City of London

Opposition Day – in the House of Commons at 3:38 pm on 12th March 1986.

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Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East 3:38 pm, 12th March 1986

I have selected the amendment in the name of the Prime Minister.

I draw the attention of the House to the fact that references to proceedings on a Bill in Standing Committee, particularly references attempting to deal with the content of the debate in the Committee are not in order. I draw hon. Members' attention to page 426 of "Erskine May".

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

On a point of order, Mr. Speaker. Does that mean that references to the Securities and Investments Board will not be in order? If so, will not that substantially inhibit the nature of the debate?

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

I specifically do not wish to inhibit the nature of the debate, but I have to draw the attention of the House to the rules on these matters.

Photo of Mr Roy Hattersley Mr Roy Hattersley , Birmingham Sparkbrook 3:56 pm, 12th March 1986

I beg to move,

That this House, deploring the increasing influence of the City over the Government and its policies, calls upon the Government to put aside considerations of political support and personal connection and to introduce a system of regulation of, and supervision for, the financial services which will provide an adequate response to the increase in City fraud, to introduce a stricter system of surveillance of monopolies and mergers, and to adopt economic policies which are to the benefit not of the City alone, but of the whole economy and which will therefore assist in the reduction of unemployment, the rehabilitation of manufacturing industry and the provision of an adequate alternative to diminishing oil revenues. Today we debate the City against a background of continuing economic crisis. The fact that the existence of that crisis, the truth of the existence of that crisis, will be rejected by Conservative Members who speak underlines the gulf which divides the two sides of the House and the necessity for today's debate. Conservatives judge economic success by the Financial Times index. We judge it by different standards, not least the ability of our nation to provide jobs for all its people.

The facts of the economic crisis are that unemployment now stands at between 3·5 million and 4 million, manufacturing trade is in deficit and real interest rates are at record levels. Each of those individual catastrophes has been intensified by the Government's enthusiasm for economic policies which benefit the City but damage the rest of the economy. We have today a Government of the City for the City and, by far too large an extent, by the City.

The connection between the Government and the Tory Benches was on blatant display during the Second Reading of the Financial Services Bill when stockbrokers and underwriters from the Conservative Benches took it in turn to defend their vested interests and to argue against effective Government supervision. It is that close connection that makes a Tory Government certainly unwilling to tackle, and perhaps incapable of tackling, the City fraud crisis by instituting an effective system of regulation and supervision.

Yet rarely a week goes past without the discovery and exposure of some other malpractice and scandal. Indeed, only this morning our newest daily paper, Today, had on its front page an exclusive story about what is rightly described as the latest series of dirty tricks.

The normal defence for the City's behaviour and the Government's refusal to act appropriately is the assertion that a majority of City firms is honest. Of course, I accept that, but the honest and honourable majority is not sufficiently determined to expose and act against the criminal minority. I give a current example. Ten days ago, I wrote an article in The Observer which spoke of stock exchange fraud. Early this week, I received a letter from Sir Nicholas Goodison, the chairman of the stock exchange, who asked me—I think it was intended to be a challenge—what I meant by stock exchange fraud and what examples I could give him.

I cannot believe that Sir Nicholas does not know the facts of insider dealing, as confirmed on 11 December by the Parliamentary Under-Secretary of State for Trade and Industry in an answer given in another place. He confirmed that there were 25 prima facie cases of insider dealing and that 80 cases were referred to the Department of Trade and Industry under section 2 of the Companies Act, and he expressed anxiety about the difficulty of securing convictions in such cases. Yet Sir Nicholas challenges me to explain what I am talking about. I can only assume that Sir Nicholas's definition of fraud is different from mine and different from that of most people outside the City.

Some people in the stock exchange take a stronger and clearer view on these matters than does the chairman. Michael Feltham of the stock exchange finance department wrote in the Financial Times earlier this week: We can track down the small insider deals … but the big fish go offshore. They go offshore because of inadequate supervision and because too many people in the City who may be honest are not prepared to expose the dishonesty among them. Indeed, the City remains a charmed and closed circle wedded to the misplaced loyalty of a gentleman's club, although the City is clearly no longer the exclusive preserve of gentleman.

The City is incapable of regulating its affairs. Let us consider the alternatives to that, in each area, which are offered by the Government. The Government's remedy for bank fraud is a board of supervision which is almost a subcommittee of the Bank of England. But the Bank of England, especially under its present Governor, is wholly incapable of performing that task, because the Bank of England is not the agent of Government in the City, but the voice of the City in Government. What is more, the new supervisory agency—the Bank of England—was blamed by the Chancellor of the Exchequer when the going was rough and he needed something to hide behind. It was made a scapegoat for compounding the Johnson Matthey affair, yet now the bank must make sure that errors for which it was partly responsible do not happen again.

As a remedy for the City's general malpractices, we are offered the prospect of legislation based on the Gower commission's recommendations. Yet the Government know that those recommendations were made before deregulation increased potential rewards, potential risks and, therefore, the temptation to defraud. As a remedy for Lloyd's fraud, we were offered two conflicting assurances. The first was that the Lloyd's Act 1982 is sufficient; the second is that a new inquiry will examine whether the Lloyd's Act 1982 is sufficient.

I ask the Chief Secretary two specific questions, although in the light of previous behaviour whether anyone will believe his answer is open to question. What does he think about, in many cases, the absence and, in all cases, the delay and reluctance to mount prosecutions against City frauds? Secondly, how would he react if I were to suggest that we abandoned any hope of pursuing social security frauds, most of which are minute compared with the rewards obtained from City malpractices?

All that being said, and my hopes of an honest answer being optimistically renewed, I must tell the Chief Secretary that the City crime wave is not the most important or most urgent issue that we should debate. The crime wave is only one aspect of a larger problem: the City's view of itself as an independent power that is too big, too powerful, too rich and too international to be supervised by the Government, the Government's craven acceptance of the view that the City can act independently and the Government's agreement that the City can develop a life of its own detached from the rest of the economy.

The United Kingdom is the only country that talks about a separate institution— the City — as though it were not part of the rest of the world, the rest of the economy and the other prospects and hopes for the country. With the City's international connections, only in Great Britain is its interests not so much different from the interests of manufacturing economy, but often diametrically opposed to them. Indeed, as the circumstances and facts of the past seven years prove, as the real economy of investment, output, manufacturing, exports and jobs declines, the City can benefit from that, improve its position, increase its rewards and extend its influence.

The Government's pandering to the City's wishes has meant that, for the past six years, our economic policy has benefited financial services but worked directly against the interest of manufacture, employment and visible trade. The City has benefited from high interest rates, uncompetitive exchange rate and the abolition of exchange control; it has benefited, in part scandalously, from the sale of national assets.

The City has made vast sums from the privatisation programme, and again I ask the Chief Secretary some specific questions. Much of the money—certainly some of it—was made improperly. First, the City prices the assets, or, to be more specific, it underprices the assets. It is estimated that the City underpriced the assets sold by the Government by about £3 billion. Had the Government obtained the proper price, it would have been enough to fund the entire programme of jobs for the long-term unemployed that was recommended to the House by the Select Committee on Employment.

It is worth noting that the Government, composed of City experts—or at least financial journalists—let the City get away with it. I hope that the Chief Secretary will tell us whether incompetence or malice allowed the Government to sacrifice £3 billion to City corruption. It was one or the other. One way or another, the Government lost £3 billion of taxpayers' money and, as the afternoon goes on, the Chief Secretary must choose which it was.

Having underpriced the assets, the City then bought many of them at the artificially low price. Indeed, I understand — I trust that the Chief Secretary will comment on it — that some City institutions bought assets in excess of the amount which they were officially allocated. As well as making that killing on the underpriced assets, the City also charged the Government an unwarranted underwriters' risk premium, when it knew that there was no risk. The City knew that the stock would be sold and that the price was too low, yet it chose to charge the Government a commission which it knew was unjustifiable. Some of the questions that I would have wished to ask this afternoon have, as a result of recent prosecutions mounted and continued this week, become subject to the sub judice rule, but I can at least ask the Chief Secretary this. As it is beyond dispute that many of the assets sold by the Government have been scandalously undervalued—

Photo of Mr Roy Hattersley Mr Roy Hattersley , Birmingham Sparkbrook

Rubbish? We shall hear the Chief Secretary defend that in a minute. Many of the assets sold by this Government have been scandalously undervalued—

Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield

What about the last issue of Cable and Wireless shares, which was exactly right?

Photo of Mr Ernest Armstrong Mr Ernest Armstrong , North West Durham

Order. If the hon. Gentleman wishes to intervene, he knows that there is a proper way to do so.

Photo of Mr Roy Hattersley Mr Roy Hattersley , Birmingham Sparkbrook

As it is generally accepted by all those without bias or a vested interest in financial concerns—those who have are showing their spots and colours vividly and dramatically this afternoon—that what I have said is true, I ask the Chief Secretary how he proposes to avoid that scandal in the future, or is he so anxious for a quick sale of public assets to pad the Budget and make future tax cuts possible that he is prepared to sell off national assets knowing that the city is improperly and unscrupulously lining its pockets?

Photo of Mr Allan Rogers Mr Allan Rogers , Rhondda

My right hon. Friend was challenged from a sedentary position by the hon. Member for Beaconsfield (Mr. Smith). I hope that my right hon. Friend will listen to what the hon. Gentleman is saying. Does my right hon. Friend realise that the hon. Gentleman is parliamentary consultant to the National Association of Security Dealers and Investment Managers, and to the County bank, and obviously has a strong interest in this debate and knows what he is talking about?

Photo of Mr Roy Hattersley Mr Roy Hattersley , Birmingham Sparkbrook

I think that the interesting nature of the hon. Gentleman's remarks was not so much his authority, which I do not doubt, but the passion with which he defended the vested interest with which he is concerned.

I concede that, not surprisingly during the past seven years, the City has done very well by its own standards. City salaries have risen astronomically. I know that the Chief Secretary is an expert in these matters. Will he give us his judgment about City salaries and about the society in which we remove the wages council protection from the young but allow City institutions to pay men of 30, 35 or 40 not only £50,000 or £60,000 a year, but a £250,000 signing-on fee—a new phrase in the English language that goes with hello, and which the Chief Secretary knows perfectly well is common in the City? Will he comment not only on the morality and propriety of that, but on how he thinks that it affects the Government's drive for lower wages for those at the lower end of the income scale?

The City has done well, its salaries have risen vastly and City employment has risen while employment in the rest of the economy has slumped. We have to understand — and hon. Members who defend the City have to accept—that the City has not and cannot make up for the matching and related collapse in manufacturing industry. The City cannot fill the gap that will be left in our balance of payments when the oil begins to run out. The British Invisible Exports Council was explicit on this point. It says that it does not see the growth of services as being to a major extent a substitute for decline in general industrial activity. In the words of the right hon. Member for Old Bexley and Sidcup (Mr. Heath), the service industries have to have something to service. In the economy in general under this City-oriented Government, it has been seven years of decline, in part because the City has hopelessly failed to provide investment in export promotions, in job creation and in the areas where manufacturing industry might grow and where new jobs might be found.

There are three sectors of particular concern. One is small firms, particularly those that need, and should be provided with, loans and investment at the soft rates common among our more successful creditors. Secondly, there is an important need for but failure in long-term investment—the failure of the City to take a long-term view of these things. Thirdly, there is a desperate need for the City, when it is examining industry, to make a more sensible evaluation of the long-term risks.

One of the reasons why long-term risk evaluation is so often inadequate is that the City does not know about manufacturing industries, is not interested in them and is not concerned in them. In our more successful competitors in the OECD and EEC there are banks that choose to work as part of industry alongside industry and understanding its problems. Here in Britain, the City is different, superior, exclusive and industrially ignorant. However, when charged with failure to provide an adequate investment, the City always gives the same circular, self-righteous, self-serving defence. It is that there is plenty available for suitable investment. I see the hon. Member for Beaconsfield (Mr. Smith) utter the words as I say them. That is his view, but not that of British industry.

I quote from Sir Terence Beckett, not usually on the side of Labour party economic policy, who spoke to the House of Lords Select Committee about: the widespread comments I get from industry, particularly small and medium sized companies who have difficulty in getting finance from banks". The British Chamber of Commerce was equally conclusive. It said: Every bank will tell you that there is money available in all directions—but they have to or feel obliged to put certain criteria on the lending which are somewhat different from our overseas competitors". The hon. Member for Beaconsfield may laugh at the idea of the British Chamber of Commerce complaining about the absence of investment, but he is laughing about the failure of the Government and the institutions that they support to help small firms to develop and grow.

In any case, what does money available for suitable projects mean in practice? I give the House a definition offered to me by a west midlands clothing company whose highly successful expansion, principally into the export market, was made possible only because of the help that it received from the West Midlands enterprise board. The chairman of that company, who had touted about the City looking for new investment, said; If I had wanted to build a casino in Mayfair they would have pressed £5 notes into my hand. But because I wanted to make things and export things, they did not want to know. They want to know about some things—the merger boom, for example, which occurs under our wholly inadequate competition policy. The City wants to finance takeovers, which have nothing to do with efficiency, output or employment, because this is a sector of easy pickings. It is work with which the real economy has no connection, work that is unproductive in terms of investment, output and jobs.

What is more — and the tragedy and mistake is accentuated by the takeover boom—the stock exchange system as a whole concentrates far too much of its financial attention on short-term profits. Prices are determined by the most recent returns, and so are takeover profits. Now, with more and more successful predators stalking the market, company after company increasingly occupies its time in erecting protection from suddenly being swallowed up. I offer in evidence the comments made in an article in the Bank of England Quarterly by David Walker, the bank's executive director. He talked about takeover mania re-inforcing in many boards the disposition to be cautious about innovation expenditure which reduces profit in the short term. The country needs the will to innovate and a willingness to make judgments on the long-term not the short-term profits. Yet the takeover mania, the inadequacies of present competition policy, buttressed by the behaviour of the City, has concentrated industry's mind more and more on the next share price, on the next quarterly profit and on the prospects of being swallowed up while the needs of the real economy are investment growth and jobs. Those needs are forgotten.

Perhaps most important of all, for the City to say that its investment programmes, investment potential and the investment it makes available to manufacturing industry are meeting the economy's needs is for the City complacently to accept an economy in which manufacture collapses, in which there is an incipient balance of payments crisis which will break over us when the oil runs out and in which there are permanently 3 million or 4 million men and women unemployed. That may be good enough for the City, with its vast salaries, its great power and its special relationship with the Government. It is not good enough for the Opposition, and I do not believe that it is good enough for the people of this country.

Photo of Mr John MacGregor Mr John MacGregor The Chief Secretary to the Treasury 4:22 pm, 12th March 1986

I beg to move, to leave out from "House" to the end of the Question and to add instead thereof: recognises the continuing and increasing contribution being made by the financial services industry in the United Kingdom to wealth creation and employment; and welcomes the Government's measures to remove obstacles to the efficient operation of the market in financial services, to improve the regulatory framework in the whole financial services sector and to deter and punish fraud.". The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) began by speaking about the damage caused by fraud and other dishonest practices in the City. I agree completely with him. Fraud is morally wrong and wholly unjustifiable. It besmirches the good reputation of the City, inflicts serious damage on honest practitioners and frightens investors. It is quite unacceptable that fraudsters can—as it sometimes seems—escape justice with the proceeds of their crimes. The Government have been and are determined to ensure that the sternest action possible is taken against fraudsters wherever their guilt can be proved.

However, I part company from the right hon. Member for Sparkbrook on this point. He waxed indignant about fraud, and the Government share that indignation. However, we have matched our indignation with action over a number of years, long before Opposition Members chose to make this a headline-hunting issue. Let me first remind the House of the Government's programme for dealing with cases of serious financial fraud.

On 8 November 1983—long before the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) started to take such a close interest in this subject—the Lord Chancellor and the then Home Secretary announced the establishment of the Roskill committee to investigate a range of problems associated with the detection, investigation and prosecution of serious financial fraud. That was a fundamental inquiry, basic to this vital issue of financial fraud, and it has led to wide-ranging and radical recommendations which are likely to have much greater long-term effects than anything else I have seen canvassed.

On 14 January this year, my right hon. Friend the Home Secretary welcomed that report. The committee made 112 recommendations designed to make the investigation of fraud more effective, and to remove some of the present obstacles to bringing complex financial fraud cases to court and to a successful conclusion. The debate on the report on 13 February in the House brought some flavour of this complexity which makes big financial fraud so much harder to tackle than the Opposition sometimes pretend. I make no secret of my own leaning towards agreement with Lord Roskill's main recommendations, although I note that my right hon. Friend the Home Secretary has said that he is consulting on the matter.

I noted that the right hon. Member for Manchester, Gorton (Mr. Kaufman) was ready to reject one of Roskill's major proposals — trial by assessors — without a moment's thought. It is of course important to bear constantly in mind that, although it is Lord Roskill's recommendation about trial by jury that has attracted most attention, his committee's report contains a mass of detailed proposals which would dramatically improve the chances of bringing fraudsters to book. My right hon. Friend the Home Secretary is now urgently considering with colleagues the Roskill recommendations on the preparation and conduct of fraud trials. The Government will return to the House soon with firm legislative proposals.

