My Lords, I listened carefully to the noble Baroness, Lady Bennett, in her clear introduction to these amendments, and I thank her for the background briefing papers that she kindly sent me this morning.
Having said that, I hope she will forgive me if I do not turn the end of these Committee proceedings into an off-the-cuff economics seminar. Indeed, she will not be surprised if, on behalf of the Government, I adopt an orthodox stance on the role of our financial services sector.
It is the Government’s firm contention that the financial services sector is a vital part of our economy. It employs more than a million people, and two-thirds of the people employed in financial and professional services work outside London. It has been a critical source of tax revenue, whatever the exact figure, especially in these difficult times.
The IMF has described the UK’s financial system as a global public good, so the Treasury is not persuaded by the arguments of the Tax Justice Network around “too much finance” or that finance is inherently a bad thing for the real economy. The financial services sector supports British businesses to expand, manage cash flow, invest in themselves and create jobs. The sector is also one of our leading industries in its own right, driven by a concentration of international, and therefore internationally mobile, firms.
Amendment 123 would require regular reports on the impact of the financial services sector on a range of topics including growth, inequality and risk. Amendment 124 would establish a new oversight body which would consider the impact of this sector on the “real economy”.
I have already set out some of the positive impacts that the sector has in its own right on growth, jobs and tax revenue in the UK. But let us not forget that it is also a sector on which all other parts of our economy rely. This means that the sector is a vital source of funding and services for other sectors of the economy. But, of course, it can also mean that if there are problems in the financial services sector, they can affect other parts of our economy. That is why the sector is so vital, and it is why I am able to assure noble Lords that the Government are absolutely committed to transparency around financial risks and welcome independent scrutiny of risk exposure.
The Bank of England’s Financial Policy Committee also has a responsibility to identify, monitor and take action to remove or reduce systemic risks. The committee was established under the Financial Services Act 2012 and must publish and lay before Parliament a financial stability report twice a year. As part of its assessment of financial stability risks, the Financial Policy Committee already considers and reports on risks arising from shadow banking, also referred to as “non-banks”. Given the rapid growth of non-banks, the Treasury has asked the Financial Policy Committee to publish a detailed assessment of the risk oversight and mitigation systems in place for non-banks. That is expected in the first half of this year.
The Office for Budget Responsibility produces and presents a fiscal risks report to Parliament every two years, and it has previously explored risks posed by and to the financial sector. More generally, the FCA and PRA are required to prepare and lay annual reports before Parliament, assessing how effectively their objectives have been advanced. These objectives are set by Parliament, as noble Lords are well aware.
Of course, as I said, one key role of the financial services sector is to provide funding to the so-called real economy. The Government have recognised that, in this Bill, the provisions on the implementation of Basel require the PRA to have regard to the likely effect of its rules on the ability of the firms affected to continue to provide finance to businesses and consumers in the UK, on a sustainable basis in the medium and long term.
The amendment refers to inequality. On that issue, I can reassure the Committee that the Treasury, the FCA and the PRA are all bound by the public sector equality duty. As part of that duty, all three are required by the Equality Act 2010 to have due regard to the need to eliminate discrimination and to promote equality of opportunity in carrying out their policies, services and functions. The FCA publishes a diversity annual report to set specific measurable equality objectives and publish relevant, proportionate information demonstrating its compliance with the public sector equality duty.
Amendment 124 mentions the impact of the financial services sector on climate change and biodiversity. The Committee will I hope forgive me if I do not repeat what I said in earlier debates on that topic, as I have already set out the actions that the regulators are taking in that space.
I turn briefly to the composition of the oversight network that the noble Baroness proposes. I am completely with her in believing that the regulators should take on board a variety of different views; it is important that they do so. In fact, the FCA already has a statutory requirement to consult independent panels representing consumers and practitioners, and the Bank of England has strong links with many academics. Of course, all the groups mentioned are able to respond to consultations, which the regulators are required to undertake, and where their responses must be considered.
As a general comment, I just say that the topics raised by the noble Baroness are those which the Treasury and the regulators consider every day when making financial services policy. I assure her that the Government are committed to ensuring that the sector has a positive impact for consumers and for the economy as a whole. No Government could do otherwise.
Given all that I have said, which I hope has provided some useful perspectives on this topic, I hope that the noble Baroness will feel comfortable in withdrawing her amendment.