City of London

It is about getting the balance right and recognising that just because an organisation is managed mutually, that does not mean that the consumer assumes less risk. If consumers invest in an institution, they are entitled to the protection of regulation, whether the institution is a mutual organisation or a plc. It is about getting the balance right. We talked a little bit about the international level. The fifth point, I think, was a financial transaction tax, or what in my old Co-op days we called a Tobin tax and debated regularly at the annual party conference. I am sure that my hon. Friend the Member for Selby will be aware that it cannot be done on its own but would have to be done globally. The Prime Minister said in a recent speech that it was worth considering, and I know that the French are conducting a feasibility study and a working party on it. We will be watching with interest how it develops. It is certainly not something that the UK could do on its own, and there is an awful lot more work to do on it. I am conscious of the time, and I want to pick up as many points as possible. I turn to corporate governance, because not all risks can be addressed simply through regulation. Sir David Walker is due to report on the governance landscape in the UK banking sector in November. A number of people mentioned bonuses. We are approaching tackling bonuses with four basic principles: rewards for failure are not appropriate; bonus payments should be based on long-term, sustainable performance; bonuses should be designed to shape future performance and thus subject to appropriate clawback if performance is not good; the regulator should take bank remuneration into account when supervising a bank. Moving on to hedge funds in my last two minutes, I think that there is a tendency to cast hedge funds as the villains. We have heard many different aspects of that in this debate. Mention has been made of the total value added by hedge fund managers to the UK economy; a PricewaterhouseCoopers report said that it was £76 billion for 2007. The report further highlighted their value with estimates that hedge funds accounted for 1.3 per cent. of the London work force and 5.9 per cent. of total London earnings. The UK regulatory regime is among the most rigorous in the world and, in general, has stood up well, but the Government and the Financial Services Authority have identified one aspect that requires strengthening: oversight of the impact that hedge funds' investment position and strategies have on systemically important market sectors. We are looking to strengthen oversight in that area. On the EU directive, we support the high-level structure and approach of the directive, which is similar in many ways to the current UK regime. However, there are a number of detailed points at which we think the current draft would impose large costs and constraints on fund managers without a commensurate improvement in regulatory protection. If that improvement is not obtained, there is no point doing it. Lord Myners is leading on the issue and we regularly meet with other EU member states. The Swedish presidency is developing a revised draft that we believe will represent a major improvement on the Commission's draft, and the European Parliament has just started work on the dossier and appointed a rapporteur. The question of the impact of the City of London on the UK economy requires us to consider more broadly how the financial services and the economy interact, the tensions in the interaction and how Government, industry and other market participants can work together. The joint effort requires proper regulation.