It is a pleasure to follow the Father of the House and to agree with many of the sentiments he expressed.
I look at the Bill and at the Ministers and my reaction is to ask, “Is this it?” Considering what we have been through and the problems in British and world banking, is this Bill the best that we, as legislators, can do? If that is the case, it is no surprise that we are increasingly derided outside this place.
The Minister should have set the context. I offer him my file detailing the top 50 banks in the world by assets. What unifies those top 50 banks is that every single one, without exception, either has been subject to major convictions for criminal fraud recently or is being investigated for criminal fraud. The Americans have been very good at portraying this as a British problem. They have, perfectly properly, exposed problems and illegalities in British banks. However, their banks are doing the same and worse, as are banks the world over. That sums up the problem. What other industry could have all 50 of its top players committing criminal fraud at the same time while the world’s legislators are happy to do just a bit of poking, a little juggling and a few bits and pieces?
I do not disagree with the bits and pieces, especially if there is strengthening and improvement, but is that all we are going to do? I heard reference to the 1930s and I have heard that time used before as a comparison. We are doing the same thing with the same boldness, but it did not work in the 1930s because 1931 turned into 1933 and into 1939 to 1945. That was the consequence. We therefore need to be significantly bolder in what we are doing. This Parliament, like other legislatures, remains cowed by the bluster and power of investment banking.
There are models that are different from the British model of investment banking. The Chinese have a very different model. We seem to be forgetting how successful that model is. While we are sellotaping our banking system together, they are building a competitive base that will dominate the world economy for generations. It is as if we are the fools at the Chinese emperor’s ball. By using a model of cheap finance, concentrating on raw materials and technological transfer, investing in skills and infrastructure, and planning for the medium term, China is showing how ruthless simplicity creates permanent competitive advantage. That contrasts with the short-term monetary advantage that our investment banking model offers. We play with paper while the Chinese build with concrete. Worse than that, they are developing tomorrow’s building materials, designs and visions.
A simpler, democratic model that similarly contrasts with the British investment banking model is the German model. An example is KfW, which was formed in 1948. Its lending to business in 2011, the last year for which I could find figures, was €70 billion out of a loan portfolio of nearly €500 billion. That is a less risky and less speculative model than our money market, casino model. Just like the Chinese model, which I do not recommend but do admire, the German model is beating ours. The danger is that we are playing yesterday’s games, whereas those countries are playing tomorrow’s games. That is a bit like the 1930s.
We must not be fearful of investment bankers. We should not just create an electric ring fence between retail and investment banking, but should consider
whether the model that we have is fit for purpose. One thing that it certainly is not is competitive. We have allowed a model that does not create competition, and the Bill does nothing about that. There is the hope of the challenger banks, but they have not been very successful and there is more that we could do to help them. Over the past 20 years in this country, we have stripped out competition.
I would like to be able to follow the advice that I was given when I first got a bank account: “Put your money somewhere safe. You won’t get a great deal of interest on it compared with other places, but it’ll be reliable and it’ll help you get a mortgage and buy a house in the future.” It was called a building society. That was only one part of the model, but there were a lot of them all over the country not many years ago. The problem with the Bill is that there could end up being even fewer of them and a greater concentration of the tiny number that there are. Building societies are only one part of the financial services market that I want to see, but they should be a significant part—at least 30%, if that is what consumers want, but consumers have not been given the choice.
There is no real competition. Where is the national interest test for takeovers and mergers? The vast majority of investment banking’s speculative profits over the past 20 years has come from the mania for takeovers and mergers. Germany has such a test, and would anyone try to merge or take over a major conglomerate in China? I do not think so. A national interest test should be in place.
The two state banks should be broken up, and the Halifax building society should be recreated out of them, but we need far more than that. Competition should be created in the marketplace and enforced. If that were to happen, consumers would flock to that model in large numbers. I would like to see a model of tiered risk. I do not believe the idea that we can guarantee every type of saving for ever up to a certain limit—£85,000, or whatever it ends up being in the future—is rational. I would like a real choice between low interest rates and total security for my money, and medium or higher risk. We should give the consumer the choice rather than have the pretence that the state will always be able to provide a bail-out. From the moment such a pretence is created—we have essentially had it since the war in this country—there will by definition always be banks that are too big to fail. The fundamental logic of that cannot be broken.
There are many other bits and pieces that I would like to see. One of the Treasury Ministers ought to be in Europe full time. Whether or not I agree with what the coalition argues, one Minister ought to be negotiating, pre-warning and advising on and helping to create what comes out of Europe. I would like to have the bonus cap and the Government disagree, but the point is that we have not been there at the table, which is where we need to be. That is a fundamental weakness, as it was under the last Government. It would be wise politics to make that change.
Auditing has been mentioned, and another minor point that ought to be in the Bill, on the micro level, concerns compliance officers in banks. They are the office boys—there is no qualification for them and no basis of standards. It would be pretty easy to sort that out and ensure that there is a qualification to be a
compliance officer. We should raise their grade and standard. We should not make a fetish of degrees, but it ought to be a graduate-quality job, which it has not been. That is a fundamental weakness in how banks see themselves and compliance.
A major change that I would like to see concerns tax loopholes. There has been a lot of talk about them, but when it comes to banking the biggest loophole involves the UK Crown dependencies. We have a significant degree of influence over them and they rely on us for their legal system and their defence, but we allow them opaqueness in finance, whether banking, commercial, personal or a combination. No wonder my file is full of cases of money laundering and other criminal corruption that have been found out, and those are only the ones that people have been able to see. That opaqueness should go, and we have the power to do it. Those are the big issues that have not been addressed in the Bill. I implore my party to get on the case and get it amended.
6.15 pm