In July 1984, again well before the Opposition were prompted by the hon. Member for Hackney, South and Shoreditch to take an interest in fraud, my right hon. Friend the Chancellor of the Exchequer announced the establishment from 1 January 1985 of the fraud investigation group. That followed months of planning. As my right hon. Friend said at that time in a speech to the Bow group: The investing public needs to be assured that wrongdoers and fraudsters will be speedily and effectively brought to book under the law". Again, that is an example of the Government taking a prompt initiative.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

The Minister has said, over and over again, that the Government are doing something about fraud. Why is it, then, that Peter Cameron-Webb and Peter Dixon are in the United States? Peter Dixon has been served with a writ in connection with a civil action regarding Lloyd's and Lloyd's says that these two people have got away with £39 million. If a civil action writ can be served, why has the fraud squad, which the Government controlled so effectively during the miners' strike and at other times, not been able to put its hands on these people? We have extradition agreements with the United States, so why have not the Government done anything about that?

Photo of Mr John MacGregor Mr John MacGregor The Chief Secretary to the Treasury

As the hon. Gentleman knows, prosecution decisions rest with the Director of Public Prosecutions and with the Attorney-General. They do not rest with the Government. My right hon. and learned Friend the Attorney-General and my hon. and learned Friend the Solicitor-General have explained the difficulties on a number of occasions. I share the hon. Gentleman's frustration at the difficulties which have been encountered. The various initiatives, including the follow-up of the Roskill report, will make a major advance in enabling us to deal with such problems.

The fraud investigation group is a specialist group supplementing extensive fraud investigation work in police forces all over the country. Its resouces have already been increased during its first year of operation. On 19 December last year my hon. and learned Friend the Solicitor-General told the House that nine professional officers were to be added to the 15 now employed by the Director of Public Prosecutions — a 60 per cent. increase.

Photo of Mr Roy Hattersley Mr Roy Hattersley , Birmingham Sparkbrook

I think that the figure is greater than that, as there were 21 officers before. Will the right hon. Gentleman confirm that, while there are 50 officers in the fraud group and while there has been a 60 per cent. increase, there are in the Department of Health and Social Security 176 senior officers pursuing 30 frauds in that Department?

Photo of Mr John MacGregor Mr John MacGregor The Chief Secretary to the Treasury

I said that there had been a 60 per cent. increase, and that is a substantial figure. There was a similar number of officers under the Labour Government. The point is that we are dealing with serious financial fraud cases and there are fewer of these than of any other offences. It is important that we should ensure that there is no shortage of resources to follow up that kind of fraud work. That is why there has been a corresponding increase in support staff.

Nor is fraud solely tackled by the police and the DPP. I shall here discuss the question about relevant numbers of resources raised by the right hon. Member for Sparkbrook. Earlier this year, my right hon. Friend the Secretary of State for Trade and Industry announced an increase of nearly 200 in the investigative staff of his Department. We are not only considering how the law and investigative and enforcement processes can be strengthened; we are ensuring that the extra resources necessary are provided.

One of Lord Roskill's more far-reaching recommendations was that exceptional cases of serious financial fraud —which is what the right hon. Member for Sparkbrook was focusing on this afternoon—

Photo of Mr John Smith Mr John Smith , Monklands East

My right hon. Friend spoke about all frauds.

Photo of Mr John MacGregor Mr John MacGregor The Chief Secretary to the Treasury

But he concentrated on serious financial fraud. Lord Roskill said that these could be handled far more effectively if the resources of the various agencies concerned — the police, the DPP, the companies inspectorate of the Department of Trade and Industry and the revenue departments—were to combine to form one unit, and he suggested that the Government should examine that possibility. I was immediately charged with that task, and I am now urgently undertaking a study in depth with a view to making firm recommendations as soon as possible.

Dealing effectively with fraud is, of course, of crucial importance. That is why I put it first. But we must keep it in context. We are dealing with only a tiny minority of City practitioners. It is, of course, the disproportionate publicity they get and the damage they do that make it so vital to deal with fraud. I want to turn now, therefore, to the more general and regulatory City matters to which the motion refers.

Great changes are taking place in the financial markets. Technological changes are changing businesses beyond recognition. They have made long-established practices, and the institutional machinery to control them, rapidly outdated. They have greatly affected the speed and manner of transactions. They have internationalised the markets even more than hitherto. Of course, they bring the risk of computer and telecommunications fraud, a subject on which the Bank of England issued guidance last year to the managers of financial institutions.

Changes are taking place in the institutions. The new financial conglomerates are establishing themselves in all the major financial centres of the world, not just this one. Changes are taking place in the markets themselves, the instruments that are traded and the ways in which they are bought and sold.

The Government are responding to these changes with a three-pronged strategy.

Photo of Mr John MacGregor Mr John MacGregor The Chief Secretary to the Treasury

Three, and they are all vital. First, they have removed a raft of distortions from the markets to enable London to attract a major share of the increasing world trade in financial services.

Photo of Mrs Elaine Kellett Mrs Elaine Kellett , Lancaster

Are not the actions of the Opposition astonishing? If they are laughing so much, clearly they are not taking their motion seriously.

Photo of Mr John MacGregor Mr John MacGregor The Chief Secretary to the Treasury

I have been rather surprised at some of the Opposition's points. I agree with my hon. Friend.

We have swept away controls and restrictions through tax changes, through medium-term monetary policies and by opening the door to the stock exchange's own reforms. Perhaps most important of all, we have swept away exchange controls. This has attracted business back to London, and brought new life to Britain's financial markets.

Photo of Mr John MacGregor Mr John MacGregor The Chief Secretary to the Treasury

I apologise to the hon. Gentleman for not giving way, but this is a short debate.

Let there be no doubt that in these important, swiftly moving, competitive international markets the alternative for the City would not have been an imperceptible lapse into shabby gentility. This is the important point of the first set of changes. There are no comfortable halfway houses. The penalty for failing to compete, with all these changes around the world, would have been swift and sure, and the consequences would have been loss of national income, loss of substantial invisible earnings and loss of international status.

Secondly, the Government are setting in place an effective and comprehensive regulatory system. The Financial Services Bill—I shall skate quickly over this matter—which is the most comprehensive overhaul of investor protection for 40 years, and the Building Societies Bill are before the House. As I have already mentioned, we published a White Paper on banking supervision in December and intend to introduce banking supervision legislation at the earliest opportunity.

In so acting we have drawn lessons from the Johnson Matthey affair and are taking the action needed to strengthen banking supervision promptly. In this the Government have acted quickly and effectively to deal with the lessons for those aspects of banking supervision which are the Government's responsibility. Between December 1984 and June 1985 a full review was carried out of the procedures of banking supervision and the legislative framework in which it was conducted. The review committee's report was published in June as a basis for consultation, and a White Paper on banking supervision was published last December outlining our plans for early legislation.

It is clear from the work of the review committee, and from the JMB case, that there are fundamental shortcomings in the Banking Act which the Labour Government introducted in 1979. That Act created a two-tier system of recognised banks and licensed deposit takers which, as my hon. Friend the present Economic Secretary to the Treasury warned at the time, was bound to lead to problems. One of the consequences was that different standards of supervision were applied to the two categories.

It is not an offence under the 1979 Act for the management of a bank like JMB to have provided incorrect and misleading information to the supervisor. These are among the matters which we propose to remedy in the new legislation. I have no doubt that the new and more comprehensive system of supervision which this will establish will make an important contribution to maintaining the reputation of our banking system and will enable the supervisor to deal with problem cases more readily.

It is not the prime objective of this comprehensive regulatory framework to tackle fraud. But a number of provisions, common to all three pieces of legislation, will make the City a tough environment for fraudsters: businesses will have to be more open with their investors; auditors will be given new powers and responsibilities; and supervisors will work closely together, and co-operate more with their overseas equivalents.

The new legislative framework will be flexible enough to deal with innovation, to avoid overlapping and to close loopholes. It will be backed up by the new supervisory arrangements for financial conglomerates, announced on 21 January by the Under-Secretary of State with responsibility for corporate and consumer affairs—my hon. and learned Friend the Member for Folkstone and Hythe (Mr. Howard).

This brings me to the third prong of the Government's strategy for financial services. I shall refer to it briefly as I have touched on it already. I refer, of course, to an effective system for the detection, investigation and prosecution of fraud. I have already mentioned much of what the Government are doing in this area. For good measure the forthcoming criminal justice Bill will make it far harder for fraudsters to enjoy the proceeds of their crimes. Not only will proposed changes to the rules about admissible evidence and criminal procedures help to bring criminals to book, but maximum sentences for corruption offences, such as bribery. will be extended to seven years from two at present and we are considering whether to take powers to seize assets derived from very serious fraud.

It took a Labour Government five years from the onset of the secondary banking crisis and under pressure from the European Community to produce the Banking Act in 1979, which is now recognised to be "totally inadequate", in the words of the hon. Member for Thurrock (Dr. McDonald). It is directly contrary to the facts and to the Government's record that the Opposition should criticise the Government on grounds of inaction, tardiness or concealment. That is why I totally reject the allegation by the right hon. Member for Sparkbrook that the Government have not been acting vigorously to deal with all the aspects of fraud that he raised.

The right hon. Member for Sparkbrook has made much of the charge that the City has been failing the nation, particularly in the context of starving industry of funds to expand and invest. He has failed to make his charge stick, and the recent record and present facts belie it. I do not see anything in current Labour party proposals which would improve the range of instruments available to the borrower or help the investor — indeed, quite the reverse.

This constant accusation of the City's failure to provide funds for investment led the last Labour Government to set up a wide-ranging inquiry under the noble Lord, Lord Wilson. They hoped that it would identify this famous financing gap, and they failed to find it. True, they argued that there was a lack of provision of outside equity for the small company. At the time the committee was sitting, I happened to agree with its finding, but it was because of the lack of fiscal and other frameworks to encourage investors to provide it, whether institutional or individual.

Photo of Mr Tam Dalyell Mr Tam Dalyell , Linlithgow

Will the right hon. Gentleman give way?

Photo of Mr John MacGregor Mr John MacGregor The Chief Secretary to the Treasury

I am sorry; I shall not give way, as this is a short debate.

We have now provided that framework—with great success, as I shall show. True, Lord Wilson's committee queried whether very small businesses, especially those starting up, were held back through lack of bank finance because they did not have a track record. We provided —indeed, I introduced to the House—the loan guarantee scheme to establish the extent to which there was a problem, to provide a new mechanism to help to overcome it and, through it, to encourage the banks to do more.

Photo of Mr Bryan Gould Mr Bryan Gould , Dagenham

What is the failure rate?

Photo of Mr John MacGregor Mr John MacGregor The Chief Secretary to the Treasury

That is an interesting question. If the hon. Gentleman thinks that the failure rate is too high, it suggests that in many cases the banks were probably right not to lend. [Interruption.] That has not been the case. I believe that the loan guarantee scheme has helped many small businesses and people starting up to get going.

Photo of Mr Tam Dalyell Mr Tam Dalyell , Linlithgow

Will the right hon. Gentleman give way?

Photo of Mr John MacGregor Mr John MacGregor The Chief Secretary to the Treasury

I am sorry; I shall not give way.

But beyond these small and particular areas, the Wilson committee failed to substantiate the charge of a great financial gap which required massive new state mechanisms. It is worth noting in passing that the committee did substantiate— I quote from the Wilson report— the pervasive effects"— I hope that the right hon. Member for Sparkbrook will listen to this—

Photo of Mr Roy Hattersley Mr Roy Hattersley , Birmingham Sparkbrook

Will the right hon. Gentleman tell us what the real interest rate was when the Wilson committee announced that there were no problems and what the real interest rate is now?

Photo of Mr John MacGregor Mr John MacGregor The Chief Secretary to the Treasury

The right hon. Gentleman is drawing attention to the Government's tremendous success in getting inflation down. That was precisely the point I was making when I was interrupted.

Photo of Mr Roy Hattersley Mr Roy Hattersley , Birmingham Sparkbrook

Can the right hon. Gentleman tell us what the real interest rate was when the Wilson committee said that there was no problem and what the real interest rate is now?

Photo of Mr John MacGregor Mr John MacGregor The Chief Secretary to the Treasury

I cannot remember offhand—I am always honest in answering questions — but the real interest rate would have been lower at that time. That is not the point. The Wilson committee drew particular attention to the pervasive effects on the financial system and on real investment of high and fluctuating rates of inflation. It is worth noting the reference to the pervasive effects of high inflation on real investment.

We have, of course, tackled that problem too. The fact is that our highly sophisticated and comprehensive network of financial institutions offers a broad, flexible, innovative and imaginative range of financing opportunities to British business.

Under this Government we have been rebuilding our overseas assets—even, to use the hackneyed phrase, for the time that North sea oil runs out. But it has not been at the expense of home-based British business and commerce. There has been no lack of supply of funds, whether equity or venture capital or bank lending, for any viable industrial proposal. The figures prove it. British industry has been investing as never before. Business investment in 1984—the last full year available—was up 15 per cent. to an all-time high. Manufacturing investment was up 14·5 per cent.—an all-time high. If we look at the sources of finance — these are the answers to the right hon. Gentleman's charges—we see that last year over £5 billion of new capital—more than ever before and certainly much more than in any year of Labour government — was raised through the stock exchange for British companies. That excludes the privatisation issues. That is the long-term investment of which the right hon. Gentleman has spoken. Another £157 million was raised through the unlisted securities market. Six years ago that market did not exist. Now some 300 companies are quoted, with a total market capitalisation of more than £3 billion. The right hon. Gentleman referred to small firms. There has been a dramatic growth, too, in the venture capital market. In 1979, venture capital crucial to the small and dynamic entrepreneur, especially in the expansion phase, was in the doldrums. There were only 20 venture capital funds, which invested less than £10 million between them. Encouraged by the climate set by the Government, including fiscal reliefs, the gap has now been filled in entirely the right and appropriate way for the expanding business. Five years on from 1979, investment during 1984 totalled over £280 million, supporting almost 600 United Kingdom companies. Venture capital activity in the United Kingdom was two thirds of the total in the whole of the European Community. Indeed, as a proportion of GDP our venture capital industry last year was larger than that of the Americans.

I notice that the Liberal party's amendment refers to small businesses and local enterprise. These figures prove that the changes we have introduced have produced the flow of funds precisely to help those types of business. It is a remarkable transformation and is a far better way of encouraging the growth of new and developing companies, hungry for capital funds, and of seeking out the winners than anything the right hon. Gentleman has sought to devise.

The right hon. Gentleman's sole proposal for a national investment bank reveals the Opposition's failure to comprehend that a national investment bank is precisely the wrong way to assist the financing of British industry. Their indifference and often outright opposition to the Government's programme of privatisation—which we saw displayed again this afternoon — the greatly increased range and take-up of direct share-ownership schemes, personal pension plans and so on show their immense underlying hostility to wider share ownership and financial independence for individuals. Similarly, they were at first opposed to the sale of council houses. Their constant emphasis on certain minority aspects of City operations reveals a neurosis about this very successful part of the British economy, and an anxiety always to diminish and denigrate the good, and exaggerate out of all proportion the blemishes.

It would have been much better if the right hon. Gentleman had today also emphasised the very substantial positive contribution which our financial sector, including the City, makes to our national life. The share of financial and business services in output was 13·2 per cent. in 1984 compared with 11·1 per cent. in 1974, representing real volume growth of 73 per cent. Employment in the industry increased by 400,000 to a total of 1·9 million over that period, spread throughout the country. The right hon. Gentleman neglects that important point. Indeed, there was a fall in employment in the City of London during that time.

London is easily the largest international foreign exchange market. According to a recent study by the Group of Thirty, some $50 billion a day is traded in London—a third of the world total. Of $150 billion of new issues of Eurobonds in 1985, some two thirds are estimated to have been done in London. Of new issues of foreign bonds—totalling $9·5 billion—between a third and a half of the business was done in London. Small wonder, then, that the City's earnings from abroad have grown from around £400 million in 1968 to £6 billion in 1984. This has been achieved only by being thoroughly competitive, aggressive, innovative, internationally minded, marketing oriented and determined to provide service and quality. As it approaches the big bang, the City is demonstrating its determination to keep up to date and to maintain London as a leading world financial centre.

These are the qualities denigrated today by the right hon. Gentleman which we all wish to see spread throughout British industry and commerce.

The Opposition motion calls for an adequate response to the increase in City fraud". Long before they took an interest, the Government had recognised the inadequacies of the legislation and the machinery bequeathed to us by the last Labour Government. The roll call of actions is clear. The setting up of the Roskill committee shortly after the last election, the Insolvency Act 1985, the setting up of the fraud investigation group, the Financial Services Bill, and now the proposals to tighten up banking supervision—all of these, plus the increased resources we are putting into the machinery to deal with fraud, demonstrate our commitment.

The entire tone of the motion is an attack on the City. It is shameful that neither in the motion nor in the right hon. Gentleman's speech did he even begin to recognise the achievements of the City, its contribution to our economy and its standing in the world. He ought to have pride in this national asset, not to denigrate it. On both counts, the Opposition's motion falls.

Photo of Mr Paddy Ashdown Mr Paddy Ashdown , Yeovil 4:46 pm, 12th March 1986

I listened with care to the speech of the Chief Secretary to the Treasury and, while I do not want to associate myself with all the hyperbole used by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), I nevertheless recognise that in the Chief Secretary's speech there was a degree of complacency that was regrettable. I had hoped we would not find such complacency because the problems are much larger—as I hope to show—than he was prepared to admit.

