned to incentives for increasing capital markets rather than just worrying about them. It could be seen that the same old factor of deep markets had helped the US to be less reliant on banks and to recover more quickly. On top of that was the policy response to bailing out banks, which made rules to protect national balance sheets—usually rendered as protecting taxpayers. That was done through a process of bailing in bondholders—that is, converting them into equity—which means they are no longer let off the hook.

That then raises the question: who are the bondholders? They are, of course, investors, many of them institutional investors looking after the savings and pensions of ordinary individuals—workers and taxpayers. The situation where a failing bank causes knock-on failures has to be avoided. So spreading the “bail-inable” bonds in a wide market is an important corollary to rules about sharing out a failed bank’s losses.

There are some who suggest that capital market union is more relevant for the eurozone. This is an interesting point which is both true and not true. It is true that the monetary union’s construct, without mutualisation of sovereign debt, urgently seeks to decouple banks and sovereigns and to have mechanisms to spread risk. So it is not surprising that the European Central Bank was first in the recent calls for a financial markets union, later renamed the capital markets union. Even though the ECB says that it does not want to be the supervisor of the capital markets union, it has a big influence on the culture and thinking around the whole project.

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I said that it was not true in one sense. It is not true also in the sense that the logic of having better capital markets to stimulate jobs and growth, to have less reliance on banks and to be able to spread risk to the market rather than a national balance sheet applies outside the eurozone as well. To spread it wider than the local shock is better for stability; institutional investors have multi-currency exposures anyway.

All this drove the CMU proposals and, despite some mutterings, it is jolly useful to have mood music from all sides that capital markets are good. Some of us have tried really hard to create that. Until now it has been countries from within the eurozone that have been far more sceptical about the benefits of markets, had underdeveloped markets themselves, and have held back market-opening proposals or simply have not understood what it was all about. That has made legislative negotiations on markets matters excruciatingly difficult—although, despite the pain, the UK did rather well. However, this shows again that there is a change in culture and that the future looks brighter on this horizon.

Does eurozone enthusiasm mean that it would try to do things for itself? Would this stimulate attempts to rival the City and construct different rules about what had to be done in the eurozone? Any suggestion of that was jumped on very quickly, even as there was the turnaround in mandate from the old Commission and Parliament to the new. Common sense has broken out all around in accepting that the UK and the City are a major asset and central to the CMU project. The current Commission President, Jean-Claude Juncker, made bold statements to that effect at a very early stage.

Whether the eurozone countries choose to have a single supervisor is still being touted around, but it is a trickier project than banking union due to the number and diversity of market participants and with no substantial organisation to bolt it on to. This assumes it is true that the ECB does not want it.

However the eurozone might choose to share supervision or not, the economic governance section of the draft EU reform documents clarifies that the UK can retain its own supervision. The answer to those who wonder why we are not part of a banking union is that it is the link between supervision and sovereignty, rather than the link between rules and sovereignty.

How much the eurozone might need a subset of rules for itself will depend a lot on attitudes after EU reform, but I cannot see it as constructive for the eurozone to be overly clubby or for the UK to be overly aloof. Neither leads to an effective capital markets union. I referenced the draft EU reform document and I must say that, on balance, what is in the economic governance section is very good in its intent, but I am pretty desperate to get my hands on some of the drafting.

As the report highlights, it is a good start to do those things that will not get bogged down: the simple, safe securitisation that has been referred to. But of course it is not always that easy to do things simply. You fall between self-certification—can you do due diligence?—and having outside certification. So we

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are back to something that might be criticised, such as rating agencies, or do you ask a regulator to do it? Most regulators do not want to the liability. That is one conundrum that awaits to be resolved.

On adjustments to the Prospectus directive, I recall the discussion about whether it could be more than €100 million in the last revision. The point is, if we put it up to €200 million that might be SMEs in some countries but all they have in some other countries, so they would not have a main market; they would have only a small market. In desperation, I suggested that they use a purchasing power parity multiplication factor, which seems to be the sort of thing that we are now agreeing for benefits that go to other countries. Maybe someone could do something useful around purchasing power parities if the size of markets in some of the smaller member states or less-developed markets becomes an issue.

