Financial Services Bill

My hon. Friend the Member for Fareham (Mr. Hoban) is a generous man to go to such lengths to try to improve clause 1 and indeed subsequent clauses. I have taken a shine to amendment 3—it is time to have done with it altogether and to begin again on a completely different base. As my hon. Friend rightly pointed out, we had a lengthy debate in Committee about the nature and role of the council for financial stability. For me, it comes down to two central questions. First, is the tripartite system, which is given a statutory footing by clause 1, the right regulatory arrangement for the financial sector? He covered many of those issues to show how and why it failed. At the very least, the Minister will agree that there is doubt about whether that is the right vehicle for the future. Secondly, even if we accepted that the tripartite system was the right mechanism for the future, there is a question as to whether the clause and the creation of the council are an adequate response that takes us any further forward. Having anticipated that the first question was likely to be covered extensively by other hon. Members, I should like to deal with the second question,. Several speeches ranged over the extent of the changes brought about by the Bill, but I still think that one of the most relevant questions was posed by my hon. Friend the Member for Fareham, by others and by many witnesses who gave evidence. Is what is proposed in clause 1 and subsequent clauses a fundamental or a cosmetic change? The Minister tried to argue that it was a fundamental change, but I was not quite convinced that there was much evidence to support that view, or that the measure would make a substantial difference in future. One would hope that the quotation from Adrian Cole of the Building Societies Association that I cited in an intervention would be the clause's epitaph:""Of itself it is not going to prevent the next bubble, it is not going to prevent the next banking crisis".––[Official Report, Financial Services Public Bill Committee, 10 December; c. 71, Q3.]" Something that we did not do in as much detail as we could have done was treat the problems that the clause is trying to address as lessons learned, because only then can we see whether it measures up to its aspirations. How does it deal with the problems and weaknesses of the tripartite arrangement in the Bill? The hon. Member for Wolverhampton, South-West (Rob Marris), who is sadly not in the Chamber, made an interesting point when he said that if we get the diagnosis wrong, we will get the treatment wrong. There were a lot of medical analogies in Committee: the Minister clearly preferred surgery, whereas I preferred medicine—he obviously likes to chop things up. The problem is that the diagnosis has been made by others, and the treatment bears little relationship to the disease. If I can continue the medical analogy, the clause proposes a particular line of treatment when we have no idea of the drugs that are going to be issued. It is illogical to define a financial structure before we define the tools that are needed to get it right. The FSA, both in its evidence, and in its additional memorandum, confirmed that there was still much work to be done on defining the toolkit. I had a stab at grouping the main concerns that arose in the evidence sessions and in our subsequent Committee sittings about the faults of the previous system, and how the clause deals with them. Lack of leadership was something that came up many times, both on its own, and in answer to the question, "If it all goes wrong, who is sacked?" In that respect, there appears to be no change between the old system and the new. There was a major criticism of the fact that there was a need in the old system for stronger powers to be taken to deal with the crisis. Again, there is little change: there are changes in the Bill to the FSA's powers, but there are few changes in the council, and certainly no additional powers. Another criticism was levelled at the essence of trying to achieve co-ordination by avoiding duplication if that means that the relevant bodies do not interfere enough. I am not sure whether there is any change in the clause—it depends on how well the new arrangements achieve co-ordination which, by its very nature, is a rather woolly subject and it is difficult to find examples. Another criticism of the old system concerned the lack of transparency, which has changed only through the introduction of minutes and some historic reports in the new system—I shall come on to that. Most crucially, there was a need for better flows of information, as my hon. Friend the Member for Fareham said. I do not think that there is much change from the old system to the new, and there is no more new evidence flowing to the council than flowed to the old tripartite system. I shall deal with the question of leadership, even though it has been addressed by other hon. Members, because we still need to separate two things: the question of who leads the council and who leads the financial regulation system. Those are different things—it is clear from the Bill and the draft terms of reference that the Treasury provides the leadership of the council, but when it comes to leadership