It has been said that the City performs three functions for Britain—two of which are readily recognised but perhaps the other is often overlooked. First, it provides a market for the investor, large or small, which is a valuable function for Britain and the City. Secondly, it provides a useful earner of foreign currency — the money that Britain needs to survive. However, I suspect that its largest function, in respect of the structure of our nation, is to provide the mechanism to raise funds for British industry. We cannot do without that facility.

I have no doubt that the topics of corruption and fraud will feature largely in this debate as it has in previous debates. That is not wrong because they are matters which have recently hit the headlines, rightly so. Such practices have diminished the standing of the City. They have damaged the City and, after the big bang, may well cause it to be unable to earn the foreign currency it has earned in the past.

However, there is a larger scandal which lies beneath the more public scandal on the face of the City. It is a scandal of deficiency on the part of the City, which will have great significance to Britain. Is the City doing its job by Britain? Is it providing the funds that are needed by British industry? Is the City using the nation's money to generate some huge money-go-round primarily for its own advantage? The City makes money by handling money, and the faster it goes round the bigger the profits are. The signs are not good.

I should like to take up what the Chief Secretary said about small businesses and regional development. A prime pillar of the Government's industrial policy is the encouragement of the small entrepreuneur and small businesses. The Chief Secretary said that there was no problem providing funds in that sector, but that has not been proved. I commend much of what the Government have done to encourage small firms and to establish new institutions for small firm financing. It would be churlish not to recognise that, but it would be inaccurate and, to some extent, complacent of the Minister to continue to believe, as he would have us believe, that matters are perfect. They are far from perfect. There is a large equity gap which he tried to deny, and many businesses are suffering as a result. There is increased centralisation of financial resources to the City, just as there has been centralisation of government.

We should imagine that we are a small firm in the midlands seeking £50,000. The Chief Secretary suggested that such a firm could go to venture capitalists, but their average lending is not £50,000, but £401,000. Very few venture capitalists will now lend less that £200,000. Sums below £100,000 are practically unheard of. So where does our small firm go? To the business expansion scheme perhaps? However, 53 per cent. of the scheme's funds last year were lent into or around the south-east of England. The midlands, one of the areas most devastated by the Government's industrial policies, has taken only 13 per cent. of business expansion scheme financing.

In the end, it is often easiest to go to the clearing banks. Britain has only four, which also are hopelessly centralised. There are about 20,000 clearing banks in the United States. Indeed, a national bank is forbidden by law there, but they have regional institutional banks. Many of the clearing banks have done a great deal to assist small industries. If our small business went to a large bank, however, we would still be asked to put down our house or car as collateral. It is small surprise, therefore, that many small business men seeking relatively small sums of finance now regard the relationship with the bank manager as forming the new eternal triangle—the bank manager, the spouse and him.

The Chief Secretary said that there was a good record on investment. He and the Government carefully omit to mention that that record is measured from last year, the year before or maybe 1983, but never from 1979, as investment in Britain has fallen to about 20 per cent. below what it was when the Government came to power. The Government's offer of assistance to small businesses falls seriously short of what is required at the lower end of the spectrum.

Even at the macro-business level, the signs are disturbing. The right hon. Member for Sparkbrook mentioned mergers. Britain is in the grip of merger mania. There was a day when, if somebody telephoned a City boss or captain of industry who did not want to be disturbed, he would find that a message had been left with the secretary to the effect that he was out getting orders. That used to be the most prestigious thing to say, but now the most prestigious thing to say is that the boss is out fixing up some sort of merger.

What property scandals were to the Heath Government in 1974, merger mania is fast becoming today. All the ingredients are there—the high public profile of the mergers and the people involved in them, big killings, doubtful morality and bizarre behaviour by some who are partaking of the action.

The figures are revealing. There were £1·1 billion worth of mergers in 1981, £2·3 billion worth in 1982, £5·3 billion worth in 1984 and a full £7 billion worth last year—an increase of seven times over 1981. Nearly half the money that was invested in new plant and machinery for British industry last year was diverted into mergers. In the first four months of this year, the value of mergers on the cards and under negotiation exceeds the total spent last year. We have all the unsavoury practices that characterised the property boom of 1974. We have things called poison pills. Distillers has quietly agreed to pay £20 million of Guinness's takeover costs without a word to the shareholders or the workers.

The stock exchange has now addressed the matter and produced a new code of practice which provides that a company cannot devote more than one quarter of its annual profits to so-called poison pill operations. We have the character assassinations. Mr. Jimmy Gulliver of Argyll has found himself the victim of a rather unsavoury and tawdry character assassination by Binns Cornwall and Partners Ltd. in the City. Is that what we expect from an organisation whose success rests on its reputation for probity? I suspect not.

Great and important companies have been unbalanced to meet merger requirements. Financial Weekly put it succinctly recently when it said: The willingness to divest which, at the best of times, is a sign of flexible and enlightened management becomes worrying for shareholders when clearly inspired by tactical considerations to do with bids. It becomes difficult to assess what the companies are up to.If every arm and leg of the existing business must be regarded as available for sacrifice on the altar of the big merger, then what is the existing business? What is the strategy? Where is it going? How confident can shareholders be that it will bear more than a passing resemblance to its existing shape a year hence? The enthusiasm for making a fast buck through mergers is now dominating sensible planning of future business.

Photo of Bill Cash Bill Cash , Stafford

Will the hon. Gentleman give way?

Photo of Mr Paddy Ashdown Mr Paddy Ashdown , Yeovil

I am trying to be brief. If I do not give way the hon. Gentleman might be able to speak.

Shareholders are not consulted and work forces are merely bundled up and consigned to a new owner without so much as a word. Unhappily, the City is far too dominated—not exclusively so—by the short term, the turn of a quick buck by tomorrow. Far too often, it is not interested in so-called patient money—investing in the future — which characterises investment in our competitor nations.

Young men, not yet 30, in the City are earning £60,000 or £80,000 a year. I see that the chief executive of Guinness has had his salary raised to £195,000 a year and has received shares worth more than £1 million. As the big bang approaches, such frenetic activity to buy people will get even more frenetic.

Photo of Richard Ottaway Richard Ottaway , Nottingham North

Is the hon. Gentleman saying that, if the remote possibility of the Liberals forming a Government was realised, his party would restrict salaries in the City?

Photo of Mr Paddy Ashdown Mr Paddy Ashdown , Yeovil

I am not saying anything of the sort. I am merely saying that these are the facts of life in the City. If the hon. Gentleman is patient enough, he will hear how I believe that the Government have contributed to that. We must encourage an attitudinal change in the City.

I understand that there are young men not yet 30 earning vast sums of money. Some of them—and this will perhaps illustrate the problem of looking at things purely in the short term—are being assessed for bonus calculated over only three days. If they make a profit over three days they get a bonus to increase their salary. That is not the kind of attitude which the City has taken in the past, but it is an attitude that is growing today and of which we need to be aware. The City is a partner in creating what the right hon. Member the Leader of the Liberal party (Mr. Steel) has referred to as the "hamburger-stall economy". It seems to me that there are far too many, in the City and outside it, who do not believe in the long-term future. The prevailing mood, therefore, is fast becoming that of the Roman orgy — eat, drink and be merry and make whatever money we can, because tomorrow things will be different.

This is not surprising, because the City is responding entirely to the tone set set by this Government. We have flogged off our national assets, whatever they may be, to the highest passing bidders, whoever they may be. We have sacrificed long-term interests for a little short-term profit. The Government are not creating an enterprise culture but are rather in the process of creating a finance culture. The Government have stimulated not entrepreneurial skill but the skill of the moneychanger. There are those who are reaping vast rewards, and they are not the hard grafters but the slick operators.

It may be that the banner headlines on this debate will be about corruption, but the real scandal is far deeper, more pervasive and more damaging. The Government have elevated private greed to the level of a public virtue and the City, not unnaturally, has responded with enthusiasm. It has become a partner with the Government in the game of national asset-stripping. Instead of mobilising its huge financial resources and its undoubted human ability in the interest of the long-term economic and industrial health of Britain, far too many in the City now grab at the short-term profit. They are not wholly to be blamed for this, because they are only responding to the climate that has been created by the Government. It is that climate that we would seek to change. We need a new climate if we are to establish the partnership the nation needs for the regeneration of British industry. The City is an essential part of that partnership, but it will need a change of attitude and of operation before it can do the job we so badly need it to do.

Photo of Mr Geoffrey Rippon Mr Geoffrey Rippon , Hexham 5:02 pm, 12th March 1986

This debate shows that there is growing public anxiety about what is happening in the City. Allegations of fraud and corruption may be grossly exaggerated, but I believe that the Prime Minister was right when she said at the Lord Mayor's banquet last year that the City was only as healthy as its reputation.

Today we have to face the fact that a number of major scandals have undermined confidence in one of Britain's most important spheres of activity. The City's very real achievements and its important contribution to the national economy have rightly been underlined by the Chief Secretary to the Treasury, but those very achievements and the City's very importance make it necessary for us to understand exactly what is at stake. As the Roskill committee stated at the beginning of its important report:

If the Government cherish the vision of an 'equity-owning democracy' then it also faces an inescapable duty to ensure that financial markets are honestly managed, and that transgressions in these markets are swiftly and effectively discovered, convicted and punished. I am sure that the House must welcome the very clear way in which the Chief Secretary emphasised that it is the Government's intention to act on the recommendations in that report and to come forward with firm legislative proposals. I do not think that we can ask for more than that.

I welcome the measures which, as the Chief Secretary has said, the Government have taken and the measures which they propose to take. This is in striking contrast to the way in which the Labour Government treated these matters when they had the opportunity of dealing with them. Whether, however, they will, in the changed circumstances of today, prove adequate has to be considered in the light of what may happen after October, when the so-called big bang occurs.

Huge financial conglomerates are now being created and it may be doubtful whether self-regulation will be enough, especially when the Bank of England stands back and allows unbridled market forces to operate in areas where they have hitherto been effectively controlled. I am all in favour of market forces but I believe that they must be subject to regulation within a clear statutory framework. Whether we can long avoid a statutory body on the lines of the United States Securities and Exchange Commission depends on our ensuring that the Financial Services Bill has strong enough teeth.

Naturally, I am not going to refer to what is happening in Committee. I will confine myself to saying that I hope that the Government will hesitate before ignoring the views expressed by my hon. Friend the Member for Chichester (Mr. Nelson) and others, because I believe that it is certain that, if there is another major scandal, the roof is going to blow off the City.

I shall now refer to a topic which I touched on in the debate on the Gracious Speech on 13 November—the damaging consequences of the current torrent of takeover bids. In 1969 I said that the country had gone merger-mad in the face of the 1968 wave of takeover bids, most of which proved basically unsatisfactory and damaging in the event, just as I think many of the mergers today will not prove in the national interest. As a Wall street banker said recently: When total bids multiply to the level of a roulette table they are better housed in a casino where the only consistent winners are the croupiers. The hon. Member for Yeovil (Mr. Ashdown) referred to the fact that at the end of last year it was estimated that there was over £7 billion wrapped up in bid situations. It was then estimated that 52 out of 300 United Kingdom companies capitalised at over £150 million each were involved in takeovers. This process is continuing at the present time.

I must, of course, declare an interest as the chairman of a company which has recently escaped the clutches of an unwelcome predator.

What is happening in the City today in the sphere of mergers is utter madness. I noted that the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) referred to the views of Mr. David Walker, an executive director of the Bank of England. I believe that Mr. Walker is absolutely right when he says that there must be a rethink of our merger policy, and that rethink is urgent as well as, admittedly, very difficult.

The root of the public mischief is that shorter horizons are militating against sensible long-term investment decisions, and are therefore in the long run basically damaging to British competitiveness. Institutional shareholders increasingly regard share certificates as casino chips, and the performance of investment managers is judged on short-term capital gains. The institutional shareholder is therefore no longer necessarily a buttress to a good company; rather, he may be a danger. On the other hand, individual shareholders are much more stable because they understand that they as well as the country are better served in the long term by the steady growth of their company, its profits and its dividends. What is happening today in the City is economically unsound because it is basically destructive and antisocial.

That is why I welcome what the Government are doing to encourage the spread of share ownership. That spread is essential to a free society increasingly threatened by the concentration of power. The concentration of power is not just in the hands of Government or state boards; it can be to an excessive extent in the hands of large bureaucratic corporations.

No one can stop takeover bids and no one would want to, but the message should go out to the City: "For heaven's sake cool it." A distinction must be made between mergers by agreement which stimulate organic growth and hostile bids that are designed to promote egomaniac empire building or disguise indifferent performance by the larger company. We should consider ways and means whereby the public interest and the interests of shareholders can best be protected. It seems that we need some new ground rules. On 7 March an article appeared in The Times that referred to

the deterioration of standards in the conduct of takeover bids. It noted the readiness of various financial institutions to underwrite to make contested bids possible—it seems that takeover bids offer an alternative way of lending money now; it is no good lending money nowadays to Nicaragua — and to take huge fees and commissions from the companies involved.

Photo of Mr John Ryman Mr John Ryman , Blyth Valley

I am following the right hon. and learned Gentleman's speech with great interest. He talks about the public interest and concedes that substantial reform is required. Should not the Director General of Fair Trading, some of whose decisions are incomprehensible, be taking the public interest into account when deciding whether to make a reference, for example, in the Guinness No. 1 and No. 2 bids, the Hanson Trust bid, which got away, and various other bids? Surely the public interest is paramount even before there is new legislation.

Photo of Mr Geoffrey Rippon Mr Geoffrey Rippon , Hexham

There is no doubt that the Office of Fair Trading and many other bodies should be much concerned about these matters and that is why I have something to say about laying down possible ground rules. One way of discouraging unjustified bids would be to make the predator who failed pay the costs of the defence. We should also prohibit the growing practice of making unsolicited telephone calls—personal calls — to shareholders urging them to accept bid offers. In the case in which I was involved, I found that elderly shareholders had been harassed late at night by individuals of whom they had never heard, and of whom they had no wish to hear.

On a wider scale, we could study action that is being taken in other countries to regulate mergers. In America, another country which suffers from merger mania, a number of states have begun to take action, including Minnesota, Ohio and Colorado. In Colorado, for example, an independent board of directors has to vet a bid for a financial institution and a 25 per cent. holding is deemed to be a change of control which it will investigate. In Minnesota, the single most important component of its company law is the requirement that acquiring companies should disclose their operational plans for the target company.

In Germany, a company's workers have an absolute right to be consulted on decisions that will have an effect on their future, such as mergers. In Canada, action is being taken to introduce a new trust law that will automatically refer to the equivalent of our Monopolies and Mergers Commission all bids in excess of £250 million. It may be that, instead of the present unsatisfactory arrangement whereby some bids are referred and others are not, it would be better to have some point at which it became essential that the bid should be referred.

As the evidence accumulates of the economic and social damage which is being done by the spate of hostile takeover bids, we must do something before outraged public opinion turns upon the City in fury at its speculative, share-shuffling greed.

Photo of Mr Brian Sedgemore Mr Brian Sedgemore , Hackney South and Shoreditch 5:15 pm, 12th March 1986

There was a good deal in what the right hon. and learned Member for Hexham (Mr. Rippon) said with which I agreed, and perhaps that proves the point that Sir Winston Churchill wished to make when he said, "We are all Socialists now." However, I believe that the right hon. and learned Gentleman omitted one precept, which is my contention that we shall never be able to regulate the City unless we can regulate the activities of the inhabitants of No. 10 Downing street in so far as they affect the City. We first realised that there was something wrong at No. 10 a couple of years ago when the Oman scandal came to light. The Prime Minister, in batting for Britain, helped to line the pockets of her son. When the subsequent contract between the Oman Government and Cementation Ltd. was signed, millions of pounds of bribes found their way into the hands of Oman Ministers.

The Johnson Matthey banking scandal—

Photo of Mr Ernest Armstrong Mr Ernest Armstrong , North West Durham

Order. The hon. Gentleman knows that this is a short debate — I know that the House does not want to be delayed by interventions from the Chair—and that he should not make accusations of that kind. He should table a substantive motion if he wants to make such accusations.

Photo of Mr Brian Sedgemore Mr Brian Sedgemore , Hackney South and Shoreditch

These issues have been raised before on the Floor of the House, Mr. Deputy Speaker, and evidence on them has been given to a Select Committee, notably by myself, which has been published. It is a pity that the Government have not brought the Select Committee's report before the House. However, I shall move on.

In the Johnson Matthey banking scandal, the Prime Minister found herself in further trouble. Thanks to Price Waterhouse and Co. and a Minister, I have been able to piece together some of the right hon. Lady's personal involvement in not setting up a tribunal of inquiry to consider the matter. When Price Waterhouse was drawing up its original report — the one that has not been published—one of its senior partners, Mr. Brian Larkin, in conversation with another senior member of the firm, Mr. Mark Homan, said as the report was nearing completion, "We had better contact No. 10 and get her to distance herself from him." In this instance "her" was the Prime Minister and "him" was Mr. Robin Leigh-Pemberton, the Governor of the Bank of England. The conversation was designed to suggest that as the Prime Minister was friendly with the Governor and had appointed him, and as he stood most to lose from any sort of inquiry, the Prime Minister should be warned about what was going on.

