Financial Services Bill

I happen to believe that the main tools are capital ratios, which operate as far as possible counter-cyclically—or at least not pro-cyclically, as they seem to do at the moment—and that the standards should be set internationally through Basel, the Financial Stability Board and so on. If that can be achieved internationally in the next few months, we should get on and do it. A bit of a risk is emerging—we are applying capital rules in a pro-cyclical way and risking a second credit crunch in the next few months. That deserves closer observation. The most useful thing that could emerge from the G20 process is some sort of international agreement on capital rules. We should want London, Edinburgh and so on to be homes of globally successful financial businesses. We want Britain to be the home of wholesale financial services in Europe, but we also want to protect the British taxpayer. The best way in which we can do that through macro-prudential tools and capital rules is by trying to achieve some international standards. I therefore agree with some of the public comments that the Chancellor made about what we want to achieve through the forums I mentioned. However, there are some worrying developments. The Chancellor talked about some of the European proposals. It is not clear that the alternative investment fund managers directive as drafted is in the UK's national interest. It will drive the hedge fund industry—at least, significant parts of it—to Zurich. I think that the Government have finally woken up to that and are fighting a bit of a rearguard action. The Chancellor raised national sovereignty or the right of a national Government to have their say about whether there should be financial support, and I completely agree with him. However, the conclusions of ECOFIN do not seem to be replicated in the documents that have been produced. Those matters require the Government to be extremely active and aggressive in fighting for the UK's interests and trying to get an international or European playing field that is in this country's national interest. I think that the Treasury could present its arguments more aggressively.