Financial Services Bill

On that, I would side with the hon. Member for Twickenham by saying that structures do not necessarily clarify responsibility or improve communication. I am leaving this House at the next election, so I do not mind saying one or two things that I might not have said on another occasion. I went through the painful process of observing health service reform, as I suspect that we all did—certainly those of us who have been here since 1997—and the obsession with structural reform in the health service is an exact example of the atrophy that can be produced if that obsession is followed through. We end up freezing people's actions for a period; they worry about their careers and try to work out where they will be doing their jobs and how they will carry out their responsibilities instead of doing the things that we genuinely want them to do. The Government have not been guiltless of an obsession with structures. I advise the Opposition, should they have the opportunity to implement their plans, not to follow those obsessions. Let me turn to other positive elements of the Bill. I will be very surprised if anyone pops up in this debate and says that living wills are an unwelcome proposal. There is an issue with quite how they will be implemented, but I would probably argue with the hon. Member for Tatton, were he here, and say that part of the exercise is to tighten corporate rigour over the understanding of the structures and risks. One of the difficulties that we have seen is the extraordinary engineering that sometimes goes into corporate structures in the financial sector, which is perhaps lost on some of the board, too. An attempt to force companies into at least applying rigorously an understanding of how their organisations fit together and therefore how they might be deconstructed at some stage in the future, should it come to that, is a helpful process that they should have to go through. Yes, it is tiresome and possibly bureaucratic, but it will possibly also expose areas of uselessness and pure engineering in an activity rather than areas of functional need. It is certainly useful for the regulator to understand that process, too. That is only one element of addressing the issue of whether such institutions are too big to fail. I, too, take the view that capital and liquidity obligations are almost certainly the key element of dealing with the "too big to fail" argument. However, I do not rule out the approach that the Governor of the Bank of England has, I think espoused—if we do not force the break-up of these institutions, we should at least structure them in such a way that taxpayer risk is more confined. If one chooses a corporate model that includes a retail bank and an investment bank structure, we should at least have some means of limiting the taxpayer liability to the service element of the banking institution that we are supporting. Such a provision is worth considering and is not developed within the Bill. When it comes to improving corporate governance, although it is certainly true that there has been regulatory failure—those who do not think that should look at the internal audit report that the FSA produced after Northern Rock—there has clearly been behavioural failure too, which is not the responsibility of regulators but is possibly to do with the nudges, to use the fashionable term, that we try to apply to prompt appropriate action among those who are carrying out functions in our society. I assume that the new powers on financial reporting, which I believe that the Treasury will be taking, will address the Walker recommendations on risk committees, giving them a separate reporting stream in corporate governance. Perhaps we will hear more about that in Committee. Although the regulation of remuneration, which many have commented on already, is certainly popular, it has a rather muddled parentage. In considering this Bill, we should be concerned about whether high bonuses or pay should be subject to regulation only if they increase the risk of the institutions. That is how they should be considered; it is not for this House to consider in this Bill whether it is equitable to pay people staggering amounts for carrying out their tasks. There is a question about whether society should permit that and whether people should be taxed more, but that is a separate issue that the House should certainly consider but in a different context. Our decision making on that should be informed by, but not wholly governed by, competitive pressures. We are too easily persuaded by financial institutions saying, "If we do this, all these people will wander off and go to the United States, Switzerland or wherever else they think it might be advantageous to go"—[Interruption.] I am not saying that we should ignore it. We should be informed by it, but not necessarily governed by it. One point that we should be governed by, which is important and that again came up in the discussions on the Banking Bill, is the fact that we should not threaten the contractual nexus between an employer and an employee. One element of this Bill, cited by the hon. Member for Tatton, touches on what the Government might intend if they outlawed certain pay and remuneration practices. Although I would not subscribe to the view that our problems have stemmed wholly from a failure of regulation, there are ways in which we can encourage rational and prudent behaviours and discourage the opposite. These include addressing remuneration models and strengthening risk governance and reporting. They should also cover strengthening the capability of non-executives and the robustness of the relationship between shareholders and the board. One of the saddest elements of listening to the evidence given in the Treasury Committee has been listening to banks talking about their interaction with shareholders. Perhaps the most telling remarks were those made by representatives of HSBC, who related how they were strongly criticised by shareholder representatives for their conservative models of banking. Shareholders also totally ignored some of the evidence that lay before them of extraordinary risk: the ABN AMRO acquisition was endorsed by RBS's shareholders. It is worth thinking carefully about how shareholders can be better empowered and informed in making critical decisions about their interest in companies. Let me turn to clause 6, which has not yet received any attention and which covers the education role of the FSA, establishing a new consumer finance education body. I strongly welcome the operational separation of the FSA from the education function and the broadening of the governance of that critical activity, which I take to be the implication of setting up the board. Presumably, the body will absorb all the FSA's function in consumer education, including the work carried out by PFEG—the Personal Finance Education Group—in schools. It is worth commenting on the FSA's view of how it carries out those functions now. In an exchange between Lord Turner and me in the Treasury Committee last week, I pointed out that the FSA had certainly caught "targetitis". A huge scree of targets have been set for achievement in financial education, but if one glances through them to try to make sense of their qualitative elements—in other words: what difference are we making by doing what we are doing?—the report is almost entirely silent.