Reports by Director General of Fair Trading

Orders of the Day — Financial Services and Markets Bill – in the House of Commons at 3:45 pm on 27th January 2000.

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".—(1) The Director must keep the regulating provisions and the Authority's practices under review.

(2) If at any time the Director considers that—

  1. (a) a regulating provision or practice has a significant anti-competitive effect, or
  2. (b) two or more regulating provisions or practices taken together, or a particular combination of regulating provisions and practices, have such an effect,
he must make a report to that effect.

(3) If at any time the Director considers that—

  1. (a) a regulating provision or practice does not have any significant anti-competitive effect, or
  2. (b) two or more regulating provisions or practices taken together, or a particular combination of regulating provisions and practices, do not have any such effect,
he may make a report to that effect.

(4) A report under subsection (2) must include details of the anti-competitive effect.

(5) If the Director makes a report under subsection (2) he must—

  1. (a) send a copy of it to the Treasury, the Competition Commission and the Authority; and
  2. (b) publish it in the way appearing to him to be best calculated to bring it to the attention of the public.

(6) If the Director makes a report under subsection (3)—

  1. (a) he must send a copy of it to the Treasury, the Competition Commission and the Authority; and
  2. (b) he may publish it.

(7) Before publishing a report under this section the Director must, so far as practicable, exclude any matter which relates to the private affairs of a particular individual the publication of which, in the opinion of the Director, would or might seriously and prejudicially affect his interests.

(8) Before publishing such a report the Director must, so far as practicable, exclude any matter which relates to the affairs of a particular body the publication of which, in the opinion of the Director, would or might seriously and prejudicially affect its interests.

(9) Subsections (7) and (8) do not apply in relation to copies of a report which the Director is required to send under subsection (5)(a) or (6)(a).

(10) For the purposes of the law of defamation, absolute privilege attaches to any report of the Director under this section.".—[Miss Melanie Johnson.]

Brought up, and read the First time.

Mr. Deputy Speaker:

With this it will be convenient to discuss the following: Government new clause 28—Consideration by Competition Commission.

Government new clause 29—Role of the Treasury.

Government new clause 32—Misleading the Director General of Fair Trading.

Amendment No. 30, in clause 2, page 1, line 22, at end insert— (bb) the maintenance of a vigorous and effective market in financial services;".

Amendment No. 192, in page 2, line 2, at end insert— (e) the maintenance of competition and promotion of United Kingdom competitiveness.

Amendment No. 49, in page 2, line 3, leave out from "must" to end of line 18 and insert "seek to—

  1. (a) use its resources in the most efficient and economic way;
  2. (b) take into account the responsibilities of those who manage the affairs of authorised persons and ensure that it does not intrude unnecessarily into their management of the commercial affairs of such persons;
  3. (c) impose burdens or restrictions on a person, or on the carrying on of an activity, only if they are proportionate to the benefits, considered in general terms, which are expected to result from the imposition of that burden or restriction;
  4. (d) facilitate, and not unnecessarily impede, innovation in connection with regulated activities;
  5. (e) maintain the international competitiveness of the United Kingdom and authorised persons;
  6. (f) impede or distort competition between authorised persons only to the extent that such impediment or distortion is necessary.".

Government amendments Nos. 240, 316 and 317.

Amendment No. 231, in clause 132, page 61, line 3, leave out— may, if he thinks fitand insert "shall'

Government amendment No. 447.

Amendment No. 232, in clause 133, page 61, line 23, after "information", insert "relevant to the investigation".

Government amendments Nos. 318 and 319.

Government new schedule 2.

Photo of Miss Melanie Johnson Miss Melanie Johnson Economic Secretary, HM Treasury

These new clauses and amendments are part of the package of changes that we are making in response to Don Cruickshank's interim report on banking services, which helped us to identify a number of useful amendments that we could make to improve the FSA's internal processes in taking account of competition and to strengthen the external scrutiny arrangements. I set out what we intended to do in Standing Committee A on 9 November. We shall also table similar amendments to the analogous regime for recognised bodies and that proposed for the competent authority for listing. I could run through, at great length, how the process will work, but it might be helpful if I focus on particular aspects. If Conservative Members have queries that are not resolved, perhaps they will raise them.

I begin with the role of the Treasury in respect of new clause 29. The Competition Commission, when it has considered a report from the director general, will produce its own report, except where it feels that that is not necessary. If the commission concludes that there is no significant anti-competitive effect, that will be the end of the matter. If it concludes that there is significant anti-competitive effect and that is justified, it will state that in its report. Where the commission concludes that the anti-competitive effect is not justified, it will recommend changes to the FSA's regulating provisions or practices in its report.

The Competition Commission's conclusion will not be subject to routine second guessing by Ministers. It will stand, except where the Treasury considers that exceptional circumstances cause it to reach a different view. We can envisage a Treasury override being triggered when it is necessary to meet our international obligations—for example, to give effect to European Community legislation—or when the Treasury thinks that there would be significant implications for the operation of the financial system as a whole if the changes were to be made. In the unlikely event of its exercising that override, the Treasury will have to publish a statement of its reasons and lay that before Parliament.

Photo of Andrew Tyrie Andrew Tyrie Conservative, Chichester

Those remarks are close to those the Minister made in Committee when we did not have time to absorb them, although we have subsequently done so. New clause 29(3)(a) says that the Treasury may set a direction aside if it considers it unnecessary for them to give a direction as a result of action taken by the authority. Can she explain the purpose of new clause 29? No reference was made to it in Committee.

Photo of Miss Melanie Johnson Miss Melanie Johnson Economic Secretary, HM Treasury

I am looking for the new clause in my amendment paper; perhaps I can return to that matter.

When the commission finds that an anti-competitive effect is not justified and there are no grounds for an override, the Treasury will do whatever it thinks necessary in the light of the Competition Commission report. In taking action, the Treasury must have regard to the Competition Commission's opinion when deciding what to direct the FSA to do. The Treasury must also have regard to the views of the FSA and other interested persons when considering whether to give a direction.

Those new arrangements will ensure that, other than in exceptional circumstances, it will be the Competition Commission, not Ministers, who will come to the decisive view on whether anti-competitive effects are justified.

Photo of Sir Nicholas Lyell Sir Nicholas Lyell Conservative, North East Bedfordshire

Can the Minister clarify what seems to be a fundamental question? When we talk about competition and anti-competitive effects, are we talking about the competitiveness of the United Kingdom financial services market as against the French, New York or Frankfurt markets, or are we talking about distortions of competition within the UK market?

Photo of Miss Melanie Johnson Miss Melanie Johnson Economic Secretary, HM Treasury

Basically, we are talking about distortions of competition within the UK market. I shall come to the issue of international competitiveness, which the right hon. and learned Gentleman raised earlier, when I reach Opposition and other amendments that relate more closely to that issue.