We definitely need to mend insurance regulation that has militated against long-term investment, and I cannot say that without pointing out that it was the UK that drove Solvency II and its mistakes, and is still overzealous in its application. Now is the time to stop the warring over French, German and UK preferences and get it fixed.

Longer term, there will be other measures and here are some thoughts. Can we build a better insolvency regime? If we cannot do it for insolvency, can we do it through pre-insolvency and presumptive paths for what happens in a failure, which is akin to what has been done in the recovery and resolution work? Can we get to grips with the unfair tax advantage given to debt? As an aside, I worry that while everyone says that it is a good idea to encourage equity, international banking regulation requires an increase in debt instruments to meet bail-in targets. There are no calls for major new legislation, but it is a fact that changes to legislation have to be legislated for. If you have some good industry standards that you want to use cross-border, the only way you can get that in force without arbitrage or barriers is, alas, to have legislation.

It is very easy to say in prose that there must be a balance of simplifying or enabling and consumer protection. It is rather harder to legislate for it when everyone wants their own protections kept. Finally, it should be appreciated that disclosure requirements, which are disliked by industry, are often what keeps heavier-handedness at bay. That is often the deal. You can put in a disclosure requirement instead of trying to ban something.

CMU is actually a mix of passion, policy and pragmatism. The passion is to provide jobs, created through more opportunities for business to find funding and a passion to buffer the national balance sheet and the services that we cherish from future banking collapse. The policy is the universal awareness that jobs will come from stimulating capital markets; it is not about doing down banks because they will be involved, but not all things belong in banks. The pragmatism is the basic theme that this is far more about “Let us make this work” than “Let us get regulating”. Of itself, the EU is moving in our direction. That is a backdrop that I dreamed about.

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3.04 pm

Lord Davies of Oldham (Lab): My Lords, I, too, express my appreciation for the work of my noble friend Lord Harrison in presenting the last of his significant reports on behalf of the committee. He is used to delayed government responses, which sometimes means that if the report is not entirely overtaken by developments, a substantial part of it has certainly led to action being taken that obliges the committee to consider further matters. We certainly had that experience today.

I am still trying to absorb the last contribution, from the noble Baroness, Lady Bowles. Although the noble Lord, Lord Hill, made such a favourable impression on the committee—and we would expect him to extend his duties so seriously and constructively—she must have destroyed any illusion that he can see an easy road ahead of him. That was ably demonstrated by the contributions to this debate about the formidable challenges that lie ahead. He, the community and all of us are just in the foothills of dealing with these problems; the greater heights are some distance away. The noble Lord indicated that he regarded this as a five-year project, but aspects of that verge on the optimistic. What is clear is that the committee is agreed on advances that can be made, and it believes that the noble Lord is eager to take advantage of any opportunity to progress the capital markets union.

We on these Benches totally endorse that objective. I sympathise with the Minister regarding the number of definitive and difficult questions that emerged from all sides in this debate. I can make his task easier in one respect: I will not present any significant area of disagreement. But reference was made to the issue of the culture of different institutions in different countries. By heavens, we all recognise what a challenge that is. The country expects us to change the culture of our own financial institutions but we are all in the foothills of that issue, too, in terms of the challenges it presents.

I assure the Minister that I will not disagree with him on any progressive steps that he indicates the Government support in promoting the capital markets union, but I have one obvious anxiety. The noble Lord, Lord Hill, appeared before the committee and his subsequent document presented a position of constructive endeavour, built on the fact that an awful lot of persuasion is needed and there are challenges from very different perspectives across Europe. He is not helped by the Government’s present position of threatening the Community, rather than co-operating with it. Of course, we will all support the Prime Minister in his attempt to get a yes response to the referendum—if that referendum duly takes place. But this report, consideration of it and all the contributions this afternoon have identified the difficulties in making progress while there are such obvious problems as far as the British attitude is concerned. I hope that when the committee reports again under its new chairman—the noble Baroness, Lady Falkner—it will do so in a climate of greater co-operation, in which the United Kingdom can put forward proposals that fit rather better with the grain of European thinking than its present stance.