That fitted in with what a Minister told me when he said that when he read reports he realised that there was fraud. He wanted an inquiry but it was not possible to have one because the Governor of the Bank of England got at the Prime Minister before anyone else could.

I understand now why the Prime Minister and the Chancellor of the Exchequer have been unhappy with attempts to expose what has been going on by people such as Mr. Abdul Shamji. What do we know about Mr. Shamji and what are the objections that the Prime Minister and the Chancellor of the Exchequer have to us talking about him in the House?

We know that in the late 1950s Mr. Shamji was engaged in gold and diamond smuggling in the Belgian Congo, in the area which is now on the Ugandan-Zaire border. We know that a few weeks ago a High Court judge, Mr. Justice Hoffmann, called him a liar when making orders against his company amounting to £21 million. We know that he supplied women and flats to bankers, including Mr. Ian Fraser, of Johnson Matthey Bankers. We know that an Asian woman had to seek protection when she found herself and her family under threat by Mr. Shamji's mobsters because she would not hand over documents relating to JMB.

We know that Mr. Shamji contacted one of my informants and said that he would not expose borrowers and bankers at JMB if I would keep him out of the frame. We know that Mr. Shamji was fined in Scotland recently for breaches of the Companies Act. We know that he stole $3 million in relation to Gomba Exim. We know that with the help of his family he burgled his own safe deposit boxes in London. We know that, when the liquidator went in and some of the safe deposits were eventually opened, works of art were found and there was no record of them in the books. This all relates to the liquidation of JMB.

We know that Mr. Shamji had ships on the high seas which had inadequate lifeboats. We know that when Touche Ross and Co. provided a record of his accounts, it was clear that he was not paying tax. We know that Mr. Ivor Fallon, the deputy editor of The Sunday Times, obtained certain favours from Mr. Shamji and that in return The Sunday Times wrote some false stories about him.

Why do not the Prime Minister and the Chancellor want those things to be exposed in the House? First, it appears that Mr. Shamji is their kind of person; he is actually one of them. Secondly, it appears that he has given a lot of money through his companies to Conservative party political funds. When I was in Florence recently, someone asked me what the difference was between the British and Italian political systems. I replied, "That is easy. In Italy members of the Mafia are brought to trial, but in Britain they become vice presidents of the Conservative Small Business Bureau."

I move to the third inhabitant of No. 10 Downing street who is concerned with massive fraud in the City undertaken by the largest bank in Britain, the National Westminster bank. The matter concerns Mr. Denis Thatcher who is one of the beneficiaries. The victim, who is in the Strangers' Gallery today, is Mr. Alfred Cullinane, and the fraudster is the National Westminster bank. Denis Thatcher owns 3,000 shares in Attwoods, or did according to the last company accounts, and is stated to be a vice-chairman of Attwoods, a firm which deals in sand and gravel and waste disposal. When that firm was recently indicted by the grand jury in the United States of America for price fixing, someone in the company was at pains to point out that it had no connections with the Mafia.

On 30 June 1983 Attwoods took over E.F. Philips, a firm which held 40 acres of land. Not to put too fine a point on it, Attwoods received stolen land. Attwoods and those who have any interest in it are to some extent living off the ill-gotten gains of the National Westminster bank and its wholly owned subsidiary, Lombard North Central.

I have studied bundles of documents and court cases which have finished, and I have found that the conduct of both banks has involved dishonesty, deception and conspiracy with a leading firm of accountants, Thomson McLintock, to destroy Alfred Cullinane's business, and the swearing in the High Court of a false affadavit by a bank manager of the National Westminster bank, Mr. Brian Thomas. The banks stole Mr. Cullinane's land and sold it at a fraction of its value to E.F. Philips, which almost immediately disposed of a dubious title to Attwoods.

Alfred Cullinane is a brillant engineer who developed a new resin coating process. He should be a millionaire today but instead he is a pauper. Over a 15-year period, his life and his business have been destroyed and most of his friendships have been broken up; his wife Eileen has been subjected to cruel agony. He is a 74-year-old man who has tragically been the victim of a land fraud. As it happens, the Prime Minister's husband is one of the beneficiaries of that land fraud. The House should ask what the National Westminster bank, Lombard North Central, and the Prime Minister and her husband intend to do about it.

In 1965 the National Westminster bank loaned Alfred Cullinane a small amount of money and took a charge on some 500 acres of his land. In 1971 Alfred Cullinane wanted to expand his business and asked the bank if it would release 63 acres of that land, valued at £1·2 million, upon which the machinery for his resin coating process stood. In return for that he told the bank that he would give it an extra 40 acres, valued at £800,000, on which it could put a charge. The bank agreed to put the charge on the 40 acres of land, but it did not release the 63 acres which it had promised to Mr. Alfred Cullinane.

When Mr. Cullinane won a case in the Court of Appeal in 1982, the Master of the Rolls, Sir John Donaldson, was bitterly critical of the conduct of the National Westminster bank. He said that when the bank discovered that it had not released the 63 acres of land it said, "Whoopee, we have got another of Mr. Cullinane's assets." In 1977 Mr. Cullinane's business had been ready to expand, but from that time on the National Westminster bank and Lombard North Central decided not to provide him with any working capital but to pull the plug on him and consciously to destroy his business.

In 1978 Lombard North Central suggested to Thomson McLintock that it should prepare an independent report and that Mr. Cullinane should meet half the cost of preparing the report. Unknown to Mr. Cullinane, the firm prepared a confidential report — I have seen the full report — for Lombard North Central. It presented a slightly different report to Mr. Cullinane and at the same time it offered to help the bank destroy Mr. Cullinane's business. A High Court judge subsequently described that report as not being worth the paper it was written on.

Even more amazingly, while the Court of Appeal was dealing with the case in 1982, Lombard North Central was actually in the process of selling off the 40 acres of land involved in the court case to E. F. Philips, which almost immediately sold it to Attwoods. I find the conduct of E. F. Philips and Attwoods in buying the land at that time, with the litigation in progress, most extraordinary. The title which passed was almost certainly fictitious and false. However, if one is getting a bargain at basement prices, presumably one does not ask too many questions. Perhaps I should point out that by that time Lombard North Central had obtained a charging and possession order on the land on the basis of the earlier shenanigans.

So the largest bank in Britain, with offices in the centre of the City, was responsible for one of the most cruel frauds that we have ever seen. It was not a monetary fraud. The victim is in the Strangers' Gallery. If Conservative Members want to talk to him, I invite them to do so after the debate. On 9 August 1984 Alfred Cullinane wrote to the Prime Minister — I have a copy of the letter — to explain her husband's involvement. She never even bothered to reply. I find that slightly odd.

There are two other odd circumstances in the case. In 1977 a firm called Steetley had agreed to come in with Mr. Cullinane. At the last moment, for reasons no one has been able to find out, it dropped out. Steetley had someone on its board concerned with the National Westminster bank; also, the chairman of Steetley was Lord Boardman, who is today the chairman of the National Westminster bank.

Perhaps even more extraordinary, in 1984, in a letter to Mr. Cullinane — again I have the letter here — a Katangan mercenary, Mr. Einar-Cynewolf, alleged that a Mr. Arthur Young, a regional director of the National Westminster bank, had asked him to kill Mr. Cullinane. Mr. Cullinane sent the letter to Dorset police. The investigation by the police was indeterminate because Arthur Young died. My investigation is complete. I assure the House that no contract was taken out to kill Mr. Cullinane, but we can imagine the pain that that caused to Mr. Cullinane and to his wife. I shall write to Dorset police so that they may deal with the Katangan mercenary as they think fit. My evidence is conclusive. I discovered the facts only on Friday. I immediately telephoned Mr. Cullinane and I shall inform Dorset police. Perhaps Lord Boardman and others concerned with the case will be grateful that I have gone to the trouble to solve that riddle.

I have raised the matter in the debate because the National Westminster bank wants to bankrupt Mr. Cullinane. Then he could not go back to the courts to seek redress on all the curious events so that he may enjoy life in the future. The creditors want to do that on Monday.

Although Mr. Cullinane is 74 years of age, he is very articulate. I might add that he is a Tory, and a millionaire twice over. He has been reduced to a pauper by Britain's biggest bank which would like him to die.

Mr. Alfred Cullinane should not be made bankrupt, nor should he die. The National Westminster bank, Lombard North Central, Attwoods, Denis Thatcher and perhaps even the Prime Minister should use their influence to see that Alfred Cullinane and his wife Eileen have a decent future. We should regulate the City, but in the end it is the ideology that counts. Those at the top of the British establishment bear a heavy responsibility if they produce an ideology that allows the National Westminster bank to act in that way.

Photo of Mr Anthony Nelson Mr Anthony Nelson , Chichester 5:29 pm, 12th March 1986

The hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) seems to make new revelations whenever he speaks on this subject. I have no complaint about his right to do so, using the privilege that we have to expose particular matters, but as none of us are privy to the details of this case, we are not in a position to comment on his allegations. It is, of course, open to the hon. Gentleman to decide whether he should make statements outside the House that are similar to those that he made in the Chamber today.

I return to the thrust of the debate, and should like to pay a compliment to my right hon. Friend the Chief Secretary. He struck the right balance in recognising that there are problems with the development of new activities in the City and with the scale of investment and banking transactions. It is right, too, to recognise the City's pre-eminent contribution not only to our national income and to our balance of payments, but to employing people and to invigorating industry in this country. The City has an outstanding record that has been succoured by many of the policies introduced by the Government since 1979. In the forthcoming Budget I hope that there will be yet further measures to liberalise those talents and to promote the profitability not only of the financial services industry in the City but of the manufacturing and services industries that it sponsors.

However, it is no part of my remit or, perhaps that of my hon. Friends to kill the goose that lays the golden egg. In considering very technical reforms and changes in the City, whether to the banking sector or to the investment markets, we must recognise our difficult but proper responsibility to strike the right balance between ensuring that the profitability of enterprises making such a valuable contribution to our economy are not in any way prejudiced.

A banking review is being conducted. I have long felt that the Banking Act was defective in the tiered system that it set up. It is sad that it took the revelation of a financial default to expose that. However, I am glad that we are to return to a much more rational basis for the supervision and authorisation of our banks.

I also welcome the fact that the Government have announced an inquiry into Lloyd's. As I have argued before, that is preferable by far to its inclusion in the supervisory framework of any Bill that the House may be considering. The sober assessment of the review, and the consultation that will presumably ensue, together with the opportunity that many of us will take to give evidence to Sir Patrick Neill's committee, will ensure that any recommendations that follow, in the form of a private or public Bill to replace the existing Lloyd's Act, or in the form of new regulations promulgated by the Lloyd's ruling council, will stand a far better chance of working and of ensuring that Lloyd's regains the prestige and international reputation that it so richly deserves. In that way, we may be sure that Lloyd's will continue to make a contribution not only to the security of many policyholders and industries that depend on it, but to our national income and balance of payments.

I wish to concentrate on the regulation of the investment markets. The Government have made significant progress in responding to public and parliamentary opinion, and in proposing a regulatory framework that will ensure that many problems that might arise after the big bang do not, in fact, do so. I fear that after the big bang a good deal of shrapnel will fly around, that many people will be injured, and that the streets of the City, which are paved with gold, may also be covered in blood. That may be a rather lurid metaphor to use, but we have a heavy responsibility to get that regulatory framework right. That is within our competence.

I say to Opposition Members and particularly to the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) that much of their dogmatic prejudice, as displayed in their speeches, serves only to fuel the view that the Labour party has moved on little since its ideological views of the 1960s and 1970s. We should be concentrating on those things that Parliament can do, and that are within its competence. For example, we could set up the right framework for the supervision— not the regulation—of the investment industries in this country. I include in that the broad remit of investment activities from the best known broking of stocks and shares right through to more novel markets, such as the futures markets. It is important to get it right, primarily because many more people now have a propensity to save and invest and will, for the first time, be investing, and responding to the overtures of people who knock on their doors, advertise through the press, or invite them by mail to use their services.

In those circumstances, people will be vulnerable. However much we may preach the dictum of caveat emptor, people will undoubtedly lose out sometimes, not only because of their poor investment choices but because there may be bad administration and trusteeship of their funds. We cannot provide by statute any absolute protection against that, but we must do our best to ensure that they are at least provided with information, that the people with whom they deal are authorised and competent, that they have the ability to appeal and to seek redress and restitution if they have been improperly dealt with, and that the system is sufficiently flexible to allow for changes in these markets. The framework provided in the Financial Services Bill achieves that. There is one major area in which change is necessary, however. A slight shift in the balance would ensure that we had a durable and flexible system that would enjoy all-party support rather than sectarian governmental, and possibly only partly governmental, support. My colleagues will know that I refer in particular to the status of the Securities and Investments Board which is now implanted in the Financial Services Bill as a statutorily recognised body.

In the press, to some extent in the City, and also outside the House, there has been a misunderstanding about the implications of that change. The change does not in itself go very far, but it statutorily recognises a body to which, to all intents and purposes, the Secretary of State for Trade and Industry intends to delegate his powers. Like me, he has an interest in ensuring that it discharges its functions effectively. The legislation will ensure that the Securities and Investments Board has a place in law and statutory authority to do its important job.

A statutorily recognised Securities and Investments Board will act as a much better defence for the future security of self-regulation in the City than a rather uncertain system of discretion and flexibility which lies in the hands of the Secretary of State for Trade and Industry. A future Government of a different political persuasion might easily sweep aside—if the amendment made to the Bill is reversed—the fragile structure of supervision provided in the Bill, as first introduced.

As amended, the statutorily recognised Securities and Investments Board will ensure that we have a bulwark for the system of voluntary self-regulation among the various bodies such as the stock exchange, the Association of Futures, Brokers and Dealers or the National Association of Securities Dealers and Investment Managers, and that we have the independence of a statutory body. It will thus be less subject to the influence of a Secretary of State in any future Government. To that extent, a body recognised in law, with a clear statutory responsibility and accountability, is a preference that the House should consider with an open mind.

There are political arguments for making a change such as this in a way which takes account of what is happening in other sophisticated financial markets. In a world where people can choose in which market they buy and sell their shares, and where they seek common standards of freedom and fairness in the discharge of their contracts and orders, it is important that we pay some regard to the systems that work and that have been introduced elsewhere.

Many of the countries that have recently charged or are changing their systems are introducing statutorily recognised bodies along the lines of the one proposed by the Standing Committee considering the Financial Services Bill. Furthermore, while some Members on both the Government and the Opposition Benches may be suspicious of all-party agreement on these matters, or indeed of the following of a middle way, I believe strongly that in that way we would serve the practitioners in the City and investors outside who want, and are entitled to expect, a durable system which will not be subject to change at the whim of some future Government. We are much more likely to have such a system if the Bill, when it returns to the House, proceeds with all-party support than if we have divisions not just across the Floor of the House, but in the ranks of the Tory party.

We shall have such division, because I will not be a party to a flimsy system that fails to match up to either the pledges that I made to my electorate at the last election or to what many of us have argued for in debates on this subject.

As it stands, such a body, recognised in law, would not amount to the full panoply of an American-style Securities and Exchange Commission. It is for that very reason that we have sought this limited path of recognition and authority for the Securities and Investments Board. There is no question of that arising, in any case, because the system, for example, of administration of takeovers in this country is largely outside the remit of the Financial Services Bill; and the history of the Securities and Exchange Commission in the United States, built on the Securities Act of 1933 when there was no system of self-regulation in the United States, is radically different and not comparable.

For that reason the rather alarmist approach of previous Ministers at the Department of Trade and Industry and of some commentators in the market towards a statutory commission, for fear that it would emulate the SEC, is misplaced. What is correct is to recognise that opinion in the City and among the public at large has moved not only quite markedly but rapidly on this matter. Most progressive and responsible opinion in the City of London at present recognises either that a statutorily recognised Securities and Investments Board is needed now or that, if it is not needed now, it is inevitable anyway.

If that is the case, surely we ought to grasp the nettle. We ought not to lag behind public and practitioner opinion, we ought to be ahead of it. We can already learn from the experience of the Lloyd's Act 1982. When the Lloyd's Bill was going through the House, and when novel and quite controversial amendments were proposed to that Bill, many of us were castigated by opinion outside, in Lloyd's and in the City, for going too far, for imposing unacceptable changes, yet no one would now seriously suggest, in the light of events, that the Lloyd's Act has gone too far; in fact its provisions are being reviewed.

It is a fateful thing to fall behind public, practitioner and investor opinion by enshrining in law a framework which fails to match expectations and is unlikely to measure up to the challenge.

I turn to a few technical ways in which statutory recognition of the Securities and Investments Board, quite apart from the political arguments that I have adduced, will help it to discharge its responsibilities. It should, first, be able to investigate insider dealing. Insider dealing is an outrageous practice which materially and prejudicially affects the interests of shareholders who are not privy to information, and can involve substantial losses for individuals and shareholders at large. While the Companies Act 1981 made it a criminal offence, the definition of insider dealing had inevitably to be narrow in order for it to be an acceptable criminal offence.