As I said, generally, it is not Ministers who will reach the decisive view on whether claims of anti-competitive effects are justified. Where exceptional circumstances cause Ministers to override the Commission, the Bill provides for a high degree of transparency. Of course, we expect that the relevant Select Committee would wish to question Ministers in more detail about use of the override, but who in this House would wish to suggest that a Select Committee did anything in particular?

The other part of this package of amendments is a change to the competition principles in clause 2. These principles are at the heart of the processes that the FSA goes through when making regulatory provisions and otherwise discharging its general functions. If the processes work as they should, the external scrutiny arrangements should be academic.

Perhaps I can come on to the "have regard to" phrase in the chapeau to clause 2(3). We undertook in Committee to look at whether this is the right formulation and carries sufficient weight to ensure that the FSA takes full account of the principles in discharging its general functions. As I explained in Committee, the objectives and principles must be considered together. The objectives are about the aims and purpose of regulation. The principles are about the manner of regulation. They are, in effect, statements about good regulatory practice and act as constraints on over-regulation.

In determining how to discharge its general functions, the FSA will go through a single process in order to come up with the right result. It will consider the clause 2(1) objectives together with the clause 2(3) principles in discharging its general functions—that is, in making rules and guidance and in coming up with its general policies.

We have explored with the draftsmen whether the "have regard to" formula is the right one to describe what we want the FSA to do in respect of the principles in this process. We want something that requires the FSA to give proper weight to the principles and to ensure that it takes them properly into account but, at the same time, does not expose the regulators to tactical litigation on individual regulatory decisions. Exploration of these issues has led us to the conclusion that the current formulation strikes the right balance and that it is clear that the FSA must give proper weight to the principles. To pay lip service to them will not be enough.

Clearly, however, it would be nonsense if the FSA were under an obligation to go through the objectives-principles balancing process every time it takes a decision on an individual case. As well as being pretty much an impossible task, it would open up the scope for judicial review of individual decisions. For example, the FSA could be challenged on whether it is right to engage in an advertising campaign to improve consumer awareness or whether it is employing too many people on the pensions review.

If there were a significant risk that the FSA would have to contest actions for review at every turn, it would be a serious impediment to good regulation. The Joint Committee agreed with this when it concluded that the objectives and principles should apply at the level of general policy and principles, rather than directly to every single act and decision of the FSA. Naturally, it is important that the FSA is accountable for its decisions. Judicial review of whether it is carrying out its legislative and general functions in accordance with the requirements of clause 2 will be possible.

Our carefully considered view is that the current formulation and structure is the right one. It will not be enough, as some have suggested, for the FSA to pay lip service to these principles. The FSA must give the best effect it can to them. That is the nature of the duty.

The "have regard to" formulation is not new. It applies in other legislation in similar contexts, for example, in the Coal Industry Act 1994 and the Civil Aviation Act 1982. It is fair to say that the statute book is peppered with requirements for people to "have regard to" X or Y when carrying out their duties, and have regard to these things they must. It is a strong requirement.

We also undertook to look again at the competition principle in clause 2(3)(f). We agree with Don Cruickshank that it is vital that competition concerns are given proper weight by the FSA. Amendment No. 240 introduces changes and does three things. First, it introduces a more positive principle as regards the adverse effects of competition. Rather than the principle being that the competition should not be impeded or distorted unnecessarily, it now makes it clear that the FSA must consider how to take active steps to minimise the adverse effects on competition.

Secondly, the amendment removes the reference to authorised persons. In exercising its general functions, the FSA can do things that impact on other groups. For example, it could make a rule requiring authorised persons to use the services of a particular software provider or telecommunications firm. Where things do impact on other groups, the FSA should take care to minimise the adverse effects on competition.

Thirdly, the amendment requires the FSA to have regard to the desirability of facilitating competition between those subject to regulation. That recognises that there are things that the FSA can do in regulating which are sensible for a financial services regulator to do and which will make it easier for firms to compete.

The new principle is designed to make the FSA think hard about what it can do to facilitate competition between those it regulates. It makes it clear that it will have to address the question of how, through different ways of regulating, it could remove unnecessary barriers as well as not erecting them in the first place.

On amendment No. 30, there is no doubt about the importance to the economy of the financial services sector. I share the concern that it should continue to be vigorous and effective. I understand and fully agree with the aim, but the amendment is not the way to achieve it. It would not be appropriate to give the FSA such an objective.

Although the FSA is responsible for creating and maintaining a regulatory framework in which a vigorous and effective market can exist, it is up to the market itself, through competition and innovation, to maintain its vigour and effectiveness.

The FSA must not, of course, put up unnecessary barriers in the way of that, or rip down necessary barriers. Under-regulation and over-regulation both have adverse effects, but the regulatory objectives and principles that the Bill gives the FSA are aimed at ensuring that it arrives at the right level of regulation, which keeps costs down while maintaining the confidence of consumers and the integrity of the markets. That is what the FSA can do to help to maintain the vigour and effectiveness of the UK financial services industry. The rest is up to the industry itself.

On amendment No. 192, as I said in Standing Committee a number of times and as I am sure everyone accepts, competition and competitiveness are different. The amendment seeks to combine them. The bodies responsible for competition regulation in the UK are the Office of Fair Trading and the Competition Commission. Their responsibilities extend throughout the economy. It would be their responsibility to investigate and to deal with, for example, a suspected cartel of insurance companies in the same way as a suspected cartel of supermarkets.

The FSA is not a competition regulator, but is concerned with the prudential supervision of the financial services industry and the protection of consumers. If it had a competition objective, it would have to duplicate and, potentially, interfere with the job that is already done, and done well, by the OFT and the Competition Commission. That would be a recipe for total confusion.

That does not mean that the FSA has no interest in competition. It must always be aware of the danger that, in regulating, it might unnecessarily restrict competition. That is why we have provided in subsection (3) that it "must have regard to" that matter and why we have backed that up with the special competition scrutiny regime in part IX.

Photo of Andrew Tyrie Andrew Tyrie Conservative, Chichester

The hon. Lady says that competition and competitiveness are fundamentally different. In a sense, they are because competitiveness is concerned with overall economic performance, but could any action be taken to improve competition that would be deleterious to competitiveness?

Photo of Miss Melanie Johnson Miss Melanie Johnson Economic Secretary, HM Treasury

I do not think the two things link in that simple way. I should like to come back to another point that the hon. Gentleman raised with me, but it does not fit very well here, so may I finish dealing with competitiveness?

Competitiveness is another area where primary responsibility does not lie with the FSA. Instead, the international competitive position of the UK financial services industry will be maintained by the same people who built it: financial service businesses.