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Let us be clear: there is a quite a challenge before us. What we seek to do—the European Community is well aware of this—is to foresee the way in which the European Union as an economic unity, as a trading bloc and as a single market will develop. But we tend to compare it with other units that are, largely, nation states. The United States, to which we compare ourselves, has a totally different framework of political institutions with which to deal with this issue. We must therefore recognise just how much more of a challenge it is for us than it is for the US.

We know what the targets are. We know that the success of the American economy is partly based on the fact that 80% of its finance is raised in capital markets and only 20% from its banks. The situation in the UK is almost the reverse of that. The challenge is one that the noble Lord, Lord Hill, has both the capability to recognise and—in due course, I hope—the competence to tackle.

The Minister has been offered no doubts today that this is a major challenge, and that action needs to be constructive and forthright. Thus far, time has passed with good intentions being expressed but relatively little achieved. The Minister has today been given some clear indications, largely from members of the committee, as he would expect, because they have developed their expertise as they have looked at these issues. They have asked questions which I hope he will set out to answer, because they are pertinent to the challenge before us. The Minister is not a member of the committee, any more than I am, but I hope he will recognise that the debate has identified clear issues relevant to the challenge of the capital markets union. Some progress has been made, and we are fortunate in the qualities of the Commissioner responsible for taking this forward in Brussels. He is very well known to us, and we know about his competence, his ability and his commitment. The Minister now needs to answer some of the forthright questions that have been asked this afternoon.

3.13 pm

The Earl of Courtown (Con): My Lords, I thank all those who have contributed to the debate, particularly the erstwhile chairman of the committee, the noble Lord, Lord Harrison. I am grateful for the report that he and his committee members and secretariat have produced.

The noble Lord, Lord Davies of Oldham, requested me to answer the questions posed in the numerous speeches in the debate. I shall make every effort to do so in my speech, but if perchance I cannot give the full detail, I will write to noble Lords.

The noble Baroness, Lady Falkner, and the noble Lord, Lord Dykes, and other noble Lords talked about the timeliness of the debate, and I am sure the business managers who scheduled it will have taken note of the noble Baroness’s comments.

As has been outlined in the debate, on 20 March last year this House published its report entitled Capital Markets Union: A Welcome Start. It was based on the European Commission’s Green Paper Building A Capital Markets Union, which was published in February 2015. Since those documents were published, the capital markets union project has seen significant developments.

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At the end of September last year, the European Commission published its action plan for a capital markets union, based on its review of the many consultation responses to its Green Paper. I am pleased to note that the reforms proposed in the action plan are strongly aligned with the recommendations of the committee report from March. The list includes measures that the noble Lord, Lord Harrison, highlighted in his speech, such as reforms to modernise prospectuses and to revive securitisation in the EU, and other actions covered in the committee’s report, such as improvements to credit information on SMEs.

More broadly, the committee report called for a pragmatic approach to reforms across the CMU that would benefit all 28 member states—an approach which I believe has been reflected in the Commission’s action plan. My noble friend Lord Hill has made it clear that creating CMU will be a step-by-step consultative process, and that decisions on the design of reforms will be evidence based and subject to rigorous economic impact analysis.

I shall use my time today to set out briefly the Government’s views on the action plan, highlight the action the Government have been taking and respond to some of the issues that have been raised in the debate today. The CMU action plan has the full support of the Government: we think it represents the sort of work the European Commission should be undertaking.

Building on the substantial financial reforms following the financial crisis, the Commission has shifted its focus to strengthening Europe’s economic recovery by generating jobs and growth in the European Union—an agenda I am sure we all support. As part of this, it has identified further integrating and deepening Europe’s capital markets as a key priority. Developing Europe’s capital markets will help bring greater balance, improve the range of options for firms seeking finance, and enhance risk diversification by ensuring that market-based finance is strengthened as a complement to bank finance.