Thankfully, however, the stock exchange and other organisations, in their definition of insider dealing, went further than the Companies Act. This is just one example. When we have established the Securities and Investments Board as a statutory body, there will be every reason for it to have the right to investigate insider dealing. Not only is it not going to do so, it will not be allowed the powers to do so. Yet most people outside the House think that such a body ought to have, and will have, the powers to do so. And so it should.

Nor will the board have the power to investigate unauthorised investment businesses. Why not? Most people outside the House feel that we are instituting or ought to institute a system which will look not just at the good boys and their day-to-day practices, but at the bad boys and whether they are involved in activities in which they should not be involved. The fact that the Securities and Investments Board cannot investigate whether an unauthorised business is acting in such a way, cannot ask unauthorised concerns or people for information about tied agents of investment insurance companies, or indeed èsk authorised businesses, is a defect that we ought to put right if we are serious about investor protection.

In this, and a number of other limited ways, we can ensure that not only will we have a framework of a technical and practical kind for fulfilling the tasks set for the board, which I believe all Members would like to see, but that we will be sending the right message to operators in the City and outside and to the country at large that we mean business about investor protection, and intend to stamp out some of the worst practices that we have seen.

Photo of Mr Hugh Dykes Mr Hugh Dykes , Harrow East

Would not my hon. Friend agree that, with our hon. Friend the Member for Beaconsfield (Mr. Smith), he has done a great service in highlighting this in Committee?

Photo of Mr Ernest Armstrong Mr Ernest Armstrong , North West Durham

Order. I do not know whether the hon. Gentleman was here, but Mr. Speaker reminded hon. Members that they must not discuss proceedings in the Committee.

Photo of Mr Hugh Dykes Mr Hugh Dykes , Harrow East

I was in the Select Committee at the beginning of the debate, Mr. Deputy Speaker, and was not aware of that. I apologise. Getting away from that, more and more people in the City appear to support the line taken by my hon. Friend, including members of the stock exchange. As my hon. Friend was beginning to imply earlier on, it does not change the intrinsic basis of self-regulation, but it does provide the extra reserve powers for a body that would be more powerful because it was lodged in statute, so that it could thoroughly investigate, and turf out troublemakers if necessary.

Photo of Mr Anthony Nelson Mr Anthony Nelson , Chichester

I am obliged to my hon. Friend because he has said succinctly and persuasively what I feel. Like him, I have up to now felt that the Securities and Investment Board was likely to be not so much a toothless tiger as a chained tiger. I do not suggest that if it is statutorily recognised we shall have a wild animal on the loose, but we shall have a body that will be equipped, empowered, recognised and sufficiently accountable to fulfil the remit for which there is a consensus in the House.

With that limited reservation about what I understand to be the Government's present intentions, I reiterate my belief that this Government have done more than any other to ensure that we have a responsible, free and fair market in the City of London, which continue to contribute to the vibrant prosperity of our national income. If the Government will only see their way to making this rather limited but absolutely vital further move, they will enjoy a consensus and a support not only throughout the House but among a wider and deserving public in our constituencies.

Photo of Mr Tam Dalyell Mr Tam Dalyell , Linlithgow 5:50 pm, 12th March 1986

The hon. Member for Chichester (Mr. Nelson) has put before the House a thoughtful, well-argued and well-presented case. He will, I hope, forgive me if I do not answer him, because it is to the speech of the right hon. and learned Member for Hexham (Mr. Rippon) that I should like briefly to turn.

I wish not to embarrass the right hon. and learned Gentleman, but if, when I first arrived here in 1962, I had been asked to put money on who would be the leader of a Conservative Government some 24 years later my money would have been on the right hon. and learned Member for Hexham, who was then, I believe, the Member for Norwich, South. I have always believed him to be, and I still believe him to be, a deeply serious man. Whether or not one agrees with his opinions, they are always put forward in an informed way.

Therefore, I say both to Conservative politicians and to those in the City that they had better read the vehemence with which the right hon. and learned Gentleman made his criticisms this afternoon. It was a devastating intervention, and in my view a justified one. If it had come from this side of the House, the City might have said, "Oh, well, it's just the Opposition at it again." It is not the Opposition at it again. There is real worry in the country. To borrow the phrase of the right hon. and learned Member for Hexham, if there is another scandal, or series of scandals, the top will come off.

I have never been guilty of extravagant criticism of the City of London, and I say bluntly to my hon. Friends the Members for Bolsover (Mr. Skinner) and for Hackney, South and Shoreditch (Mr. Sedgemore) that I have some friends in the City. But they must take heed of what the right hon. and learned Member for Hexham and other serious hon. Members have said this afternoon. I did not hear Conservative Members giving very much support to the City of London.

I shall stick briefly to one subject that concerns me greatly, the situation faced by the electronic components industry in this country. I say to the Chief Secretary to the Treasury that the industry, which includes firms such as Hewlett-Packard and Ferranti, has briefed us that, compared with its French, American and Japanese competitors, it does not receive anything like the help from the financial institutions of this country that its foreign competitors receive from theirs.

Electronic components are the building blocks from which all electronic equipment is assembled. Electronic components are increasingly the key to the efficiency and competitiveness of manufacturing industry across the board. Electronic components are essential to communications, finance, insurance, retailing and all service industries. Jobs in all these industries, now and in the future, depend on electronic components—half a million jobs in electronic equipment industries, millions more in manufacturing and service industries using electronics, not to mention some 70,000 jobs in the components industry itself. There are jobs in almost every constituency up and down the country.

Britain must have a strong components industry. Without it, electronic equipment makers would be dependent on overseas suppliers, often their direct competitors. British firms would be second in line for delivery of the latest components. They could suffer from political control over the export of technology. Incidentally, our normal defence capability would be at risk.

Above all, our future ability to provide jobs for British men and women would be undermined. The United Kingdom's share of the vast and growing market for components is static. Imports have increased faster than exports. Our balance of trade is heavily in the red. Why is this? What can be done? What can be done concerns, in large part, the City of London. World markets are distorted greatly to Britain's disadvantage — by structural factors, by deliberate policies of foreign Governments who have understood the critical importance of electronic components to their economic future. The United States has a vast, largely captive, market supported by massive spending on defence and space. The Japanese insulate their home market from competition, and from a basis of strength, particularly in consumer electronics, target their attack on overseas markets.

Equipment and component producers are dependent on one another. It is in the equipment industry's best long-term interests to support the component industry by discussing future needs in good time and looking first to British suppliers. We seem to make these decisions hastily, on an ad hoc basis and higgledy-piggledy.

The attitudes of the Japanese and United States financial communities differ from those of the City of London. They support high technology, they venture capital at high risk and they look for returns in the long term. Normal investment guidelines hardly apply to high technology components. Competitor nations realise this. In 1984, the West German government's support for investment in micro-electronics was 60 per cent. more than ours, and that of the French Government 400 per cent. more than ours. The German and Dutch Governments are providing £119 million to two firms to develop and make just two devices, compared with the British Government's £120 million over six years to the whole micro-electronics industry. All our competitors' public procurement policies are strongly nationalistic.

The British Government must help to enable our industry to compete on more equal terms by consistent policies that help British industry. Not only must the Government give direct support to micro-electronics on a scale more like that given to our competitors, but they must not put existing jobs at risk by subidising foreign companies to manufacture products which our existing industry can supply. The City has to understand this, because industries, particularly those in the north, will suffer dreadfully if it does not. Not only must the Government use public procurement to support, not undermine, our industry; they must also understand that a healthy electronics components industry is fundamental to our performance as a country. The City has a major contribution to make. Therefore, I hope that the City and the Government will get together on this.

By good fortune, I have tomorrow been allocated a Consolidated Fund debate on the related question of the strategic defence initiative and SDI research and the British Government's attitude to what is seen, by some, as an American crock of gold—albeit illusory. This has to be taken in conjunction with the fact that our capital markets are not nearly so helpful to our industries as the Americans are to theirs. In these circumstances, we have to be wary about Americans coming over here, like the unmentionable Mr. Clarence Robinson.

Frankly, this is all about the way in which Americans, under the guise of making security checks, can take the most advanced developments in British industry, not least in optical electronics and the like. This has come about partly because access to finance in the United States and Japan is so much more favourable than it is in Britain.

Without, therefore, being strident about it, I plead with the City first to take into account the problems of the electronics industry that I have mentioned; and, secondly, to cast a critical eye over what is happening in this important field of SDI research and a somewhat bewitching American offer.

Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield 5:58 pm, 12th March 1986

This debate is not just about the City of London but about the financial services industry as a whole. We have already heard about the number of jobs in the financial services industry. They are in excess of 1 million, a number that has risen rapidly during the past few years. We have also heard from my right hon. Friend the Chief Secretary to the Treasury about the overseas earnings that are generated by the City. In 1984 they amounted to over £6 billion. That is another figure that has risen rapidly in a very short period. All hon. Members know that the City serves as the primary capital market for industry and commerce. As my right hon. Friend said, last year new issues exceeded £6 billion.

The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) referred to current salary levels in the City. I wish to make a few comments about that matter. It is obviously a period of rapid change and great opportunity in the City. The world's leading investment houses are taking advantage of deregulation to enter the London market. As a result, it is a period of extremely fierce competition for business, and, because it is a people business, for people. Inevitably, in those circumstances demand exceeds supply, and salaries have risen accordingly to levels which seem difficult to justify in absolute or comparative terms. However, they are entirely justifiable in market terms because nobody pays a higher salary than necessary to attract the person whom he wishes to employ. After the big bang there will be a major shakeup. It is not to use particularly lurid terminology to talk about there being blood on the floor because that is exactly what will happen, and salaries will fall to more sustainable levels quickly in 1987–88.

Obviously, it is critical that at a time of intense competition and major upheaval we should have adequate regulation of the financial services industry. That will both improve prospects for investor protection and act as positive encouragement to the development of markets. That is why the Government's Financial Services Bill is so welcome. It provides a comprehensive framework of statutory and self-regulation designed to meet both those objectives. As my right hon. and learned Friend the Member for Richmond, Yorks (Mr. Brittan) said of the City on Second Reading in January: there must be no doubt about the integrity of its institutions because once that doubt takes root it is only too easy for the customers of the City to take their business elsewhere."—[Official Report, 14 January 1986; Vol. 89, c. 940.] I suspect that he was referring to businesses which operate in the City, but it is equally true of the institutions that are being set up under the Bill's framework. The key institution to which my hon. Friend the Member for Chichester (Mr. Nelson) and others have referred is the Securities and Investments Board. The SIB will authorise some investment businesses directly, will recognise self-regulatory organisations and professional bodies, and will make model rules for the conduct of business which will apply to all investment businesses. In other words, it will have an absolutely pivotal role. There must be no doubt about its integrity or credibility, yet at present it is envisaged that it will be a private company limited by guarantee. By virtue of its status some powers which should logically be delegated, cannot be. For example, while it would be possible for the board to investigate the affairs of authorised investment businesses, it could not investigate the affairs of investment businesses which are not authorised. That is clearly a major anomaly arising from the board's status.

The Government argue that the board's private status gives the whole structure a flexibility that would otherwise be lost, but that flexibility is largely illusory in practice. Furthermore, those provisions that give it flexibility undermine its independence, which, in terms of its integrity and credibility, is far more important.

My hon. and learned Friend the Under-Secretary of State for Trade and Industry said that the most important and fundamental disadvantage of a statutory commission involves resources. Recently, to prove his point, he gave some examples of commissions which have been set up in other countries. He said that, whatever the theory of the matter, in practice resource constraints always have an impact on public sector statutory bodies. Unfortunately, he completely overlooked the fact that we have a perfect example of such a statutory body, funded entirely by fees and under no resource restraints. It was established by the Government in the Local Government Finance Act 1982, and is the Audit Commission. My hon. and learned Friend was a little thrown by that information since he had said that the most important and fundamental disadvantage involved resources. So when the matter was raised again he shifted his ground and sought no longer to rely on the resources argument, but instead relied on the flexibility argument.

I believe strongly that the status of the Securities and Investments Board is important. I shall not rehearse all the arguments that my hon. Friend the Member for Chicester has already put so eloquently to the House this afternoon. Four points are absolutely basic. First, people in the City believe that a statutory commission will eventually come about. As that is so, should we not recognise the inevitable, and take account of it in the Financial Services Bill? Secondly, there is considerable support among Conservative Members for a strengthening of the board, and we have seen some evidence of that during the debate. Thirdly, my hon. Friend's example of the Lloyd's Act is illuminating. Only four years ago the Bill was going through the House and people were saying that it went too far. Now, presumably, nobody would say that, and most would expect the Neill inquiry to produce evidence to support the strengthening of that Act. Finally, there is the possibility of all-party co-operation. That was one of the major issues to which the right hon. Member for Sparkbrook drew our attention on Second Reading. He drew attention to a number of issues, including the exclusion of Lloyd's, but that issue was the important one and the main reason why he divided the House.

If we could reach agreement, and the City could see that there was all-party agreement for the measure and the status of the board, it would strengthen the Act-to-be and the regulations that would come afterwards. People would know that a message was going out from the House that we meant business. Earlier, I was criticised for having interests, and friends in the City, but I feel strongly that it is in their interests as well as those of investors, that we should make these changes. We have dual objectives: investor protection and market development. Therefore, it will be in their interests to have a strong system of regulation, as many of them recognise already. I hope that the Government will provide it.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee 6:07 pm, 12th March 1986

Two or three features of the debate are fairly interesting. One is that hardly a speech of any duration from a Tory Member has supported the Government's line. Yet the Minister said that the Labour party was wrong to table the motion. A succession of Tory speeches have begged the Opposition for consensus. In other words, Tory Members accept that something is wrong and would like us to do something about it together. I hope that my hon. Friends on the Front Bench will not listen to their pleas when they say, "Let us find a sensible consensus—a sloppy approach—to the City, because then we shall play ball and everything will be all right."

The Government would like all-party agreement on City matters, but not on finishing off miners, or getting rid of millions of people in the industrial belts of the north, the midlands and even parts of the south-east. In those cases they want to be brutal and to put people on the scrap heap. Tory Members do not say to Labour Members, "Is it possible to reach all-party agreement to reduce dole queues?", or, "Can we reach all-party agreement not to increase prescription charges?" Yet today at least three of them have been bleating and asking to find such a middle way.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

Can I help my hon. Friend by saying that Conservative Members are calling for what we want and for what we are asking? It is not that they are seeking a compromise; they accept that there is a genuine need for a statutory commission. Therefore, I ask my hon. Friend not to see it so much as a compromise.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

I am afraid that I cannot agree with my hon. Friend. He sits on Select Committees which have a sloppy all-party approach to everything. I do not get involved in them. I would not accuse my hon. Friend of being a member of a Select Committee in order to go on all-party trips to the Caribbean in the middle of winter because he is not one of those who would do that, but there are plenty who would use them for that purpose and for many others. I shall not get mixed up in the idea that somehow we should bail out the Government because the voters in Fulham are fed up to the back teeth with hearing about the scandals in the City, whether it be from the Back Benches, the Front Benches or anywhere else. Not likely.

The debate has been characterised by another feature as well. I think that I will carry some Conservative members with me when I say that there has been nobody here from the Social Democratic party. Yet I happen to know that the Conservatives regard the SDP as a bit of a problem in the south-east. I do not know why. Throughout the debate not a single member of the Social Democratic party has been present and there has been only one Liberal—Paddy Backdown. Yet Mr. Speaker and every hon. Member will recall when the Leader of the Social Democratic party came here at Question Time and demanded a debate on the City week after week. But when it comes to the hard grind of carrying that out, where is he? He is trying to woo the voters in Fulham—I suppose—with the rest of them.

Photo of Mr Paddy Ashdown Mr Paddy Ashdown , Yeovil

There is no point in your trying to do it.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

I have been out in Fulham and there is no problem there. I can assure the hon. Gentleman, who speaks for the Liberal party on occasions, and sometimes for the Social Democratic party as well—he is trying to do it today because he has had some advice from the economic spokesman for the Social Democratic party who wrote his speech—that I do not need him to tell me what will happen in Fulham. The people in Fulham know—

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

No, it does not do that. Ask the people in the NUM and they will tell you. They will find that fanciful in the extreme. Just look at my voting record on an incomes policy.

Photo of Mr Paddy Ashdown Mr Paddy Ashdown , Yeovil

The NUM tells the hon. Gentleman what to say.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

I can tell the hon. Gentleman what I am not doing. I am not doing a Yankee speech for Sikorsky like he did. That is what I am not doing. I am not selling off British interests to the Yanks across the water and then coming in here mouthing about the sell-off of British Leyland. The man is a schizophrenic. He does not know whose side he is on.

Photo of Mr Paddy Ashdown Mr Paddy Ashdown , Yeovil

Will the hon. Gentleman give way?

Photo of Mr Paddy Ashdown Mr Paddy Ashdown , Yeovil

The hon. Gentleman is frit.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

I am not frit. The hon. Gentleman is in the pocket of those people in that company. I wonder how much money the hon. Gentleman has made—

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

Order. This is a debate about the City.

Photo of Mr Paddy Ashdown Mr Paddy Ashdown , Yeovil

On a point of order, Mr. Speaker. Is it not a matter of some considerable concern when an hon. Member makes an accusation, such as that which the hon. Gentleman has just made, that I may have made some money out of that particular deal? Is that not a matter upon which we need your guidance? May I repudiate that unequivocally and say in passing that it is strange to find the hon. Gentleman on the same side as the large financial institutions on the Westland issue and against the unanimously expressed view of the entire work force?