5 pm

It is not clear what role the FSA will have to take on in promoting competitiveness, but if it entailed the FSA trying to pick winners among United Kingdom firms or telling them how to run their businesses, it would be more likely to do harm than good. However, I am not saying that the FSA has absolutely no interest in competitiveness. We realise that, as with competition, the way in which the FSA regulates can have an impact on competitiveness, and subsection 3(d) requires the FSA to have regard to that fact. However, as I said, such a requirement is very different from a competitiveness objective.

The hon. Member for Chichester (Mr. Tyrie) asked about the purpose of subsection 3(a) of new clause 29. The paragraph deals with situations in which, as a result of a Competition Commission report, the FSA decides to abandon the rule or practice that has been condemned. If the FSA acts to abide by the commission's conclusions, there is no need for the Treasury to give a direction. New clause 29(3)(a) allows for that position. It deals with situations in which action has been taken.

The Opposition have suggested, in amendment No. 49, a formulation to be inserted in the "seek to" formula. That formulation would require the FSA to take action to try to achieve the objectives in clause 2(3). I agree that that is what we want the FSA to do, and I am grateful to Opposition Members for confirming that that is also how they want the Bill to work. However, that is also the effect of the "have regard to" formula, and the "seek to" wording does not really work with the other provisions of clause 2. It makes no sense, for example, to talk about the FSA "seeking to impose burdens or restrictions on a person" or "seeking to impede or distort competition", regardless of the wording that follows.

The second change that the amendment would make is to require the FSA to seek to ensure that it does not intrude unnecessarily in the commercial affairs of authorised persons—I assume that "such persons" refers to authorised persons. Although that is certainly part of what the principle is about, it is not the only thing. Additionally, I am not convinced that it would be very helpful to spell out the various elements in that manner.

Amendment No. 49 also seeks to address the issue of facilitating innovation, and the desirability of doing so. It would provide that the FSA should seek to ensure that it does not unnecessarily impede innovation. Although that is clearly an important consideration, it is covered adequately by the existing principle in the Bill and by other principles. If the FSA has regard to the desirability of facilitating innovation, it should not do things that unnecessarily impede it.

Earlier, I said that I was sympathetic to the general provisions of Opposition amendment No. 232. Although I ask the House to reject that version of the provision, I repeat my assurance that similar provision will be made—requiring that the director can request only information that is relevant to his investigation, and reproducing a provision on documents currently in the clause—and that, later in the Bill's passage, we shall return to the issue and make changes if we think that they are necessary.

I hope that hon. Members will support the Government's new clauses and amendments in this group and oppose the Opposition amendments.

Photo of Michael Spicer Michael Spicer Conservative, West Worcestershire

Collectively, the Government new clauses and amendments in this group are quite admirable in their intent. The problem is that they are completely in conflict with the majority and thrust of the Bill. Clause 2 lists market confidence, public awareness and consumer protection as the regulatory objectives. Clauses 3 to 6 set out the details of the regulatory objectives. I still do not understand what promoting awareness will mean in practice for the FSA, but clause 5 covers the protection of consumers and specifies that the FSA must have regard to the differing degrees of risk involved in different kinds of investment or other transaction … the differing degrees of experience and expertise that different consumers may have in relation to different kinds of regulated activity … the needs that consumers may have for advice and accurate information". In other words, the Bill conflicts with the Government amendments and new clauses that we are discussing. It gives the FSA powers to intervene in the market, and even to promote and develop particular products, in the interests of consumer protection.

If the new clauses and amendments are passed, the Director General of Fair Trading will go rushing off to promulgate competition, but he will be pulled back because the Bill will require the FSA to intervene and distort the market—the opposite of competition.

The regulatory regimes that the Government are imposing right across the commanding heights of the British economy use the words—and often the institutions—of the previous, Conservative Administration. The Government amendments use words such as "consumer" and "competition", but they would achieve and impose the opposite of what the previous Government had in mind. The concept of fuel poverty, for example, is no doubt admirable, but it is being imposed as an overriding objective for the electricity regulator. Similarly, Oftel has been burdened with the concept of total coverage, and the Post Office with that of social obligations. Even the FSA is required to engage in the concept of social banking.

Such notions conflict with the objectives that the Conservative Government set for the regulatory bodies. The amendments are a perfect example of how we are seduced into believing that the Bill is about competition rather than its opposite. The intervention proposed in the Bill is the exact opposite of what is proposed in the amendments.

The previous Administration set up the regulatory bodies with competition as the primary objective. When I took the Bill to privatise the electricity industry through Standing Committee, it was clearly understood that competition and the protection of competition was the Bill's primary objective. The Conservative Government privatised the utilities across the board. The intention was that, once they began to benefit from competitive pressure, the regulatory bodies would begin to withdraw and retract. Control of the utilities and the interests of consumers would be left to market forces.

In the electricity industry, for example, the regulatory regime became lighter as competitive pressure built up. However, the exact opposite is happening under this Government, and that is illustrated by the Bill: as competitive pressures increase, the Government's objectives move away from allowing the marketplace and competition to work and towards greater intervention.

It is precisely because these clauses will be made totally ineffective—I would say because of their hypocritical nature—that I object to them. They form, as the whole Bill forms, part of a panoply of new parallel government which is being set up throughout the commanding heights of the economy. It is socialism by the back door, nationalisation by the back door, and control and intervention by the back door, through the regulatory regime.

Photo of Mr Nigel Beard Mr Nigel Beard Labour, Bexleyheath and Crayford

The clauses that so aggravate the right hon. Gentleman are there to provide for a watchdog over the Financial Services Authority, so that nothing it does unnecessarily impedes competition. That seems to be entirely reasonable. It divides the role on competition between the FSA and the Director General of Fair Trading. I do not understand why the right hon. Gentleman sees such dire consequences arising from what is plain common sense.

Photo of Michael Spicer Michael Spicer Conservative, West Worcestershire

For the precise reasons that I have given, the entire thrust of the Bill is in opposing directions. The objectives set for the FSA, in particular, are entirely opposite to that of competition. To have a fig leaf in the form of the new clauses will make it extremely difficult for the bodies that exist to oversee the tribunals and the various review arrangements in the Bill for overseeing the FSA. It will be extremely difficult to come to a judgment in terms of the law that we are passing, because the whole thrust of the Bill is in the opposite direction to competition; it is in the direction of protectionism and interventionism. Therefore, at the very best it will make it extremely difficult for the tribunals, other bodies and fair trading organisations to take a view, because, if we pass the Bill, they will face legislation the thrust of which is in opposing directions.

The Bill does not mention competition at all among the objectives of the FSA set out in clauses 2, 3, 4 and 5. I would argue that the objectives are exactly the opposite to competition, for the reasons that I have given.