The CMU action plan sets out the initiatives the Commission will pursue. My noble friend Lord Hill has succinctly described the project’s aim as linking savings more efficiently with growth. Importantly, the Commission is not just tackling a problem, as the United Kingdom Government have been advocating for some time, but is doing so in a way firmly rooted in the better regulation agenda that the Prime Minister and others have been calling for.

Delivery of CMU forms part of the Government’s agenda for a more competitive European Union. If we are to make Europe more competitive, we need a true single market in capital, by breaking down the barriers that stop flows between member states and prevent businesses accessing the finance they need to grow and succeed.

As noble Lords will have seen, the action plan is thematic, identifying six key areas for reform. These include: financing for innovation, start-ups and non-listed companies; making it easier for firms to access and use public markets; measures on long-term infrastructure and sustainable investment; fostering retail and institutional investment; leveraging bank capacity; and facilitating cross-border investing.

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As the noble Lord, Lord Harrison, noted in his speech, the Commission has made swift progress on a set of priority measures. These include proposals and live negotiations on securitisation, and the rules around prospectuses. Consultations have also been launched on venture capital rules, and a call for evidence on the cumulative impact of current EU financial services legislation. The Government support these priorities, and have been actively engaging in negotiations and responding to consultations.

The action plan features a range of reforms that will help SMEs, particularly high-growth innovative businesses, get access to the finance that they need. CMU will help by giving them access to more investors across the single market—by pooling investment resources, by helping venture capitalists and angel investors, and by making it easier to list on public markets.

From a UK perspective, it is not just our smaller firms that will benefit. Breaking down barriers across the single market will help British firms diversify their investments at lower cost, and offer our competitive products to savers across the single market. The Government have been heavily engaged in the CMU work to date, and will continue to strive to influence these reforms as they develop.

The noble Lord, Lord Harrison, in his excellent speech, said how important it was to ensure that the capital markets union delivers for small businesses. Helping small businesses grow and prosper is a key priority for the Government, both as part of the capital markets union and more widely. We want to ensure that growing and innovative companies are key beneficiaries of the CMU.

We call on the Commission to make a number of reforms to help small businesses in particular, and this has been reflected in the Commission’s approach. Examples include improving small businesses credit information, supporting crowdfunding and business growth funds, and lowering the cost of small businesses of listing on public markets, as well as reviving securitisation. The Commission has committed to delivering these reforms and we will continue to engage with its work to make sure that capital markets union delivers for small businesses.

The noble Lord, Lord Harrison, also asked what discussions had taken place with the Dutch presidency. As the noble Lord is aware, discussions have taken place with the Dutch presidency, as with all member states and the Commission. Any more information on the actual discussions I will pass on by writing to the noble Lord on those issues.

The noble Lord also talked about the benefits for the United Kingdom of the single market. As my right honourable friend the Prime Minister set out in his Statement to the Commons yesterday, and my noble friend the Lord Privy Seal reaffirmed today, the draft text published by Council President Tusk earlier in the week set out clear mechanisms to deal with the rule-making and bureaucracy of the EU, to complete the single market and sign international trade deals.

There is also a stand-alone competitiveness declaration that spells out that more can be done to exploit fully the potential of all strands of the single market.

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We need to breathe new life into the internal market, and Europe must boost its competitiveness in key areas, such as energy and the digital market.

Baroness Falkner of Margravine: I did not want to interrupt the noble Earl’s flow, but I asked a very specific question about concerns that have arisen in the light of the Prime Minister’s Statement. I wonder whether the Minister will give us a reassurance that he will take those concerns back to the Treasury.

The Earl of Courtown: My Lords, of course I will. The noble Baroness makes a good point. All concerns of noble Lords who have asked for reassurances, as the noble Lord, Lord Harrison, did, will go back to the department for further thought.

As my right honourable friend the Prime Minister has said, these changes will make sure that Europe works for all the British people who want to work, have security, get on and make the most of their lives.

