Financial Services Bill

The legislation before us today is substantial, unlike some of the other legislation listed in the Queen's Speech, and it deserves detailed attention. There is much in it with which I would agree, but we need to examine the question of whether it is all necessary, and what is omitted from it. I will probably devote more of my remarks to the latter part of the Chancellor's speech, in which he properly addressed consumer protection issues; although I agreed with much of what the hon. Member for Tatton (Mr. Osborne) said, I noted that in his 40-minute speech he did not refer once to the consumer issues, which are actually rather important. The Chancellor started with the big picture, and I have several broad points to make about that. We now have relative stability in the banking system after its collapse and its rescue by the taxpayers. I do not wish to repeat the history lesson that we have already had, but if people wish to read my version of it, the paperback edition will appear in the new year. It is a long story and many people were to blame, as were the leverage, the excessive complexity, the failures of regulation and so on. Although the situation has stabilised as a result of Government intervention, there is still serious risk in the system, and we have been reminded in the last few days of the potential risks for some major banks that can arise from one operator—in this case, Dubai World—going bust. There could be others out there. If there is a double-dip recession in our own economy or elsewhere—that is possible, but I am not predicting it—it will produce another round of bad debts. There are almost certainly problems with the overvaluation of the UK housing market and other asset bubbles which will appear, in turn, in the bad debts within the banking system. Many of those problems are not only historical problems, but potential future problems. Secondly, the big failure—as I have told the Chancellor many times—is not primarily a legislative issue but the reluctance of the Government to follow through on their ownership and control of leading banks in terms of influencing their lending policy. We had a good reminder of that last week when RBS, a nationalised bank, was able to mobilise hundreds of millions of pounds in support of an aggressive takeover of Cadbury by Kraft—as it happens, the world has moved on—while having to acknowledge publicly that it would not, by a very long way, meet its net lending obligations to small and medium companies. There has been a failure of governance by UKFI, the state directors—a failure to ensure that RBS and other state institutions meet the test of national interest. They are clearly not meeting that test. The third general issue, which was touched on by the Chancellor and the shadow Chancellor, concerns the structural problems. I do not want to reopen the argument about whether the banks should be broken up or not—I will leave the Chancellor to debate that with the Governor of the Bank of England, who happens to share my views on that point. Several pragmatic steps are being taken, such as the living wills proposals, the build-up of revised capital adequacy rules, which take account of very large institutions that are too big to fail and too big to save, and trying to put over-the-counter transactions on to traded markets. All those things would reduce the risk of a "too big to fail" collapse and they are all very sensible. However, most of them depend on international agreement, which could take years to happen and may well never happen. Perhaps I could invite the Chancellor to say whether he agrees with an alternative proposal. He may not wish to break up the banks, but as long as they remain dependent on the taxpayer guarantee, would it not be right and sensible to ask them to pay for it? I think that that is what the Prime Minister was trying to suggest to the G20 meeting until he got fixated on a slightly more populist line on the Tobin tax. I think that he shares our view that the banks need to pay some kind of fee for this continuing guarantee, until the "too big to fail" problem has been resolved—however that happens. On the specifics of the legislation, I turn first to the tripartite structure. It is worth quoting the Treasury Committee, which agreed on an all-party basis when it first looked into this problem. It said:""Although we have concerns about the operation of the tripartite system, we do not believe that the financial system in the United Kingdom would be well served by a dismantling of the tripartite system. Instead, we wish to see it reformed with clearer leadership and stronger powers."" There are stronger powers in this Bill; the hon. Member for Tatton spoke on this point at length. I sense that there is confusion between two different issues here. One is the need for clear leadership—about which the hon. Gentleman is right—and, in relation to systemic stability, that leadership should be with the Bank of England. It is not clear that such leadership exists in the current council, because powers remain evenly distributed. There is a difference between the issue of leadership and that of the structuring of the bureaucracy; that is the point that the hon. Member for Coventry, North-West (Mr. Robinson) raised earlier. I cannot believe that the hon. Member for Tatton can talk to people in the City—as he does a lot, and as I do—and not know that they are deeply uncomfortable with what he is proposing. I have met many deep-dyed Conservatives—who are smacking their lips at the prospect of an incoming Conservative Government cutting their taxes—who are horrified by the proposals to change the arrangements for the FSA and the Bank of England. They advance several arguments against those changes. First, those people say that the proposals are causing enormous uncertainty. Staff at the FSA do not know whether they will have a job in six months or a year, they have taken their eye off the ball and are not concentrating on issues of regulation and supervision at a particularly delicate stage. I do not know where the hon. Gentleman has got the idea that the Governor of the Bank of England wants to be the supervisor of the Loughborough building society and many other institutions. If the hon. Member for Tatton has ever had a meeting with the Governor, he must surely have realised that that is the last thing that he wants to do, and that it would be a complete distraction from his primary responsibilities. It would also lead to duplication. The moment that integrated teams of people started working on the insurance industry—not a controversial area at the moment—some of the people would be hived off to the Bank of England and the others would be hived off into another institution and, presumably, there would be two sets of insurance regulators instead of one. That is potentially very disruptive and confusing, and it is clear to me that people in the City do not want that reform. I think that I am the only person in the House, with the possible exception of the right hon. Member for West Dorset (Mr. Letwin), who took part in the agonising process of legislating for the original Financial Services and Markets Bill back in 1999-2000. It was a terrible process, and I would hate to think that an incoming Government, if one were formed by the Conservatives, would inflict on us a similar piece of legislation. It is not necessary. There is one specific issue on which they are right, which is the need for clear unambiguous responsibility for systemic stability to be given to the Governor of the Bank of England. That needs to be there and it needs to be clear, but it does not require a vast moving around of the whole apparatus of the various quangos and all the people in them, which is completely unnecessary. The second big issue in the Bill concerns remuneration. My question is whether such legislation is necessary. Some of the things suggested seem perfectly sensible, but do we need legislation to bring them about? As I understand it, the basic principles are set out in the FSA code of practice, which was quite a weak document, introducing guidance rather than principles and removing a lot of companies from its arrangements. I would simply ask the Chancellor whether it is possible to ensure that remuneration practices are tightened up by issuing a fresh code of conduct through the FSA or through secondary or devolved legislation. Why enact primary legislation to deal with the matter, given that the FSA already has considerable powers? Why do the Government not use the direct powers that they already have, through the semi-nationalised industries? There was an embarrassing episode a few weeks ago when it was announced that the Royal Bank of Scotland would remunerate its highly paid staff in deferred stock, and that they would not be paid for three years. It then emerged—that is, RBS admitted—that the bank would pay its staff in cash next year, which means that there was a straightforward failure of direction by the Government's directors in the banks. We do not need legislation to sort out those problems. The other issue under the heading of remuneration—the Chancellor indicated that he would deal with this through a separate order—is the implementation of the Walker review. It has to be said—I am sure that this is true even among his departmental colleagues—that there was incredible embarrassment, in the Government and elsewhere, at the whitewash that Sir David Walker has produced on disclosure. The idea that what he calls high-end staff who are highly paid should not be individually identified is a very strange one, because we already have explicit exposure in several cases. All the pay, bonus payments and pension arrangements of directors of public companies are declared in an annual report. Even with unquoted companies, any director paid more than £200,000 a year has to be publicly declared. We have a situation, which the Government seem to have accepted, whereby if someone is paid £250,000 as, say, the finance director of a middle-sized metal-bashing company, all their details have to be publicly declared. However, if they are in a bank, not only do their individual details not have to be declared, but their existence does not have to be acknowledged. That is an extraordinary state of affairs, given that banks are underwritten by the taxpayer.