At the very best, the Bill makes it impossible for the adjudicating bodies—there are one or two points where they are in the Bill—to take a view. At worst, it provides a fig leaf for the continuation of a regime that the Government are setting up across the board of regulation, which has as its objective not competition—though it uses the word often, just as it uses the words "consumer protection" and "consumer"—but the opposite: the imposition of political objectives that have to do with income redistribution, protectionism and interventionism. I object to the new clauses being introduced as a fig leaf for a policy that thrusts in the opposite direction to that which the Government profess.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

Even the Government must have perceived some of the fundamental truth in the comments of my right hon. Friend the Member for West Worcestershire (Sir M. Spicer). I recollect a conference organised just before Christmas by the Treasury to focus on the arguments about the regulation of mortgages, where it was duly noted that the large players in the industry were asking to be regulated. An ironic comment was made by a certain senior Treasury official.

The large players welcome regulation. It raises the threshold of entry enormously. The innate tendency on regulation is towards consolidation and cartels. This point has been grasped very powerfully by Don Cruickshank, which is why he, like us, has called for the competition theme to be included in the key territory of objectives.

Let me get rid of one Government argument in the other direction, which is invalid. It is nothing to do with the concept of the FSA's being a regulator of competition. It has to do with the simple proposition that the objective of the rules and conduct of the FSA, and the way in which it handles them, should be to avoid doing things which damage either domestic competition or the UK's international competitiveness.

5.15 pm

The Government seek to buy off Don Cruickshank by means of what strikes me as an over-complicated mechanism, proposed in new clauses 27, 28, 29 and 32. The first reference to the proposals was made by the Chancellor of the Exchequer in his green Budget statement. This is yet another example of spin that turns out to be different from the reality. The Chancellor suggested then that the Competition Commission would be established as an independent body to direct the FSA to change rules that were damaging to competition, adding the footnote that the Treasury would have a reserve power.

The Bill, however, makes it clear that the commission will be piggy-in-the-middle between the Office of Fair Trading and the Treasury, and that only the Treasury is empowered to tell the FSA to change rules. Moreover, that power is hedged around. If the Treasury considers that there is a case for retaining a rule that protects consumers in regulatory terms, it will opt for retaining it even if it is uncompetitive.

That brings us full circle. Unless one of the FSA's key instructions from the public via Parliament is that it must do its best not to produce anti-competitive rules and regulations, it will tend to do anti-competitive things. It is ludicrous to set up all this complicated machinery involving the OFT, the commission and the Treasury without giving the FSA the right brief in the first place. While I hope that the machinery will lead to some useful analysis, it will undermine itself unless the FSA is given the right brief. Amendments Nos. 192 and 30 deal with that.

We will not press amendment No. 30, which I confess was tabled in the fear that amendment No. 192 might not be accepted. Amendment No. 192 makes our point. It deals with both domestic competition and international competitiveness, an issue that the OFT/Competition Commission machinery ignores. The United Kingdom's financial services industry has become our biggest employer, biggest exporter and biggest contributor to gross national product.

Photo of Sir Nicholas Lyell Sir Nicholas Lyell Conservative, North East Bedfordshire

When my hon. Friend said that the proposals for the Competition Commission ignored the issue of international competitiveness, the Minister shook her head, suggesting that he was wrong. I believe that he is right. Perhaps he will elaborate.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

I thank my right hon. and learned Friend. I was about to elaborate.

The Government seem not to have made provision for what the Opposition want: the establishment of a unit in the OFT to monitor the international competitiveness of British regulations as against those of the United States, France or Switzerland, particularly for international business. Nor have they provided for either the commission, as originally suggested, or the Treasury, to be directed to change rules if they are found to be severely damaging our international competitiveness. I at any rate can find no such provision. I recollect a reference to the Competition Commission having to be aware of international competitiveness, but cannot remember where I saw it.

The huge recovery in Britain's international financial services industry in the past 30 years has rested on extremely competitive tax arrangements, technical ability and software administration. Those are all delicate matters. That is why the Chancellor of the Exchequer has fought so strongly to keep us out of the net of the European withholding tax. That is why the Government will have to change stamp duty arrangements—business will leak away elsewhere if we have an expensive stamp duty.

If our regulation is unclear or too expensive, or if it does not provide clear, safe harbours within its rules, a lot of international business will go to, or go back to, New York and other financial centres. How our regulatory regime compares with others is immensely important to employment and the prosperity of the industry. As Howard Davies has so often said, good regulation is an asset; bad or unclear regulation a liability.

If there is a serious desire to control the inevitable tendency of regulation to lead to a lack of competitiveness and to create cartels and consolidation, the regulator must have an upfront brief as an objective not to do that, which will be as important as his other objectives. We welcome the proposed monitoring, and will see how it goes, but to have such an expensive and complicated mechanism simply to monitor domestic competition and not international competitiveness is to miss out half the key point.

Photo of Jim Cousins Jim Cousins Labour, Newcastle upon Tyne Central

I am following the hon. Gentleman's argument and am studying the proposals in amendment No. 49 extremely closely. If the amendment were accepted, would it encourage the Financial Services Authority or the relevant competition authorities to regulate such matters as, for example, the introduction of charges by bank cartels for access to their cashpoint machines, or would it deter them?

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

I was actually talking about amendment No. 192, the key amendment, which would add competition and competitiveness to the list of objectives. Amendment No. 49, which the Minister has referred to as our "seek to" amendment, is designed to beef up the second part of clause 2, which deals with principles. The phrase "have regard to" in the clause as drafted is extremely woolly. Indeed, although the FSA repeats that phrase in its literature and brochures, it has made it very clear that it views the objectives as far weightier than the so-called principles.

Secondly, I think that the part of the amendment to which the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) may have referred is that which calls upon the regulator not to interfere unduly and unnecessarily in the internal management of businesses. However, it all depends on the justification. If a bank cartel charges in a cartelised fashion, the regulator has every justification for interfering.

Photo of Jim Cousins Jim Cousins Labour, Newcastle upon Tyne Central

May I draw the hon. Gentleman's attention to paragraph (b) in amendment No. 49? Does he understand that as inhibiting the capacity of a regulator or a competition authority to deal with such matters as charging for access to cashpoint machines? The provision would seem to have that effect.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

The hon. Gentleman is referring to the provision that I mentioned. The amendment calls on the authority not to interfere unnecessarily in the management of the commercial affairs of the businesses or persons whom it is regulating. The provision is clear; in no way would it fetter the activity of the regulator, where the regulator perceives the operation of cartelised pricing practices. Indeed, as I have pointed out, the real problem is that regulation encourages such cartelised practices.

The purpose of the amendment is clear. If the FSA was carrying out its regulatory duty, and if it were set to do its competition duty, it would get on with it. If the authority extended its activities beyond that, as is the tendency of bureaucracies, it would be restrained. Under the provision, competition is required to be an objective; in many cases, the right action of the FSA depends on competition being an objective.