My noble friend Lord Caithness talked about the financial sector operating in silos. The capital markets union is intended to further integrate capital markets and to strengthen the linkages between the various agents and consumers—the intermediaries and recipients of investments.

My noble friend also talked, as did other noble Lords, including the noble Lord, Lord Davies, and the noble Baroness, Lady Bowles, about the cultural obstacles in the CMU. It is right to identify the cultural obstacles. Evidence shows that 94% of EU citizens have never bought a financial product outside their home member state. Encouragingly, the CMU seeks to tackle these issues. My noble friend Lord Hill has recognised these challenges. Examples of the steps taken include a special working group established to look at specific national barriers of this nature, with plans being drawn for those member states with more experience in tackling these cultural issues to share experience and best practice with others.

The noble Lord, Lord Davies of Stamford, raised the subject of insolvency. The Government welcome the Commission’s proposals around improving the effectiveness of insolvency frameworks, and the intention of promoting business recovery and returning capital to creditors. Reform should be targeted at those member states currently without suitable laws for the rescue of viable businesses in distress. The Commission should also seek to address the underlying gaps in capability and infrastructure in some member states, and any proposals should be evidence based and take into account any regimes that already successfully support business rescue.

Lord Davies of Stamford: I am grateful to the Minister for that response to my questions. I was not so much concerned with the important issue he has just mentioned of trying to reduce losses to creditors from insolvency and the cost of the insolvency process, which we all know can be prohibitively high sometimes, including in this country. I was concerned much more with establishing a capital markets union and the

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importance of insolvency in that context, which I set out in my speech, so I will not repeat it now. Does the Minister have any thoughts on whether that can be advanced further?

The Earl of Courtown: I do not have the details in front of me but I will write to the noble Lord on that issue. I hope he will accept that.

I thank my noble friend Lord Flight for raising the issue of the enterprise investment scheme, which I will bring, along with the whole debate, to the attention of my noble friend Lord Hill. That will be a very useful exercise; I know how important he considers the work of the committees of this House. If there is anything more I can add for my noble friend, I will do so.

The CMU is an important part of the Commission’s financial services agenda over the coming years, and if it is successful it will have long-term benefits to businesses and investors here in the United Kingdom and across the European Union. We will of course keep noble Lords updated as appropriate, and I welcome their continued interest in this important issue.

3.27 pm

Lord Harrison: My Lords, I am grateful to all Members who have contributed so positively to this debate. We can see that the noble Baroness, Lady Bowles, is going to be a considerable addition to the House. The noble Lord, Lord Dykes, reminds us as ever that the euro’s position as a reserve currency is breathing hot breath behind the greenback. It is a joy, as ever, to box and cox with the noble Earl, Lord Caithness, in a debate on financial affairs, as we have done so well in the past. To the noble Lord, Lord Flight, I have to say, I would go 500 miles to hear him among 350 eager citizens dilate upon the AIFMD. I dwell, though, on my noble friend Lord Davies of Stamford’s characterisation of the chairs of the committee and I thank him for those compliments to both me and the noble Baroness, Lady Falkner of Margravine.

I will tell a little story in conclusion. Many years ago—some 20 years ago—the editor of the Wirral Globe, improbably called Robin Bird, followed me to Strasbourg when I was an MEP and then wrote a piece about me, highlighting the fact that I was born and brought up in Oxford, and characterising me by putting “Morse” at the top of the story that followed in the Wirral Globe. I am very happy to be a prequel to the noble Baroness, Lady Falkner—the prequel, of course, is “Endeavour”. I look to the Minister: show some endeavour on this. Use the capital markets union to go on to the front foot and say that the United Kingdom is pre-eminent in financial affairs, with the City of London, with small businesses for which we have always had a strong concern. Ensure that the opportunities arrive, either, as I say, under the Dutch presidency or through some long-term planning for the British presidency, which will arrive at the back-end of 2017. We can do something; we can go on the front foot.

I am very grateful to all those who have contributed not only to the capital markets union, but also on that theme, which now becomes so vital for this country.

Motion agreed.

House adjourned at 3.30 pm.