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

Order. I am sure that the House will agree that the hon. Member for Yeovil (Mr. Ashdown) is honourable, as indeed is every other Member.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

Let me remind the hon. Member for Yeovil (Mr. Ashdown), who says that I was on the side of some consortium, that I made it plain in the House that Westland should not have gone to the Common Market consortium or to his friends in America; it should have been nationalised in the same way as Rolls-Royce was in 1971 when it ran into trouble. That was the answer and that would have provided more jobs for the workers in Yeovil than the tinpot system that the hon. Gentleman backed. In two or three years they will find out the errors of their ways.

Photo of Mr Paddy Ashdown Mr Paddy Ashdown , Yeovil

Fifteen hundred to one.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

The hon. Gentleman is like the rest of the Tories. He is more concerned about looking after the casino economy than looking after those sections of British industry that have been hammered unmercifully throughout the past seven years.

The debate has been about the fact that the Government have at last acknowledged that in the pursuit of so-called monetarism in the industrial belts of Britain they have allowed the City to ignore market forces and have gone to the extent of intervening in eight or nine different ways so that the City did not carry out the philosophy of the Prime Minister.

We have heard so much about industry not going forward with a begging bowl, yet when it comes to the City the Government do not practise monetarism at all. They never have done. They have rigged the market from beginning to end. The easiest way to rig the market in favour of the City and the bankers is to have high interest rates in which the margin for error is so large that they are bound to make money. That is why bank profits during the past five or six years have been massive in comparison with previous years. That is one of the ways in which the City has never had to practise monetarism like the rest of British industry, the nationalised industries, local government services and all the rest.

The Government have managed to rig the City by intervening on a massive scale when the banks have run into trouble. I do not want dwell on Johnson Matthey Bankers, but the fact is that during that period when the banks were bailed out, especially Johnson Matthey with £100 million of taxpayers' money, the Government were telling the miners that the pits could not be kept open because they were uneconomic. The Government have rigged the market in favour of the City by encouraging the fraud squad to do nothing about following up all the crooks that have been making millions of pounds.

I said earlier that two people from the PCW syndicate in the City—Peter Cameron-Webb and Peter Dixon—are both living in the United States and have got away with £39 million. That is not my figure; it is what the Lloyd's investigation showed. A writ was served upon Peter Dixon a few weeks ago in America, but somehow or other our wonderful fraud squad cannot find that man in order to pursue this £39 million swindle. People on social security are hounded day in and day out by those people, but they cannot find people from the City.

Then there is the hiding of reports on the City. When the auditors went into Johnson Matthey Bankers there was a Price Waterhouse report. No Labour Member has ever managed to see what was in that report. Yet when it comes to Lambeth and Liverpool and an auditor goes in there over a matter of only £250,000 between 80 councillors, when it is not a matter of fraud at all but of supporting the services, what happens? The Government then encourage the district auditor and all their friends in the Tory courts to hammer those 80 councillors because they were looking after their own people.

The Government have rigged the market in favour of the City on privatisation to something of the order of £3 billion. They do not practise monetarism there. There was no monetarism involved in the privatisation efforts. They simply went in there and picked up money for old rope. The abolition of exchange controls also favoured the City. it did not provide jobs in Bolsover, Workington or Yeovil, but it provided jobs overseas and made more money for the City. About £50,000 million was involved.

The Government have rigged the City by giving it many privileges. There are no ballots in the City. Trade unions must conduct ballots on almost every subject under the sun, but when it comes to Lloyd's, the Government say, "It is only a betting shop. We cannot have laws in there. We will have a system of self-regulation. They are all honest men, like Members of Parliament." What a laugh. [Laughter.] Hon. Members laugh because they have got the message. They are considered to be honest men, yet they have been making millions for donkeys' years. My point is that, during the past seven years, they have been able to make money more easily. With real interest rates over and above the inflation rate and the highest that we have ever experienced, the City has made money hand over fist.

Hon. Members have talked about insider trading. Let us suppose that workers could play about with insider trading. Can one imagine a trade union being involved in something like that? The Tory press would hammer at it daily — [Interruption.] The hon. Member for Beaconsfield (Mr. Smith) should listen. He is one of those who have made money from the City, as has the hon. Member for Chichester (Mr. Nelson). The latter used to be called one of the Slater Walker young blades. What happened to Slater Walker? The Labour Government picked up the pieces of that secondary banking chaos, but did any people involved with Slater Walker have to pay? Of course not. But the miners have been victimised; 500 or 600 of them cannot find jobs. No one in Slater Walker had his knuckles rapped. Members of Parliament were attached to the myriad of unit trusts that spread from one continent to another. That is why they have been able to rig the market.

One of the strongest weapons used by the Government to rig the market in the City so that it need not practise the philosophy of monetarism and market forces, as the rest of the British economy is expected to do, is that one in eight Tory Members of Parliament is a member of Lloyd's and some of the others are names at Lloyd's.

Photo of Mr Paddy Ashdown Mr Paddy Ashdown , Yeovil

What about the hon. Member for Middlesbrough (Mr. Bell)?

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

He answers for himself. It is none of my business.

In addition, my investigations show that one in three Tory Back-Bench Members is connected with the City. Friends of the hon. Member for Yeovil also have connections with the City.

Photo of Mr Paddy Ashdown Mr Paddy Ashdown , Yeovil

There is one on the Labour Front Bench—the hon. Member for Middlesbrough.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

Listen to this, Paddy Backdown. The latest recruit to the City is the hon. Member for Stockton, South (Mr. Wrigglesworth), who is economic spokesman for the Social Democratic party. He has joined Barclays bank, which is noted for some of the most lurid practices in the dark alleyways of South Africa. The hon. Gentleman is joined with people who support the apartheid system which operates against the coloured millions in South Africa.

One in two members of the Cabinet has had connections with the City at some time. This debate will not receive the reporting that it deserves because the Tory press, by and large, supports the principles put forward by Conservative Members.

During the past few years, not only Members of Parliament have sussed out what is happening. The electorate has suddenly realised that the Government operate double standards — that they have been hammering the workers for seven years, depriving them of jobs, and pushing up prescription charges by 1,000 per cent., while the racketeers and crooks in the City of London get away scot-free. Despite all the rigging, the electorate is beginning to discover the truth. That is why, in Fulham, the Tory party can get ready for the first of many defeats, leading to a general election in which the vast majority of the people will send them packing, as they should have done a long time ago.

Photo of Richard Ottaway Richard Ottaway , Nottingham North 6:24 pm, 12th March 1986

I feel quite exhausted Mr. Speaker. It is worth remembering, when the hon. Member for Bolsover (Mr. Skinner) talks about the ease with which money flows among countries, how easy it was for the NUM to move its funds to Luxembourg and Ireland.

Fraud in the City did not start in 1979, when the Government came to power. The first modern fraud was probably the tulip fraud of the 17th century, which was closely followed by the South Sea bubble fraud. The latter was primarily remarkable for the way in which shares increased fom £129 in February to £1,000 in August and down to £190 a couple of weeks later. Many people made money from it and many people lost money. I am told that a major beneficiary was the Prince of Wales. The Prime Minister, Robert Walpole, made enough money to refurbish his stately home. The Chancellor of the Exchequer made about £750,000—this was in 1720. Unfortunately one person who is reported to have lost money was the Queen's physician, who lost £80,000.

If one considers the frauds that have taken place during the past 20 years under Tory and Labour Governments one realises that they are affected not by party politics but by human nature. In 1966, the Stock Exchange Council disciplined six firms for facilitating deals which could lead to tax evasion. They were engaged in bond washing. The Times of the day commented: Whoever is to blame in this unhappy chain of events, credit must be given to the Exchange for taking action to eradicate this form of tax evasion. That is a classic example of self-regulation at work.

The most celebrated fraud case of 1967 involved the Ceylonese-born business man, Dr. Emil Savundra. He was arrested in February 1967 and charged with forgery as a result of activities through his company Fire, Auto and Marine Insurance Co. After a long trial, he was sent to prison. That case caught the imagination of the then Chancellor of the Exchequer, the right hon. Member for Cardiff, South and Penarth (Mr. Callaghan), who expressed concern about illegal currency transactions on the free currency markets and pledged measures to reduce them. A day later, in a debate in the House, Mr. Edward Lyons, the former Member for Bradford, East, said that large scale fraud could be "today's fastest-growing industry." That is not a swipe at the Opposition. I mention it simply to show that fraud has continued for decades.

In 1969, several stockbrokers were hammered for conspiracy to defraud. In Scotland, stockbrokers were suspended for the first time in the history of the Scottish stock exchange. In 1974, the Dowgate and General Investments fraud involved £5·2 million. The most sensational case in 1974 and 1975 involved a former Labour Minister, Mr. John Stonehouse. It was announced that year that the head of Scotland yard's fraud squad was to lead the investigation. A series of financial irregularities surfaced, and Mr. Stonehouse was convicted.

In 1975, there were many frauds involving employees of the National Westminster bank, Barclays bank, property companies and gold mining companies. Metropolitan police detectives were found guilty of conspiracy to defraud. Slater Walker is yet another name that features in the history of fraud in the City.

In 1976, as a result of anxiety about fraud and other difficulties in the City, the then Harold Wilson set up a committee to investigate the financial institutions. Later that year, the City of London police annual report said that detectives had handled frauds worth £150 million in 1977, compared with £90 million the year before. The strength of the fraud squad had to be increased by nearly one quarter. The Commissioner of Police for the City of London, Mr. Peter Marshall, said large-scale fraud was an ever-increasing commitment.

I put these examples forward merely to illustrate that whatever party is in power there will always be fraud in the City. I have no difficulty in supporting the Government's amendment.

Photo of Mr Bryan Gould Mr Bryan Gould , Dagenham 6:30 pm, 12th March 1986

For good or ill, the City of London has dominated the news headlines for some months past and therefore it is appropriate to debate these matters today. Of all the issues that have been in the news, the most newsworthy has been fraud, although I agree with my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) that that is not necessarily the most important of the issues.

It was astonishing that the Chief Secretary's speech appeared to contain no recognition of the sense of outrage that so many ordinary people feel about the scale of City crime and about the greed of those responsible. They feel a sense of outrage not just on those very understandable grounds, but because of their accurate perception that those responsible for these massive crimes have largely escaped unpunished. The most remarkable feature of the past few years is that those substantial criminals against whom important charges could and should be brought have, in effect, escaped completely.

That is bad for public life in general and for the City's reputation, and it has earned for the City of London a reputation as the fraud capital of the world, which does us great damage. The failures that underlie that situation are partly a matter of a lack of commitment and resources —something that the Government very belatedly and very parsimoniously are attempting to deal with. As my right hon. Friend the Member for Sparkbrook pointed out, there is a sharp and rather poignant contrast with the way in which City fraud is dealt with and the resources devoted to social security fraud. We have made that point before. Partly it is a matter of a simple failure of the regulatory authorities. No one would dispute — it has been conceded even by the Chancellor of the Exchequer — that the Johnson Matthey case was a blatant example of the Bank of England simply falling down on the job.

More worrying that any of these factors is the fact that these failures and frauds have arisen from the prevailing climate in the City. It is a fact that they have arisen as an incidental to the whole business of self-regulation. That is what must concern the House, and it is to that that we are rightly addressing ourselves.

If one were to take Lloyd's as the paradigm of the way in which self-regulation works, we can see that the problem is not just that there are a few criminals on the margins — wherever there are large sums of money sloshing around people will try to break the rules. That is not the explanation of what happened at Lloyd's. The offshore arrangements, the reinsurance deals, the preferred syndicates, the baby syndicates — all those instruments which become the vehicles for fraud—were embraced and taken on by those at the heart of the Lloyd's establishment, who were tainted by those practices. At Lloyd's, the regulators themselves became tarnished by the very practices that they should have been outlawing. It is from that basis that the House should approach the whole question of regulating the City.

In case anybody should argue, as is sometimes done, that these are matters of history, let me emphasis, as my right hon. Friend the Member for Sparkbrook did, that we are still living in a climate in which fraud is endemic and insider deals are reaching epidemic proportions. The practices that accompanied the flotation of British Telecom shares show how easily the City institutions were prepared to cross that line between their professional obligations and their personal deals.

These are the matters that concern us, and form the case for effective regulation. It was that case that led to the request to Professor Gower to produce his report, and to the Financial Services Bill. However, I am afraid that the Bill shows that the Government have not yet appreciated that the concern about fraud was, long before the Financial Services Bill appeared, overtaken by another massive development, the so-called big bang.

That magnifies our concern and makes it even more important that we should get things right. The development was initiated and given an impetus by a deal done by the right hon. Member for Hertsmere (Mr. Parkinson) when he was Secretary of State for Trade, and Sir Nicholas Goodison, which was clearly meant to forestall change. As soon as a glimmer of change appeared, a frenetic pace of activity was engendered.

We now see developing before us a City of London that is quite different from the institution at which Professor Gower looked. It will be dominated by huge, international financial conglomerates where the technological changes will make it extremely difficult to keep track of what is going on. As a result, far from the old institutional safeguards, inadequate though they were, remaining in place to deal with problems such as conflicts of interest in the City of today and tomorrow, conflicts of interest will be there deliberately. They will be deliberately built in as part of the operation of the City of London. Sometimes, I suspect that even the City has not woken up to the new climate in which it will be operating.

All this makes it even more important that we get it right. The City will have to compete internationally—the blast of international competition will be fierce—and an important factor will be the level of investor protection that is offered. The other factors are speed, comprehensiveness, accuracy and price competitiveness. If we fail to meet the standards that are now taken for granted in most of the world's capital markets, we should not be surprised if business leaves London in large quantities. We have already seen, in the example of the collapse of the tin market, that when investors get their fingers burned, whatever the reasons, the knock-on damage is not just on the institution or market that is involved; it has consequences throughout the operation of the City of London. Let that be a warning.

I am afraid that, when the Government approached some of these problems when they introduced the Financial Services Bill, they did so in terms that showed that they were simply not willing to do what is needed, as has been said so often. The problem with that Bill is that when we asked the simple question, "Who is to regulate the City under its provisions?" there was no answer. This point was put extremely persuasively by the hon. Member for Chichester (Mr. Nelson). When we inquired further, we discovered that the body that is to undertake this vitally important role is the Securities and Investments Board Ltd., which is a private company. The fact that it is universally referred to as the Securities and Investments Board is Government propaganda, backed up by a provision in the Bill that will entitle that type of company to dispense with the word "limited" in its title. One can hardly have any more convincing argument about the Government's embarrassment over this than the fact that they have attempted to legislate specifically to conceal the fact that they are giving powers to a private company.

I am extremely disappointed—I make no bones about this, as it is well known to the Minister — by the Government's continuing opposition to putting in place a self-standing, independent and truly effective statutory body to undertake this task. In setting their face against that, Ministers are failing to go as far as even City opinion would now go. The City accepts, if not the desirability, the inevitability, of a statutory commission to undertake this major responsibility.

If the Government persist in their current attitude, the City should understand that it is the Government's intransigence that is condemning the City to a future of uncertainty and instability on this crucial issue. We would be obliged to legislate on that matter when we return to Government and we shall do that.

I would like to refer to another matter which has been in the headlines. That issue was raised extremely powerfully by the right hon. and learned Member for Hexham (Mr. Rippon). He referred to merger mama. I would like to add to the statistics that have been offered so far in the debate. The capital involved in takeover bids since the beginning of 1985—just over a year ago—approaches the £18 billion that we currently devote to the defence budget. That is a measure of the scale of what is happening.

Such a volume of mergers is an indictment of the Government's economic policy. It means that cash-rich companies have nothing better to do with their money—certainly they do not want to invest in new productive capacity—than to go hunting for victims in the takeover market.

That development is extremely worrying on a number of counts. It creates that casino atmosphere that so disfigures the City. It is worrying because it diverts management attention essentially to protection and to short-term optimisation of performance and to all the short-term matters which have been the bane of British economic and industrial management for so long. It is also worrying because of the opportunities it provides for abuse.

We do not need to look far to see reports that in the frenetic atmosphere created by takeover bids, insider dealing has again emerged on a massive scale. This time, insider dealing has taken the precaution of operating through offshore companies and nominee shareholders.

I hope that the Minister will answer the following point when he replies. Is it true that when the stock exchange referred some of these matters to the DTI because it felt unable to deal with them effectively, it was told by the Department that it should not be bothered with such matters? That is what press reports have said and I hope that the Minister will take the opportunity to repudiate it.

An urgent reappraisal of that policy is needed now. There should not be a leisurely review which the Secretary of State for Trade and Industry is proposing to embark upon at some point. We need an urgent reappraisal so that we can return and restore some semblance of stability and sanity to the City. I give notice once more that, in the absence of any major changes in Government policy, a Labour Government would be compelled to legislate in that area to ensure that there was a proper inhibition upon ill-founded attempts simply to take over companies for less than obvious and good motives.