Photo of Michael Spicer Michael Spicer Conservative, West Worcestershire

The hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) wants to intervene, to stop people doing things and to run things by bureaucracy, whereas my hon. Friend is making a brilliant case that it all depends on whether the practice is anti-competitive. If there is a purely commercial judgment, in which transparency comes into charging, that is good, if it would improve competition. My hon. Friend is correct to draw that distinction. Labour Members do not want to make that distinction; they want to interfere come what may.

Photo of Jim Cousins Jim Cousins Labour, Newcastle upon Tyne Central

Will the hon. Gentleman respond to the point made by his hon. Friend the Member for West Worcestershire (Sir M. Spicer)? Is it the policy of the official Opposition that charges should be introduced for access to cashpoint machines, in the interests of transparency of costing?

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

The hon. Gentleman seems to be intervening in a most incoherent fashion. I have made it clear that the policy of the Opposition is, first, in favour of competition, which represents an important protection for consumers. Secondly, in attempting to get the measure right, there is a risk that regulation will damage competition, in exactly the ways to which the hon. Gentleman referred—thus the need for competition as an objective. Thirdly, as the measure is about checks and balances, it is unreasonable for the regulator to have powers to ferret into businesses, other than where justified under its objectives. If part of its objective is that it is supportive of competition, it would be empowered in the whole matter of banking cartels. The hon. Gentleman may be surprised to learn that the person whom the Government have appointed to examine banking competition, Don Cruickshank, entirely agrees with our views. The compromise is insufficient to achieve his objective of the more competitive banking system that we and the hon. Gentleman want.

Photo of Mr Nigel Beard Mr Nigel Beard Labour, Bexleyheath and Crayford 5:30 pm, 27th January 2000

Such arguments have been rehearsed before. On each occasion, the case made against including competitiveness as an objective of the Bill is that under the Competition Act 1998 there exists the Competition Commission. To give authority for regulating competition to the FSA in respect of financial matters would mean two organisations regulating one sector of the economy, which could lead to nothing but muddle.

The second argument reflects the importance of competition, which is acknowledged by hon. Members of all parties. It is far more powerful to have a separate watchdog over the FSA's activities that takes steps to regulate competition when a breach occurs than to incorporate safeguards in the organisation that we want to avoid breaching competition.

Those arguments have never been answered by the Opposition in their continual efforts to promote the idea that competitiveness is neglected.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

The hon. Member could not have been listening. We are not calling for the FSA to regulate competition. We argue that in its rule making, a key objective should be not to regulate in a way that damages competition or international competitiveness but in a way that increases competition. That has nothing to do with the role of a competition regulator. We entirely agree that the Office of Fair Trading and the Competition Commission should cover that territory.

It would be extraordinary to incur the expense and burden of the OFT and commission in monitoring to ensure that the FSA is not making rules damaging to competition if it is not a priority instruction to the FSA to avoid so doing. That is just making jobs for people by having the FSA wrongly briefed. That is a clear answer to the bogus argument about making the FSA a competition regulator.

We are reasonably happy with the machinery, although we question what the Competition Commission adds. We imagine that OFT investigations will be at a more general level and the commission will undertake something more in-depth before passing a recommendation to the Treasury. That would put in another process which might not be entirely necessary; but reviewing competition to secure against anti-competitiveness is a good and sensible objective. We believe that there should be a parallel requirement in respect of international competitiveness. To complete the logic of the scheme, it needs to be made clear to the FSA that its regulation is to be competition friendly rather than unfriendly and competitiveness friendly rather than unfriendly.

Photo of Sir Nicholas Lyell Sir Nicholas Lyell Conservative, North East Bedfordshire

This is the most important debate on Report and we are focusing on the most important subject that is at all controversial. I say, I hope with reasonable humility, that there is serious misunderstanding in this Chamber and the Government of the distinctions between competition and international competitiveness. The roles that the Competition Commission and the Director-General of Fair Trading are being given by the Government—which we welcome—have nothing to do with international competitiveness. I should be grateful if the Economic Secretary would nod to show that she recognises that, and to show that she recognises that they are concerned with the avoidance of distortion of or interference with competition in the UK market. That is their function under the Competition Act 1998.

Those bodies have two main functions—the avoidance of cartels and anti-competitive agreements, and the avoidance of businesses being able to exploit dominant positions. It is desirable that nothing in the regulatory system that the Bill proposes should distort competition within the UK. That much is desirable, and I support the Government's new clauses on that matter.

That is not the issue between the Government and the Opposition. The issue is the promotion of the UK market and its international competitiveness with the United States, Japan, France and Germany. It is important to decide whether, as we say in amendment No. 192, the maintenance of competition and promotion of UK competitiveness should be made an objective in the Bill. We say that it should, as that is fundamental to the success of the City of London and of the financial services industry that the FSA will regulate. That will be to the benefit of consumers here and worldwide.

If we have a healthy, vigorous and competitive market, consumers in this country are likely to get better value. I should have thought that, with new Labour, there could be agreement that vigorous competition is, in the end, the best regulator. It should not be the only regulator—we are not arguing for that. However, it is the best of all, and I am pleased to see that the Economic Secretary and the Financial Secretary agree with that sentiment. What follows from that common recognition is that that matter should be an objective under the Bill. We should not deceive ourselves.

Photo of Sir Nicholas Lyell Sir Nicholas Lyell Conservative, North East Bedfordshire

The Economic Secretary is now shaking her head, but I ask her to listen for a moment. Why is it not good enough that the proposal is simply what is described, rather grandiosely, as a principle under clause 2(3)? Why is it necessary—in my opinion and that of my hon. Friends—that it should be an objective in clause 2(2)? This is fundamental to the structure of the Bill and to what we are seeking to create.

There is an important difference in the wording between clause 2(2), which deals with the objectives, and clause 2(3). Clause 2(1) states that the FSA must so far as is reasonably possible, act in a way which is compatible with the regulatory objectives". Clause 2(2) sets out the objectives, and clause 2(3)—which deals with what some have called the principles—says that the FSA must "have regard to" the principles.

Paragraphs (d) and (e) are the key. Paragraph (d) refers to the desirability of facilitating innovation in connection with regulatory activities", and paragraph (e) refers to the international character of financial services and markets and the desirability of maintaining the competitive position of the United Kingdom". We must recognise how much weaker the words "must have regard to" are when compared with the words must, so far as is reasonably possible, act in a way … which is compatible", which are used about the objectives. The words relating to the objectives are intended to be stronger—and they are stronger. The fact that they are intended to be stronger means that each of the four objectives that are set out in clause 2(2) is specifically analysed and expanded upon in clauses 3, 4, 5 and 6.

The objectives are market confidence, public awareness, the protection of consumers and the reduction of financial crime—all worthy objectives which we support. However, it must be remembered that all those objectives will tend to increase the weight of regulation and the requirement on the authority to ensure that it—I almost said darned well—regulates.

