Financial Services Bill

May I first align myself with the remarks that my right hon. Friend the Member for Newcastle upon Tyne East (Mr Brown) made about the Chairman of the Joint Committee on the Bill, the right hon. Member for Hitchin and Harpenden (Mr Lilley)? The fact that I was still on the Committee at the end of its sittings shows that he was indeed tolerant and patient. I would like also to put on record my admiration for, and thanks to, the Chairman of the Treasury Committee, who is in China at the moment. We have had an arduous 18 months on the Committee going through the regulations. The fact that there are three members of the Committee here today is nothing to do with our being unable to get on the plane to China; it is more that we are so dedicated to regulation that we chose to be here. I want quickly to raise three matters. I welcome the Chancellor's open-mindedness—it was not a U-turn; that was an unfair description—in accepting the point about secondary legislation being inappropriate for the macro-economic tools. I hope that he will show the same open-mindedness on the three matters that I will raise, because so far the Government have not accepted the Joint Committee's or the Treasury Committee's views on them. The first issue is the objective of the Financial Policy Committee, which is to ensure the financial stability of the financial sector. One difficulty raised by many of the witnesses before the Treasury Committee and the Joint Committee was that no one can come up with a definition of ““financial stability””. That clearly presents those responsible for oversight of the committee with obvious difficulties. On what basis do they judge the committee's activities and performance? Is the issue stability alone? As the Chancellor himself stated in evidence, we should not be seeking the ““stability of the graveyard””. I think of the unfortunate individual in hospital who is seriously ill in the high-dependency unit, but whose relatives are assured that he is in a stable condition. Just as in that example, stability in economic terms does not equal a healthy economy. Arising from that—and equally important—the relevant question for all sectors to emerge from our witnesses was: in exercising its power to seek financial stability in the financial sector, will the Financial Policy Committee ignore the effect that that might have on the other sectors, in the real economy? To be fair, the original suggestion that the Government advanced was that the Financial Policy Committee could not take decisions to achieve financial stability if it believed that those decisions risked medium to long-term economic growth. An interesting and important point is that it was originally left to the FPC to make that judgement itself, with no mechanism for the Chancellor to have his say. The negativity of that formulation led HSBC, the British Bankers Association and several other witnesses to the Joint Committee to suggest that the relevant clause be redrafted, to give the FPC a positive duty to support economic growth. I would like to put on record what was said by Stuart Gulliver of HSBC and Bob Diamond, neither of whom would immediately be recognised as friends of mine, or otherwise. Stuart Gulliver said:"““the…Treasury should be setting out what the Government's goals are for growth, employment and job creation and saying to the FPC, 'Use your macro-prudential tools to ensure that you achieve the Treasury's goals.'””" Just as interestingly, both he and Bob Diamond cited the experience of the Pacific economies that actively manage the flow of credit and even its sectoral allocation, using a variety of macro-prudential tools. The people in small businesses and medium-sized enterprises would be very interested in that. The Joint Committee agreed a recommendation that the Bill be redrafted so that, like the MPC, the FPC must have regard to the Government's growth objectives and other economic objectives. The Government have responded to the Joint Committee's points on other related items in this area, but have not responded in favour of the more positive and widely supported suggestion that the FPC should be given a brief to have regard to the Government's growth and economic policies. That is a real worry, and I hope that the Government will approach it with an open mind in Committee.