What is happening on the takeover front is part of a more general concern which my right hon. Friend the Member for Sparkbrook accurately referred to as the City's role as provider of finance to industry. I do not propose to labour that point but I would be astonished if anybody on the Government Benches could say that they were satisfied by the level and pattern of British investment at present. Any international comparison of merit or thoroughness will show that British investment lags behind. It is not so far-fetched as some Government spokesmen would have us believe to suggest that there may be a connection between our poor performance on the investment front and the means and institutions by which investment is provided as opposed to the means and institutions that apply in other and more successful countries.

The City's traditional defence to that complaint is that it is perfectly prepared to provide the money. It says that there is no shortage of money. The City claims that there is a shortage of adequate projects to which to lend money. If that were true, as it may be, what an indictment that is of Government economic policy. That indictment is lying in the mouths of some of the Government's best friends in the City of London. The Government have so managed the economy that no industrialist worth his salt could find projects worth investing in in the British economy. Presumably that is why that money is flooding abroad in such vast quantities.

Even on that issue, the City cannot escape the blame. The City is an obstacle to sensible macro-economic policy. It willingly embraced monetarism, and said, "Yes, monetarism is marvellous and accords with our political prejudices." The City, perhaps not unnaturally, found it extremely congenial to adopt a policy which said that economic salvation turned on one or two simple measures. It thought that that was a good idea, as those measures were entirely within its control. That is the extent to which, over the past seven years, the Government have abdicated the true control over macro-economic policy in this country.

The next Labour Government will give priority not to the City's interests but to the real economy —to the jobs, output and investment in our real economy. We cannot survive in an economy which is declining at the current rate. The City ought to recognise that it too cannot survive in such an economy as it cannot meet international competition from more powerful capital markets based on much more powerful economies.

The Opposition want to see the City prosper. We recognise that the City, like many other important parts of our economy, earns valuable foreign exchange and provides important areas of employment. Our quarrel in this debate is not essentially with the City. Our charge lies against the Government. The Government have allowed an unhealthy, not to say incestuous, relationship to develop between themselves and the City. The Government are too soft on fraud, and too weak-kneed to take effective regulatory action. They are too tolerant of the casino atmosphere which has developed and are too blind to the City's deficiencies as the provider of finance.

The Government are too subservient to the City's prejudices on economic policy. A Labour Government will insist on a different relationship with the City. We shall insist on a working relationship in which the City would be helped to succeed but in which it would also be required to play its full part as a servant of industry and an instrument of Government and meet its full obligations to the community as a whole.

Photo of Michael Howard Michael Howard Parliamentary Under-Secretary (Department of Trade and Industry) 6:47 pm, 12th March 1986

The debate has been largely about the City. The central point about the City, although one would be hard pressed to detect it from anything said by Opposition Members, is that the City is a success. It is one of the outstanding successes of our economy.

The Opposition constantly tell us how much they care about our national economy, foreign earnings and jobs. Measured by those criteria, the performance of the City is a matter not for the carping criticism of Opposition Members, but for congratulation.

My right hon. Friend the Chief Secretary to the Treasury quoted the figure for jobs in financial and business services. He said that 400,000 extra jobs have been created since 1974 and over 200,000 extra jobs since 1979. He gave the figure for total net earnings from abroad which amounted to more than £6 billion in 1984. Last year, the City raised more than £5 billion for industrial and commercial companies. That figure gives the lie to some of the more extravagant points made by the hon. Member for Dagenham (Mr. Gould) in his closing remarks.

A great deal of that success is due to the City's international competitiveness. More than one quarter of all international bank lending is arranged in London. One fifth of the total insurance business available on international markets is carried out in London. London is the main world centre for Eurocurrency dealings and it, houses one third of the world's foreign exchange markets and an expanding international futures exchange. It is also the world centre for project finance, shipping and air freight brokerage and many commodity markets.

London attracts huge volumes of business which has no natural reason to come here. There is no law of nature which compels Australian owners to insure the risks that they incur in the United States of America with London insurers or which compels West German purchasers of Japanese shares to deal through London stock brokers or Dutch borrowers to raise Swiss currency through London bankers. That business is conducted in London because the City is efficient, competitive and convenient.

Yet one searches the Opposition's motion and the speeches made by Opposition Members in vain for any hint of recognition of that success. Why should that be so? Is it because the Opposition are so myopic that they do not recognise success when it stares them in the face? Or is it because they do not acknowledge success when they recognise it unless it fits into some Socialist stereotype and represents the world as they would like it to be rather than the world as it is?

The motion calls for an adequate system of regulation and supervision of the financial services sector. Of course that is necessary. That is why we have introduced the Financial Services Bill. We shall no doubt have another opportunity — I am conscious of the ruling that you made, Mr. Speaker, at the outset of our proceedings—to compare some of the things that the hon. Member for Dagenham said about regulation this afternoon and some of the things that he said about regulation in other proceedings.

The Financial Services Bill includes a number of measures which will help in the fight against fraud and malpractice generally. The requirement to be authorised will be extended to all types of investment business. If anyone carries out investment business without being authorised, he will be guilty of a criminal offence. There will be greater potential for the use of non-criminal sanctions where the standard of proof is less demanding and the scope for rapid action greater. There will be a wide range of such sanctions, running from injunctions and restitution orders to suspension and withdrawal of authorisation. Existing powers of investigation will he widened and compensation schemes funded by authorised businesses will protect customers and provide support for rigorous enforcement. The Bill is a comprehensive measure which will provide an effective system of regulation and supervision of the financial services of our economy.

Photo of Michael Howard Michael Howard Parliamentary Under-Secretary (Department of Trade and Industry)

I am about to deal with some of the points raised by my hon. Friend the Member for Chichester (Mr. Nelson). Perhaps he will allow me to deal with them before I give way to him.

My hon. Friends the Members for Chichester and for Beaconsfield (Mr. Smith) have made cogent points today and in Standing Committee. They differ with me on where the balance should lie in the Bill with respect to the powers entrusted to the designated agency and the powers which the Secretary of State is to retain. Those differences do not affect the powers which the Bill provides. They merely affect the repository of those powers. We have a genuine difference, but we share a common objective of getting the maximum possible investor protection.

As I have explained, I take the view that investor protection is increased if the designated agency is made accountable. I take the view that that leads to a more effective system. If the designated agency is made less accountable, as suggested by my hon. Friends the Members for Chichester and for Beaconsfield, it may have some advantages. I believe that the disadvantages outweigh those advantages. No doubt we shall continue to debate those issues as we have done in Standing Committee.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

Is the hon. and learned Gentleman aware of the great public concern about the fact that a private company, SIB plc, will be responsible for monitoring all the powers he has identified during his speech? Does he recognise that the wider public will never understand how it is possible for a private company to secure this police monitoring role of City institutions? Will he reconsider that point?

Photo of Michael Howard Michael Howard Parliamentary Under-Secretary (Department of Trade and Industry)

The public concern is for an effective system of investor protection. That is what we must provide. I have explained that, although some hen. Members—admittedly on both sides of the House—take one view as to the best means of achieving that objective, my view is that the best method is the one originally enshrined in the Bill.

The Bill is not the only measure on which we rely. My right hon. Friend the Chief Secretary referred to the Roskill committee and the important changes relating to fraud trials which it suggested. Taking into account the changes made in company law in the early years of this Government, the Insolvency Bill, which reached the statute book last year, the Financial Services Bill and the Roskill committee's recommendations, I believe that the Government have put forward the most comprehensive package of measures for dealing with fraud and malpractice that we shall probably ever see.

I should like to single out ore provision to which many hon. Members have referred — insider dealing. Undoubtedly, that is one of the most pernicious practices to blight financial markets. It is by no means unique to London. It is a particularly difficult practice to detect and to deal with. Clause 147 of the Financial Services Bill gives unprecedented powers to investigate allegations of insider dealing. Under that clause, inspectors will have the power to compel a person, on pain of contempt of court, to be examined on oath and to use in evidence against him any statement made by a person in such circumstances. Let no one underestimate the seriousness of this provision. It takes away the right of a person not to incriminate himself. It has rightly been described as draconian. We have been criticised for writing it into the Bill. If ever there were any doubt about the Government's seriousness in dealing with fraud and malpractice, I suggest that the most cursory examination of clause 147 of the Financial Services Bill will put such doubts to rest.

I respond directly to the point raised by the hon. Member for Dagenham. Of course it is not the case that my Department has said that it cannot be bothered with cases of insider dealing. The difficulty at the moment is that the powers are not adequate to get the evidence necessary to satisfy a criminal burden of proof in the criminal courts for prosecution. We very much hope that the powers in clause 147 will enable more prosecutions to be brought for that offence.

Any innocent person coming to this subject afresh, reading the motion, and listening to Labour Members could be forgiven for concluding that the Labour party had a monopoly of concern about fraud, a monopoly on the desire for effective action to be taken against it. I always prefer to test the words of Labour Members by their deeds.

It is in that context that I should like to refer to the activities of the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore). A short time ago, the hon. Gentleman had an exchange of correspondence with the head of the fraud squad, an exchange of which the hon. Gentleman spoke openly to the press at the time. The head of the fraud squad asked the hon. Gentleman to consider carefully the consequences to the police inquiries of publicising evidence which he had passed to the police and proposes to pass to them.

The head of the fraud squad described these consequences. He said: Suspects and evidence will disappear: potential witnesses will be identified and pestered by the press so that by the time they have been seen by the police they will have been scared off, or their evidence will be tainted by embellishments suggested by others.

Photo of Michael Howard Michael Howard Parliamentary Under-Secretary (Department of Trade and Industry)

I shall give way in a moment.

The head of the fraud squad continued:

officers will be (and have been) diverted from high-priority enquiries which have not been publicised to low-priority enquiries which have simply to preserve evidence before it is destroyed or spoiled beyond redemption. He also said: I cannot understand how it can possibly be in the public interest for any such information to be disclosed contemporaneously to the world at large.

Photo of Mr Brian Sedgemore Mr Brian Sedgemore , Hackney South and Shoreditch

Will the hon. and learned Gentleman accept that several months ago I made that correspondence public to the press and that, in fact, not only have I been helping the fraud squad since, but I am seeing a detective superintendent next Thursday to help them with their inquiries?

Photo of Michael Howard Michael Howard Parliamentary Under-Secretary (Department of Trade and Industry)

I am delighted to hear that. Let us see whether the hon. Gentleman's conduct has matched the warning which he was given by the head of fraud squad.

Photo of Michael Howard Michael Howard Parliamentary Under-Secretary (Department of Trade and Industry)

When the hon. Gentleman was given that warning, did he recognise, in his apparent desire to bring criminals to justice, the damage to that very cause which his activity was causing? Not a bit of it. He replied to the head of the fraud squad by criticising the fraud squad. That poses questions for Labour Front Benchers. Do they approve of the activities of the hon. Member for Hackney, South and Shoreditch? Do they approve of his refusal to comply with the request of the head of the fraud squad? Do they really want to see criminals brought to justice? Will they publicly disown the hon. Gentleman's activities? Will they persuade him to co-operate with the head of the fraud squad to ensure that those who have committed offences pay the penalty? [Interruption.] I shall happily give way to the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) if he decides to put the record straight without further ado.

Photo of Mr Roy Hattersley Mr Roy Hattersley , Birmingham Sparkbrook

I was hoping that the Under-Secretary of State would make a sensible speech, but my hopes have been dashed.

Photo of Michael Howard Michael Howard Parliamentary Under-Secretary (Department of Trade and Industry)

That falls a long way short of answering the question. That is the right hon. Gentleman's response to the invitation I have extended to him. If the right hon. Gentleman is seeking to persuade the British people that the task of dealing with fraud is safer in his hands and in the hands of the hon. Member for Hackney, South and Shoreditch than in the hands of the head of the fraud squad, he has a fairly uphill task ahead of him.

The City is a success. The denigration to which it has been subjected by Opposition Members serves only to demonstrate their—

Photo of Mr Jimmy Hamilton Mr Jimmy Hamilton , Motherwell North

rose in his place and claimed to move, That the Question be now put.

Question, That the Question be now put, put and agreed to.

Question put accordingly, That the original words stand part of the Question:—

The House divided: Ayes 181, Noes 308.