Clause 2(3) then tells us that the authority must have regard to other desirable aims, including our international competitiveness. However, that is put too low. The Minister replied with a carefully crafted portion of her speech. I realise that it was rightly pored over by her advisers. She said that the Government had reconsidered everything and thought that it was right and adequate simply to mention the competitive position of the United Kingdom as something to "have regard to". That puts the aim far too low.

Let me meet what might be the counter argument. One could argue that if maintaining our competitiveness was an objective, it would make the other four objectives impossible to achieve. That argument does not hold water. If one had five objectives instead of four, with the maintenance of the competitive position of the United Kingdom as one of them, one would set exactly the right balance. In a sense, one would lift a little bit of responsibility off the FSA. If the FSA under-regulates at present, it can be criticised for failing to meet its objectives. However, if it over-regulates, it will at least meet them. If one points out that it does not have regard to the desirability of international competitiveness, it will say that it paid regard to that, but that it had to strike a balance. That will result in over-regulation.

Why is that approach damaging? I want to refer to a speech made recently by the Lord Mayor of London, when he described in simple statistical terms the relative competitive positions of the City of London and of our competitors in New York, Frankfurt, Tokyo and so on. If London had a base figure of 100, the costs of doing business in New York were said to be 117; in Japan 134; in Paris 154; and in Frankfurt 163. Two things threaten our competitive position. One of them is stamp duty and the other is the burden of regulation. Everyone should have regulation, but over the past few months we have been thinking about—and I know that Ministers have— how we can make regulation not too expensive and burdensome. That is the balance that we must get right. Clause 2 sets the scene and it would be a better clause if it put the objective of our international competitiveness upfront and not down among the things that we must have regard to.

Photo of Jim Cousins Jim Cousins Labour, Newcastle upon Tyne Central

I remind the right hon. and learned Gentleman that the first of the regulatory objectives set down by the Government is market confidence, a concept which embraces both competition and competitiveness. If the Opposition's new regulatory objective were added, what would a regulator do to deal with a bank that had inadequate capital, but was trading both in the UK and abroad? In that case, the regulator would be faced with a conflict of objectives. That would be wrong. The regulator should focus on market confidence as the single most important objective embracing both competition and competitiveness. It should judge its actions in the light of the need to protect market confidence and not be confused by any other consideration.

Photo of Sir Nicholas Lyell Sir Nicholas Lyell Conservative, North East Bedfordshire

The hon. Gentleman might be right in one part of his intervention; I shall wait to find out whether Ministers think that he is. If he is, he has sold the pass—I withdraw that remark, which is not a kindly way of expressing myself. However, he is wrong in the other part of his intervention. If market confidence includes our international competitiveness, it is plainly acceptable to put that up among the regulatory objectives. Therefore, I am delighted to have the hon. Gentleman's support.

Photo of Andrew Tyrie Andrew Tyrie Conservative, Chichester

The Bill clarifies the meaning of "market confidence" in clause 3, which states: The market confidence objective is: maintaining confidence in the financial system. That is a matter of systemic risk—making sure that the financial system is not imperilled and does not collapse. It has no bearing on whether the financial system is more or less competitive, and no reasonable reading of clause 3 would ever lead one to suppose that it did.

Photo of Sir Nicholas Lyell Sir Nicholas Lyell Conservative, North East Bedfordshire

My hon. Friend is entirely right. Unfortunately, although I would like to think that the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) has made a point with which Ministers can agree, I do not believe that he has.

I do not think that there would be any serious problem with disciplining an undercapitalised player in the market. The fact that the FSA had to consider as an objective our international competitiveness could not possibly inhibit its putting out of business a player who lacked sufficient capital. Nothing could damage the UK's international competitiveness more swiftly than significant players in the UK market going down the drain for lack of capital.

The amendment of the Bill in this respect is the most important point that we shall discuss today. I should like to think that Ministers will offer to go away and reconsider the matter, and I am quite happy that they should agree to do so without obligation. It is highly desirable that they should think again, even if correction has to wait until the Bill is debated in another place.

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury

Amendment No. 192 refers to the maintenance of competition and promotion of United Kingdom competitiveness. However, the right hon. and learned Gentleman has concentrated so far on the competitiveness aspect. Does he envisage greater importance attaching to that than to competition, which has previously appeared to be the main focus of Opposition concern?

Photo of Sir Nicholas Lyell Sir Nicholas Lyell Conservative, North East Bedfordshire

That brings us back to a matter of language, and I am grateful to the Financial Secretary for enabling me to clarify the position.

As I understand his remarks, the hon. Gentleman uses the word "competition" to mean competition within the United Kingdom as regulated, supervised and controlled by the Competition Commission, the Director General of Fair Trading, and so on. That is important, but that was never the key thrust of the Opposition's concerns regarding competitiveness; obviously, we failed to make our point.

There was a period—it may even have extended into this debate—when "competition" and "competitiveness" were used interchangeably. There may have been room for confusion. We support what the Government are doing vis-à-vis the non-distortion of the market by the anti-competitive effects of regulation within the UK market. That is good and detailed and it has my support. However, it does not meet our overall concern, which is that the burden of regulation and the manner of it could damage our international competitive position. That is where further thought is needed, and that is where the Bill needs to be adjusted.

Photo of Michael Spicer Michael Spicer Conservative, West Worcestershire

I may have misheard one of my right hon. and learned Friend's earlier remarks, but I thought I heard him say that the best regulator was competition in the first sense in which the Minister gave it. I understood my right hon. and learned Friend to say that that was at least as important in terms of regulation as international competitiveness.

Photo of Sir Nicholas Lyell Sir Nicholas Lyell Conservative, North East Bedfordshire

My hon. Friend is right. Again, we are into the matter of language. The best regulator is competition in that it keeps businesses up to the mark and makes them provide better products. It possibly makes it less, rather than more, likely that people will be charged for using their access cards in various machines. Competition is plenty of good, healthy businesses competing with one another. It does not matter whether the business is a United Kingdom bank or an American or Japanese bank. In one sense, the healthy effect of competition is the best regulator. However, there is common ground between us that we need regulation as well. That is the subject of the Bill, and in this instance we are discussing the objectives that should be put to the regulators.

I am arguing, in accordance with amendment No. 192, that we should make as part of the objectives not only competition in the internal UK sense in which the Minister and I understand it, but our international competitiveness. That is deeply important.

Photo of Mr Nigel Beard Mr Nigel Beard Labour, Bexleyheath and Crayford

The right hon. and learned Gentleman has introduced the international dimension to the debate. Will he say what would happen to the FSA if it went into international negotiations to establish an international regulatory arrangement, if it had at the centre of its objectives the maintenance of competition and promotion of United Kingdom competitiveness? Those with which it was negotiating would say immediately, "This country is not negotiating to establish the integrity of international financial arrangements. It is negotiating to give the United Kingdom a strong competitive edge." The negotiations would therefore fail.