of the regulatory system we are back to the description provided by my hon. Friend of shared enterprises with no one in charge, with a gaping regulatory hole on leadership. I remain sceptical about whether the clause introduces anything new, and believe that amendment 3 is the best axe to take to it, because there are no changes in the powers. The council will take no decisions, as it co-ordinates, but there is nothing in the Bill to give us confidence that it will co-ordinate better than under the old tripartite arrangement. In the evidence sessions, the Minister described that as a significant improvement, but I am not sure that it is, as the only real change is the fact that it now has legal status. The question on which I kept trying to obtain an answer was, "Where is the additionality between the old and the new systems?" If it is just that the tripartite arrangement has been put on a statutory basis, I struggle to understand how that rises above everything else and suddenly sorts out all the problems. As far as I can see, it provides nothing except a statutory basis. The question of additionality has still not been answered. We still need to ask what tangible thing the formalisation of meeting arrangements, which is what this comes down to, brings to the party. That is why I asked how many people there are in this relationship. Creating a statutory status for the council raises the question what role it plays in relation to the other three bodies, and whether the co-ordinating role gives it a personality beyond that. On the issue of stronger powers, there are virtually no powers at all. The Minister said that, through the council, arrangements were being formalised. When I went through the evidence, it seemed that that left three things for the Bill to do—first, to formalise meeting arrangements; secondly, to aim to be more transparent; and thirdly, to aim to achieve a clearer line of accountability to Parliament. The transparency aspect is almost exclusively covered by the provision relating to minutes. I know that the Minister and I have been through this before, but that is so hedged by contingencies, not just about commerciality, but about the effect on stability—which is so wide that it could incorporate, for example, criticism of the Chancellor or Government policy—that I do not believe that the minutes will say anything. The main activity is in any case being conducted not by the council, but by its deputies. According to the draft terms of reference, the minutes will not be published because they are classified as a working party, which is a convenient way of making sure that we never get to see anything. Will the Minister explain why that is necessary and be more exact about what they will have to do? Why are the minutes to be so heavily redacted? How will they treat a threat to the stability of the financial system? When all those elements are taken out, what are we left with? The reference to anything that might pose a threat to stability is so wide that it could include almost anything, so I do not regard those minutes as at all transparent. According to the House of Commons Library research paper, there is no change in the advice on how the flow of information would be improved and it identifies no significant additions to the Bank's financial stability report or the FSA's financial risk outlook, so is there any new evidence on which the new council will make its assessments? That is crucial. If it is to do something better, it must look at what new evidence it can have in order to overcome the problems that were caused by not reading the evidence or by gaps in the evidence available before. In Committee, my hon. Friend the Member for Chichester (Mr. Tyrie) pointed out one example of that. Under the old system, the tripartite committee collected no liquidity data. He asked how the formalisation of old arrangements would guarantee collection of the necessary data. I am not sure that we ever got an answer to that. The Minister gave the game away in Committee. In question 5, at column 6, he said that the real purpose of the new council was to give confidence to people outside who look at these things that the issue was being grasped and looked at with great thoroughness. That seems to indicate that the measure is not much more than a public relations job. Given the role of improving confidence among those outside the council looking in, it takes the biscuit that the Minister does not believe that people will see through the whole thing and notice that the new council is yet another example of the emperor's new clothes. I return briefly to my first question. Is the tripartite arrangement codified by the clause the right architecture? That has been answered fully in the negative by my hon. Friend the Member for Fareham. In Committee, my hon. Friend the Member for Chichester said that we were not kidding anyone from the outset, and that 10 years ago, when the tripartite arrangements were put in place, he had been among the voices saying that it would not work. That is why, try as I might to the emulate the spirit of generosity shown in his new clauses and amendments by my hon. Friend the Member for Fareham, I still come down to wanting to wield the axe contained in amendment 3.