Division No. 99][7.00 pm
AYES
Abse, LeoDobson, Frank
Adams, Allen (Paisley N)Dormand, Jack
Anderson, DonaldDubs, Alfred
Archer, Rt Hon PeterDuffy, A. E. P.
Ashley, Rt Hon JackDunwoody, Hon Mrs G.
Atkinson, N. (Tottenham)Eastham, Ken
Bagier, Gordon A. T.Edwards, Bob (W'h'mpt'n SE)
Banks, Tony (Newham NW)Evans, John (St. Helens N)
Barnett, GuyEwing, Harry
Barron, KevinFatchett, Derek
Beckett, Mrs MargaretFaulds, Andrew
Bell, StuartField, Frank (Birkenhead)
Bidwell, SydneyFields, T. (L'pool Broad Gn)
Blair, AnthonyFisher, Mark
Boothroyd, Miss BettyFlannery, Martin
Boyes, RolandFoot, Rt Hon Michael
Brown, Gordon (D'f'mline E)Forrester, John
Brown, Hugh D. (Provan)Foster, Derek
Brown, N. (N'c'tle-u-Tyne E)Foulkes, George
Brown, R. (N'c'tle-u-Tyne N)Fraser, J. (Norwood)
Caborn, RichardFreeson, Rt Hon Reginald
Campbell, IanGarrett, W. E.
Campbell-Savours, DaleGodman, Dr Norman
Canavan, DennisGolding, John
Carter-Jones, LewisGould, Bryan
Clark, Dr David (S Shields)Gourlay, Harry
Clarke, ThomasHamilton, James (M'well N)
Clay, RobertHamilton, W. W. (Fife Central)
Clelland, David GordonHarman, Ms Harriet
Clwyd, Mrs AnnHarrison, Rt Hon Walter
Cocks, Rt Hon M. (Bristol S)Hart, Rt Hon Dame Judith
Cohen, HarryHattersley, Rt Hon Roy
Conlan, BernardHaynes, Frank
Cook, Robin F. (Livingston)Healey, Rt Hon Denis
Corbett, RobinHeffer, Eric S.
Corbyn, JeremyHogg, N. (C'nauld & Kilsyth)
Cox, Thomas (Tooting)Holland, Stuart (Vauxhall)
Craigen, J. M.Home Robertson, John
Crowther, StanHowell, Rt Hon D. (S'heath)
Cunliffe, LawrenceHoyle, Douglas
Cunningham, Dr JohnHughes, Robert (Aberdeen N)
Dalyell, TamHughes, Sean (Knowsley S)
Davies, Rt Hon Denzil (L'lli)Janner, Hon Greville
Davis, Terry (B'ham, H'ge H'l)John, Brynmor
Deakins, EricJones, Barry (Alyn & Deeside)
Dewar, DonaldKaufman, Rt Hon Gerald
Dixon, DonaldKilroy-Silk, Robert
Kinnock, Rt Hon NeilRoberts, Allan (Bootle)
Lamond, JamesRobertson, George
Leadbitter, TedRobinson, G. (Coventry NW)
Leighton, RonaldRogers, Allan
Lewis, Terence (Worsley)Rooker, J. W.
Litherland, RobertRoss, Ernest (Dundee W)
Lloyd, Tony (Stretford)Rowlands, Ted
Lofthouse, GeoffreyRyman, John
Loyden, EdwardSedgemore, Brian
McCartney, HughSheerman, Barry
McDonald, Dr OonaghSheldon, Rt Hon R.
McKay, Allen (Penistone)Shore, Rt Hon Peter
McKelvey, WilliamShort, Ms Clare (Ladywood)
MacKenzie, Rt Hon GregorShort, Mrs R.(W'hampt'n NE)
McNamara, KevinSilkin, Rt Hon J.
McTaggart, RobertSkinner, Dennis
Madden, MaxSmith, C.(Isl'ton S & F'bury)
Mallon, SeamusSmith, Rt Hon J. (M'ds E)
Marek, Dr JohnSnape, Peter
Marshall, David (Shettleston)Soley, Clive
Martin, MichaelSpearing, Nigel
Mason, Rt Hon RoyStewart, Rt Hon D. (W Isles)
Maxton, JohnStott, Roger
Maynard, Miss JoanStrang, Gavin
Meacher, MichaelStraw, Jack
Michie, WilliamThomas, Dafydd (Merioneth)
Mikardo, IanThomas, Dr R. (Carmarthen)
Millan, Rt Hon BruceThompson, J. (Wansbeck)
Miller, Dr M. S. (E Kilbride)Thorne, Stan (Preston)
Mitchell, Austin (G't Grimsby)Tinn, James
Morris, Rt Hon A. (W'shawe)Torney, Tom
Morris, Rt Hon J. (Aberavon)Wardell, Gareth (Gower)
Oakes, Rt Hon GordonWareing, Robert
O'Brien, WilliamWeetch, Ken
O'Neill, MartinWelsh, Michael
Orme, Rt Hon StanleyWhite, James
Park, GeorgeWigley, Dafydd
Parry, RobertWilliams, Rt Hon A.
Pavitt, LaurieWilson, Gordon
Pendry, TomWinnick, David
Pike, PeterYoung, David (Bolton SE)
Prescott, John
Radice, GilesTellers for the Ayes:
Redmond, MartinMr. Ray Powell and
Rees, Rt Hon M. (Leeds S)Mr. Ron Davies.
Richardson, Ms Jo
NOES
Adley, RobertBrandon-Bravo, Martin
Aitken, JonathanBright, Graham
Alton, DavidBrinton, Tim
Ancram, MichaelBrittan, Rt Hon Leon
Arnold, TomBrooke, Hon Peter
Ashby, DavidBrown, M. (Brigg & Cl'thpes)
Ashdown, PaddyBruce, Malcolm
Aspinwall, JackBruinvels, Peter
Atkins, Robert (South Ribble)Bryan, Sir Paul
Atkinson, David (B'm'th E)Buchanan-Smith, Rt Hon A.
Baker, Nicholas (Dorset N)Buck, Sir Antony
Baldry, TonyBudgen, Nick
Banks, Robert (Harrogate)Butcher, John
Beaumont-Dark, AnthonyButler, Rt Hon Sir Adam
Beith, A. J.Butterfill, John
Bellingham, HenryCarlile, Alexander (Montg'y)
Bendall, VivianCarlisle, John (Luton N)
Benyon, WilliamCarlisle, Kenneth (Lincoln)
Best, KeithCarlisle, Rt Hon M. (W'ton S)
Bevan, David GilroyCarttiss, Michael
Biffen, Rt Hon JohnCartwright, John
Biggs-Davison, Sir JohnCash, William
Blaker, Rt Hon Sir PeterChalker, Mrs Lynda
Body, Sir RichardChannon, Rt Hon Paul
Bonsor, Sir NicholasChapman, Sydney
Boscawen, Hon RobertClark, Hon A. (Plym'th S'n)
Bottomley, PeterClark, Dr Michael (Rochford)
Bottomley, Mrs VirginiaClark, Sir W. (Croydon S)
Bowden, A. (Brighton K'to'n)Clarke, Rt Hon K. (Rushcliffe)
Bowden, Gerald (Dulwich)Cockeram, Eric
Boyson, Dr RhodesColvin, Michael
Braine, Rt Hon Sir BernardConway, Derek
Coombs, SimonHowell, Rt Hon D. (G'ldford)
Cope, JohnHowell, Ralph (Norfolk, N)
Cormack, PatrickHowells, Geraint
Corrie, JohnHubbard-Miles, Peter
Couchman, JamesHughes, Simon (Southwark)
Critchley, JulianHunt, David (Wirral W)
Crouch, DavidHunt, John (Ravensbourne)
Currie, Mrs EdwinaHunter, Andrew
Dickens, GeoffreyIrving, Charles
Dicks, TerryJackson, Robert
Dorrell, StephenJenkins, Rt Hon Roy (Hillh'd)
Douglas-Hamilton, Lord J.Jessel, Toby
Dover, DenJohnston, Sir Russell
du Cann, Rt Hon Sir EdwardJones, Gwilym (Cardiff N)
Dunn, RobertJones, Robert (Herts W)
Dykes, HughJopling, Rt Hon Michael
Eggar, TimJoseph, Rt Hon Sir Keith
Emery, Sir PeterKellett-Bowman, Mrs Elaine
Evennett, DavidKennedy, Charles
Eyre, Sir ReginaldKershaw, Sir Anthony
Fairbairn, NicholasKey, Robert
Fallon, MichaelKing, Roger (B'ham N'field)
Farr, Sir JohnKirkwood, Archy
Favell, AnthonyKnight, Greg (Derby N)
Fletcher, AlexanderKnowles, Michael
Fookes, Miss JanetKnox, David
Forman, NigelLamont, Norman
Forsyth, Michael (Stirling)Lang, Ian
Fowler, Rt Hon NormanLatham, Michael
Fox, MarcusLawrence, Ivan
Franks, CecilLawson, Rt Hon Nigel
Fraser, Peter (Angus East)Leigh, Edward (Gainsbor'gh)
Freeman, RogerLennox-Boyd, Hon Mark
Freud, ClementLester, Jim
Fry, PeterLightbown, David
Gale, RogerLilley, Peter
Galley, RoyLloyd, Ian (Havant)
Gardiner, George (Reigate)Lloyd, Peter (Fareham)
Gardner, Sir Edward (Fylde)Lord, Michael
Garel-Jones, TristanMcCrindle, Robert
Gilmour, Rt Hon Sir IanMacGregor, Rt Hon John
Glyn, Dr AlanMacKay, John (Argyll & Bute)
Goodhart, Sir PhilipMaclean, David John
Goodlad, AlastairMajor, John
Gorst, JohnMalone, Gerald
Gow, IanMaples, John
Gower, Sir RaymondMarland, Paul
Greenway, HarryMather, Carol
Griffiths, Sir EldonMaude, Hon Francis
Griffiths, Peter (Portsm'th N)Maxwell-Hyslop, Robin
Grist, IanMeadowcroft, Michael
Ground, PatrickMerchant, Piers
Grylls, MichaelMeyer, Sir Anthony
Gummer, Rt Hon John SMiller, Hal (B'grove)
Hamilton, Hon A. (Epsom)Mills, Sir Peter (West Devon)
Hamilton, Neil (Tatton)Miscampbell, Norman
Hampson, Dr KeithMoate, Roger
Hanley, JeremyMorris, M. (N'hampton S)
Hargreaves, KennethNelson, Anthony
Harris, DavidNeubert, Michael
Harvey, RobertNewton, Tony
Haselhurst, AlanNicholls, Patrick
Hawkins, C. (High Peak)Norris, Steven
Hawksley, WarrenOnslow, Cranley
Hayes, J.Ottaway, Richard
Hayhoe, Rt Hon BarneyOwen, Rt Hon Dr David
Hayward, RobertPage, Richard (Herts SW)
Heathcoat-Amory, DavidParkinson, Rt Hon Cecil
Heddle, JohnParris, Matthew
Henderson, BarryPawsey, James
Hickmet, RichardPenhaligon, David
Hicks, RobertPowell, William (Corby)
Higgins, Rt Hon Terence L.Powley, John
Hirst, MichaelPym, Rt Hon Francis
Hogg, Hon Douglas (Gr'th'm)Raison, Rt Hon Timothy
Holland, Sir Philip (Gedling)Rees, Rt Hon Peter (Dover)
Holt, RichardRhys Williams, Sir Brandon
Hordern, Sir PeterRidsdale, Sir Julian
Howard, MichaelRippon, Rt Hon Geoffrey
Howarth, Alan (Stratf'd-on-A)Roberts, Wyn (Conwy)
Robinson, Mark (N'port W)Thomas, Rt Hon Peter
Ross, Stephen (Isle of Wight)Thompson, Patrick (N'ich N)
Rossi, Sir HughThornton, Malcolm
Rost, PeterThurnham, Peter
Rumbold, Mrs AngelaTownend, John (Bridlington)
Ryder, RichardTownsend, Cyril D. (B'heath)
Sackville, Hon ThomasTrippier, David
Sainsbury, Hon TimothyTrotter, Neville
Sayeed, JonathanTwinn, Dr Ian
Shaw, Giles (Pudsey)van Straubenzee, Sir W.
Shaw, Sir Michael (Scarb')Vaughan, Sir Gerard
Shepherd, Colin (Hereford)Waddington, David
Shepherd, Richard (Aldridge)Wainwright, R.
Shersby, MichaelWakeham, Rt Hon John
Silvester, FredWaldegrave, Hon William
Sims, RogerWalden, George
Skeet, Sir TrevorWalker, Bill (T'side N)
Smith, Cyril (Rochdale)Walker, Rt Hon P. (W'cester)
Smith, Sir Dudley (Warwick)Wall, Sir Patrick
Smith, Tim (Beaconsfield)Wallace, James
Soames, Hon NicholasWaller, Gary
Speller, TonyWard, John
Spencer, DerekWardle, C. (Bexhill)
Spicer, Jim (Dorset W)Warren, Kenneth
Spicer, Michael (S Worcs)Watson, John
Squire, RobinWatts, John
Stanbrook, IvorWells, Bowen (Hertford)
Stanley, Rt Hon JohnWells, Sir John (Maidstone)
Steel, Rt Hon DavidWheeler, John
Steen, AnthonyWhitney, Raymond
Stern, MichaelWiggin, Jerry
Stevens, Lewis (Nuneaton)Wilkinson, John
Stewart, Allan (Eastwood)Winterton, Mrs Ann
Stewart, Andrew (Sherwood)Winterton, Nicholas
Stewart, Ian (Hertf'dshire N)Wolfson, Mark
Stokes, JohnWood, Timothy
Stradling Thomas, Sir JohnWoodcock, Michael
Sumberg, DavidWrigglesworth, Ian
Tapsell, Sir PeterYeo, Tim
Taylor, John (Solihull)Young, Sir George (Acton)
Taylor, Teddy (S'end E)
Tebbit, Rt Hon NormanTellers for the Noes:
Temple-Morris, PeterMr. Tony Durant and
Terlezki, StefanMr. Donald Thompson.

Question accordingly negatived.

Question, That the proposed words be there added, put forthwith pursuant to Standing Order No. 33 (Questions on amendments):

The House divided: Ayes 243, Noes 34.

Division No. 100][7.13 pm
AYES
Adley, RobertBraine, Rt Hon Sir Bernard
Aitken, JonathanBrandon-Bravo, Martin
Ancram, MichaelBright, Graham
Arnold, TomBrinton, Tim
Ashby, DavidBrittan, Rt Hon Leon
Aspinwall, JackBrooke, Hon Peter
Atkins, Robert (South Ribble)Brown, M. (Brigg & Cl'thpes)
Atkinson, David (B'm'th E)Bryan, Sir Paul
Baker, Nicholas (Dorset N)Buchanan-Smith, Rt Hon A.
Baldry, TonyBuck, Sir Antony
Beaumont-Dark, AnthonyBudgen, Nick
Bellingham, HenryButcher, John
Bendall, VivianButler, Rt Hon Sir Adam
Benyon, WilliamButterfill, John
Best, KeithCarlisle, John (Luton N)
Bevan, David GilroyCarttiss, Michael
Biffen, Rt Hon JohnCash, William
Blaker, Rt Hon Sir PeterChalker, Mrs Lynda
Body, Sir RichardChannon, Rt Hon Paul
Boscawen, Hon RobertChapman, Sydney
Bottomley, PeterClark, Dr Michael (Rochford)
Bottomley, Mrs VirginiaClarke, Rt Hon K. (Rushcliffe)
Bowden, A. (Brighton K'to'n)Cockeram, Eric
Bowden, Gerald (Dulwich)Coombs, Simon
Boyson, Dr RhodesCope, John
Cormack, PatrickKing, Roger (B'ham N'field)
Corrie, JohnKnight, Greg (Derby N)
Couchman, JamesKnowles, Michael
Crouch, DavidKnox, David
Currie, Mrs EdwinaLamont, Norman
Dicks, TerryLang, Ian
Dorrell, StephenLatham, Michael
Douglas-Hamilton, Lord J.Lawrence, Ivan
du Cann, Rt Hon Sir EdwardLawson, Rt Hon Nigel
Dunn, RobertLennox-Boyd, Hon Mark
Dykes, HughLightbown, David
Emery, Sir PeterLloyd, Ian (Havant)
Evennett, DavidLloyd, Peter (Fareham)
Eyre, Sir ReginaldLord, Michael
Fairbairn, NicholasMcCrindle, Robert
Favell, AnthonyMacGregor, Rt Hon John
Fletcher, AlexanderMacKay, John (Argyll & Bute)
Fookes, Miss JanetMaclean, David John
Forman, NigelMajor, John
Forsyth, Michael (Stirling)Maples, John
Fowler, Rt Hon NormanMarland, Paul
Fox, MarcusMather, Carol
Franks, CecilMaude, Hon Francis
Fraser, Peter (Angus East)Maxwell-Hyslop, Robin
Freeman, RogerMerchant, Piers
Fry, PeterMeyer, Sir Anthony
Gale, RogerMiller, Hal (B'grove)
Galley, RoyMiscampbell, Norman
Gardiner, George (Reigate)Moate, Roger
Gardner, Sir Edward (Fylde)Morris, M. (N'hampton S)
Garel-Jones, TristanNelson, Anthony
Glyn, Dr AlanNewton, Tony
Goodhart, Sir PhilipNicholls, Patrick
Goodlad, AlastairNorris, Steven
Gorst, JohnOttaway, Richard
Gower, Sir RaymondPage, Richard (Herts SW)
Greenway, HarryParkinson, Rt Hon Cecil
Griffiths, Sir EldonPawsey, James
Griffiths, Peter (Portsm'th N)Portillo, Michael
Grist, IanPowell, William (Corby)
Ground, PatrickPowley, John
Grylls, MichaelPym, Rt Hon Francis
Gummer, Rt Hon John SRaison, Rt Hon Timothy
Hamilton, Hon A. (Epsom)Rees, Rt Hon Peter (Dover)
Hamilton, Neil (Tatton)Rhys Williams, Sir Brandon
Hargreaves, KennethRidsdale, Sir Julian
Harris, DavidRippon, Rt Hon Geoffrey
Harvey, RobertRoberts, Wyn (Conwy)
Haselhurst, AlanRobinson, Mark (N'port W)
Hawkins, C. (High Peak)Rumbold, Mrs Angela
Hawksley, WarrenRyder, Richard
Hayes, J.Sackville, Hon Thomas
Hayhoe, Rt Hon BarneySainsbury, Hon Timothy
Hayward, RobertSayeed, Jonathan
Heathcoat-Amory, DavidShaw, Giles (Pudsey)
Heddle, JohnShaw, Sir Michael (Scarb')
Henderson, BarryShepherd, Colin (Hereford)
Hickmet, RichardShepherd, Richard (Aldridge)
Hicks, RobertShersby, Michael
Higgins, Rt Hon Terence L.Silvester, Fred
Hirst, MichaelSims, Roger
Hogg, Hon Douglas (Gr'th'm)Skeet, Sir Trevor
Holland, Sir Philip (Gedling)Smith, Sir Dudley (Warwick)
Holt, RichardSoames, Hon Nicholas
Howard, MichaelSpeller, Tony
Howarth, Alan (Stratf'd-on-A)Spencer, Derek
Howell, Ralph (Norfolk, N)Spicer, Jim (Dorset W)
Hubbard-Miles, PeterSpicer, Michael (S Worcs)
Hunt, David (Wirral W)Stanbrook, Ivor
Hunt, John (Ravensbourne)Steen, Anthony
Irving, CharlesStern, Michael
Jackson, RobertStevens, Lewis (Nuneaton)
Jessel, TobyStewart, Allan (Eastwood)
Jones, Gwilym (Cardiff N)Stewart, Andrew (Sherwood)
Jones, Robert (Herts W)Stokes, John
Jopling, Rt Hon MichaelStradling Thomas, Sir John
Joseph, Rt Hon Sir KeithTapsell, Sir Peter
Kellett-Bowman, Mrs ElaineTaylor, John (Solihull)
Kershaw, Sir AnthonyTaylor, Teddy (S'end E)
Key, RobertTebbit, Rt Hon Norman
Temple-Morris, PeterWard, John
Terlezki, StefanWardle, C. (Bexhill)
Thomas, Rt Hon PeterWarren, Kenneth
Thompson, Donald (Calder V)Watson, John
Thompson, Patrick (N'ich N)Wells, Sir John (Maidstone)
Thornton, MalcolmWheeler, John
Thurnham, PeterWhitney, Raymond
Townsend, Cyril D. (B'heath)Wiggin, Jerry
Trippier, DavidWilkinson, John
Trotter, NevilleWinterton, Mrs Ann
van Straubenzee, Sir W.Winterton, Nicholas
Vaughan, Sir GerardWolfson, Mark
Waddington, DavidWood, Timothy
Wakeham, Rt Hon JohnYeo, Tim
Waldegrave, Hon William
Walden, GeorgeTellers for the Ayes:
Walker, Bill (T'side N)Mr. Tony Durant and
Walker, Rt Hon P. (W'cester)Mr. Gerald Malone.
Waller, Gary
NOES
Alton, DavidMarshall, David (Shettleston)
Ashdown, PaddyMeadowcroft, Michael
Beith, A. J.Michie, William
Bruce, MalcolmMillan, Rt Hon Bruce
Campbell-Savours, DaleOwen, Rt Hon Dr David
Carlile, Alexander (Montg'y)Penhaligon, David
Clay, RobertRoss, Stephen (Isle of Wight)
Deakins, EricSkinner, Dennis
Freud, ClementSmith, Cyril (Rochdale)
Heffer, Eric S.Steel, Rt Hon David
Howells, GeraintThomas, Dafydd (Merioneth)
Hughes, Simon (Southwark)Thorne, Stan (Preston)
Jenkins, Rt Hon Roy (Hillh'd)Wainwright, R.
Johnston, Sir RussellWilson, Gordon
Kennedy, CharlesWrigglesworth, Ian
Kirkwood, Archy
Loyden, EdwardTellers for the Noes:
Maclennan, RobertMr. John Cartwright and
Madden, MaxMr. James Wallace.

Question accordingly agreed to.

MR. SPEAKER forthwith declared the main Question, as amended, to be agreed to.

Resolved,That this House recognises the continuing and increasing contribution being made by the financial services industry in the United Kingdom to wealth creation and employment; and welcomes the Government's measures to remove obstacles to the efficient operation of the market in financial services, to improve the regulatory framework in the whole financial services sector and to deter and punish fraud.