Photo of Sir Nicholas Lyell Sir Nicholas Lyell Conservative, North East Bedfordshire

The hon. Gentleman is probably wrong about that, but in any event it is not what we are discussing. If we were setting up an international regulatory system, which is not what we are doing—you will call me to order, Mr. Deputy Speaker, if I go on too long about this—but which to some extent we have under European directives, our objective would at least be to ensure that the international competitiveness of the United Kingdom would not be damaged by that system. The hon. Gentleman can go along with me to the extent that it should be one of our objectives to safeguard—I think that "promote" is a perfectly fair word—our international competitiveness. I understand the point that the hon. Gentleman is making, but I think that he makes too much of it.

I stand by the desirability, as I thought we all did, of the United Kingdom financial services market being highly competitive. That is our objective. I shall conclude with the words of Don Cruickshank in his letter to the Chancellor of the Exchequer of 22 July 1999. When asked to look at the international position vis-à-vis the banking sector, he made the following point: Our priority should be to develop a strategy for striking the optimal balance between competition and necessary regulation. In the search for a higher sustainable growth rate for the UK beyond a stable low inflation macro-economic climate, there is in my view nothing more worth while for government to do than to get this balance right. At the moment we have not got it right, and our new clause would help us to do so.

Photo of Andrew Tyrie Andrew Tyrie Conservative, Chichester

It is annoying to speak after my right hon. and learned Friend because one always finds that he has stolen a little of one's thunder. I had intended to quote the same passage from the Cruickshank report. However, I am sure that I shall find other passages on which to draw.

The absence of a countervailing pressure on the FSA to set against the urge to regulate lies at the heart of the our anxieties about the Bill. We have said from the start that stronger provisions to inculcate competition and encourage international competitiveness should be included in it. Despite the Government's new clauses, such provisions will remain lacking.

There are three major lacunae. First, the FSA's overwhelming incentive will be to watch its back so that no one accuses it of failing to regulate strongly enough. When Conservative Members said that in Committee, we were accused of simply representing City interests. However, the consumer will pay for excessive regulation to ensure that the FSA watches its back. The consumer always pays when competition is eroded through increased regulation. The failure to strike a balance between regulation and competition, to which my right hon. and learned Friend the Member for North-East Bedfordshire (Sir N. Lyell) alluded, is a central weakness in the measure.

The second lacuna relates to the point that my hon. Friend the Member for West Worcestershire (Sir M. Spicer) made a moment ago. It is not sufficiently well understood that competition acts as a regulator. It is often the best regulator. That applies especially to new entrants into a market. The scope for new entry into a market is especially vulnerable to high levels of regulation because the detailed knowledge that is required to get into a market inhibits new entrants. However, new entrants often create greater competition—that is the so-called theory of creative destruction that Schumpeter propounded in the 1930s. He argued that competition was not necessarily achieved through lower prices, but through people entering markets and offering new and better products.

My right hon. and learned Friend the Member for North-East Bedfordshire alluded to the third lacuna. It is competitiveness, on which the Bill is almost silent. The Financial Secretary to the Treasury asked an important question, and was thinking his way through to the answer as he listened to my right hon. and learned Friend's response. Improved competition will almost always lead to improved economic performance, but better regulation may make no difference. Indeed, competitiveness could be eroded by regulation that is introduced to ensure that there is no miscreant or bad apple in the barrel. That trade-off goes to the heart of our anxieties.

The Government's response has been to deny the fact that there is a trade-off between regulation and economic performance. They claim that perfect regulation will lead to maximum probity and credibility in the market, and to respect for the product from consumers and foreign counterparts. According to that theory, there is no need for checks and balances in the system because there is a happy coincidence of interests between optimal regulation for the prevention of financial crime and misdemeanours, and optimal economic performance. Regrettably, that is not the case. There is a tension between those two objectives and the FSA will have to deal with it—day in, day out. Our concern is that that balance has not been addressed properly by the Bill, which is why we have tabled amendments so vigorously. We believe that the FSA must be required by statute to take that trade-off fully into account, and the only way to achieve that is by including competition in the Bill as an objective.

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Cruickshank's report is important in that respect. I do not know the official Opposition position on it, but I think that it is an outstanding and brief exposition that anyone interested in these matters should read. It talks about striking the right balance—the very balance to which I have alluded. Cruickshank made that a sub-heading of the document and his letter to the Chancellor described the trade-off between the objectives of regulation and economic performance, but I will not detain the House by reading the passage out.

The question of whether the Government's new clauses respond adequately to the Cruickshank report and take those concerns into account is crucial. They were tabled only a few days ago. As they deal with the heart of what we have been discussing for months and months, it would have been immensely helpful had they been tabled earlier. The report was published in July, but the competition clauses were not dealt with in Committee until November, so although the Government had ample time, they waited until the Bill was on Report to table new clauses. Conservative Members, the House, the City and the industry all regret that.

How far have the Government gone towards meeting Cruickshank's six recommendations? I shall not go through them all, but should refer to two. The most important recommendation is the first. The report unequivocally states: the FSA should have a primary competition objective, in addition to its regulatory objectives. It forms the second, emboldened paragraph of annexe 3—it is crucial. Cruickshank says, more or less, that unless it is implemented, all his other recommendations, whether implemented or not, will be mere sticking plaster to patch up something that will inevitably be inadequate and second best. On page 13, he says: Getting the regulator's primary statutory duties right is essential … A competition objective that is weak relative to the regulator's other objectives is unlikely to be delivered effectively. He makes it clear that his other recommendations would be far less effective without that central objective, but that is exactly the route the Government have taken. They have left competition as a principle and introduced changes to the competition regime without including it in the Bill as a central objective, although they have moved on Cruickshank's other recommendations, reducing the extent of the financial sector's exclusion from general United Kingdom competition law and strengthening Office of Fair Trading oversight. There has been some progress.

The Government have failed to take up Cruickshank's unequivocal recommendations on a further crucial question. The report said that the Competition Commission's findings, not those of the Treasury, should be the final arbiter. I remain concerned that the revised new clause leaves much more discretion to the Treasury than initially appears to be the case. The Minister has gone some way towards assuring me about subsection (3)(a), but I remain concerned about the wording and about what "exceptional circumstances" could be taken to mean.

The Treasury can decide that there are exceptional circumstances, so that it can overrule—

Photo of Andrew Tyrie Andrew Tyrie Conservative, Chichester

The Minister shakes her head as if I am getting this wrong. If I am wrong I should be grateful if she would clarify where in the Bill "exceptional circumstances" are explicitly limited so that we can be sure of what the phrase means. Can she do that and go beyond the mere assurances that she has already given us?

Photo of Miss Melanie Johnson Miss Melanie Johnson Economic Secretary, HM Treasury

Briefly, I have described how "exceptional circumstances" are to be regarded. I gave the assurance that any reason why the Treasury had to override any proposal or report would be laid before the House and we would expect debate on it. I covered that fully in my earlier remarks.

