Financial Services Bill

My Lords, I cannot recall an occasion in either House when a debate has had such a surreal atmosphere about it. We know that it is inconceivable that this clause is likely to become law, yet we are going through the motions of debating and amending it. We have had a number of interesting debates on various aspects of economic management, but the reality is that this clause simply formalises the failure of the tri-part system. Instead of getting rid of it, the clause continues the process and merely seeks to ensure that the people in the tri-part system do their job in the way which they ought to be doing without any legislative provision whatever. One of the important things that we need to do about regulation in the City is to restore the authority of the regulators. It used to be the case that the authority of the Governor of the Bank of England was hugely influential. It used to be said that even his raising his eyebrows was sufficient to terrify bankers. That is no longer the case, but we can do something to avoid a situation where authority is divided between the governor on the one hand, with his historic role in these matters, and the FSA on the other. Therefore I believe that the proposals put forward by my party concerning this are entirely to be supported, and that the continuing division of authority as the Government propose in the Bill is certainly a mistake. We have debated a number of aspects of this clause, but I want to raise one other point. There is at the moment a fashion to invent new economic expressions, of which the most pervasive is that of quantitative easing, when all one used to refer to was increasing the money supply. Now we suddenly have another: macro-prudential regulation. It is not the least bit clear what that means. In fact, it is likely to lead to considerable confusion because there are two separate things. The first is the macroeconomic management of the economy. It is certainly important, to avoid future disasters of the kind that we have just had, that that should be operated properly. However, that is rightly the concern of the Treasury and to some extent the Bank of England, with the powers which the present Prime Minister gave it back in 1997-98—although, as I have pointed out on many occasions in this House, monetary policy was not transferred to the Bank of England; all that was transferred was the right to set a single interest rate in the hope that other people would follow. Control of the money supply continued to be taken away by the then Chancellor of the Exchequer by removing the Debt Management Office from the Bank to the Treasury. We therefore have an extremely unsatisfactory situation regarding the macroeconomic management side. However, we also have the question of microeconomic management and regulation, which at the moment falls to be undertaken jointly by the FSA and, to some extent I suppose, by the Bank. The use of that expression "macro-prudential regulation" totally confuses the distinction between macroeconomic management on the one hand and micro-regulation on the other. That might affect major banks of a very significant size that may put forward or introduce macroeconomic instability into the economy. However, that is really a separate operation from macroeconomic management. It is important not to use this expression, which I believe is rather fashionably used by the FSA, to confuse one thing with the other. Having said that, I remain of the view, as my noble friend knows, that this clause is mere window dressing. It is not likely to do more than formalise the problems we have faced over the past few years, and to that extent it is not the way to go forward.