Photo of Andrew Tyrie Andrew Tyrie Conservative, Chichester

What assurance do we have that the Treasury cannot define "exceptional circumstances" widely? All we have are the Minister's assurances. We do not have any statutory limitation to the exercise of the Treasury's power in this area. I hoped that there would be and I remain concerned about the drafting of new clause 29 as a consequence.

The Government's new clauses remain out of kilter with Mr. Cruickshank's central demands. He demanded that the Treasury be kept out of this altogether, but that is not what we have. He said that we should avoid a blurring of responsibility for the delivery of the competition objective, but we have blurring. The competition objective is weakly included in the FSA statement of principles. The OFT is to play a major role, the Competition Commission is to be an appeals system and the Treasury has the power of override, limited by the phrase "exceptional circumstances" which is as yet untested.

If the Minister is to reply, I should be grateful if she could clarify one point. As I understand it, under the Competition Act 1998, a ruling by the Competition Commission may go to appeal on a point of law. Would the FSA have the right to appeal against a Treasury ruling in the event of there being a dispute on a point of law, or is the FSA excluded from access to the courts in this area?

More generally, I remain concerned that Cruickshank's primary recommendations have been wholly ignored. As he himself makes clear, without that first basic building block of competition as a primary objective, most of his other recommendations will be difficult to implement. Furthermore, in the long run, the dynamic effects of the inadequate treatment of competition could be profound for the City. He points to the danger of damage to the City through inadequate consideration of the dynamic effects of weakened competition.

Finally, as my right hon. and learned Friend the Member for North-East Bedfordshire said a moment ago, the FSA is required to have no more than "regard to" the United Kingdom's competitive position. That is hopelessly inadequate. Of all the provisions in the Bill, that is the one that I hope we will find legislative time to put right when we return to power, which we will.

Photo of Miss Melanie Johnson Miss Melanie Johnson Economic Secretary, HM Treasury

It will happen a long time from now, then. It has been difficult at times to understand whether the Opposition's view is that competition should become an objective, or that competitiveness should. Conservative Members have each advanced different arguments. I am left uncertain as to what the official Opposition view is. May I explain the Government's view?

Photo of Miss Melanie Johnson Miss Melanie Johnson Economic Secretary, HM Treasury

Clearly, I am about to get clarification. I am grateful to the hon. Gentleman.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

Amendment No. 192 sets out that which we wish to add as an objective: competition and competitiveness.

Photo of Miss Melanie Johnson Miss Melanie Johnson Economic Secretary, HM Treasury

The amendment sets out what the hon. Gentleman wishes to do, but I am still not clear what Conservative Members' real position is and what the real Opposition view is. Let me tackle both questions.

If competition is an FSA objective, it will, in effect, become another competition authority. It will also have competing objectives. In the event of conflict, it would go either down a particular path, or down no particular path, under certain conditions. It will leave the FSA in considerable difficulty as it carries out the objectives. It is not appropriate for competition to be an FSA objective.

I endorse the enthusiasm with which the hon. Member for West Worcestershire (Sir M. Spicer) pushed for recognition of the importance of competition and competitiveness. The Government recognise both the importance of competition and the value of competitiveness. We think that they are both important. None of us in the Chamber disagrees about that. We disagree about what the effect of including competition in the FSA's objectives would be and what the effect is of where it appears: under the principles in clause 2(3). We looked at the matter at considerable length. We responded to the Cruickshank review in July. A press release was issued when the matter was discussed in Committee in November. Don Cruickshank said: I am not wedded to any particular means of achieving this, and I will welcome any changes to the Bill which deliver the outcome in practice. The only issue has been how to deliver that in practice. There is no disagreement about the fact that competition is important and must be an issue that the FSA has regard to in all its dealings as a regulator.

Photo of Sir Nicholas Lyell Sir Nicholas Lyell Conservative, North East Bedfordshire

The Minister said that if competition and competitiveness were made an objective, it would make the FSA a competition regulator and a competition authority. Will she please reconsult her advisers and inform herself that that is nonsense? It would have no such effect. It would not put the FSA into the position of the Competition Commission, which seems to be what she fears. It would do what I am pleased to hear there is common ground about: put the competitiveness of the UK financial service markets in the Bill as an objective.

Photo of Miss Melanie Johnson Miss Melanie Johnson Economic Secretary, HM Treasury 6:15 pm, 27th January 2000

I do not agree with the right hon. and learned Gentleman on that, and I shall not change my comments on the matter. We already have a body whose prime responsibility is to ensure that competition is engaged in wholeheartedly in all sectors of the economy, and that body is the Competition Commission. The commission, not the FSA, has that role and those functions. The Government do not disagree with his point that the FSA must have regard to competition. As I said, we considered different formulations of "regard to".

Photo of Sir Nicholas Lyell Sir Nicholas Lyell Conservative, North East Bedfordshire

The Minister said that she disagrees with what I have said. Will she examine the record, write me a letter explaining why she disagrees, and place a copy in the Library?

Photo of Miss Melanie Johnson Miss Melanie Johnson Economic Secretary, HM Treasury

I shall consider the right hon. and learned Gentleman's request, although I am not sure that any useful purpose would be served by my complying with it.

As I explained, if there were a better formulation of "must have regard to", it is certainly not "seek to", as that would weaken the provision's force.

We have considered how best to address the competition issue in the formulation of the Bill's wording. As clause 2(3) states, in conducting its business, the authority must have regard to various specified principles. We believe that the strength of the injunction and the duty imposed on the authority by the subsection will ensure that, in seeking to achieve its objectives, the authority will give full consideration to all aspects of its duty, including the particularly contentious issue of competition and competitiveness.

Photo of Michael Spicer Michael Spicer Conservative, West Worcestershire

I am grateful to the Minister for giving way, not only because of the lateness of the hour, but because, earlier she said that she was on my side—which seemed to worry the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) a bit. However, if there are various bodies with different objectives, how will we decide who should win?

Photo of Miss Melanie Johnson Miss Melanie Johnson Economic Secretary, HM Treasury

We drafted the clause with that in mind.

Many hon. Members expressed an interest in the United Kingdom's international competitiveness. Clause 2(3)(e) provides that, in performing its duties, the authority must have regard not only to competition, but to the international character of financial services and markets and the desirability of maintaining the competitive position of the United Kingdom". That requirement has now been encapsulated and included in the principles governing how the FSA does its business. It also addresses the issue of whether it is appropriate to impose such an obligation on the FSA. Some aspects of competitiveness are the Government's responsibility. There are aspects of competitiveness that are the industry's responsibility. The Bill encapsulates the responsibilities of the FSA in that regard.

The hon. Member for Arundel and South Downs (Mr. Flight) called the Competition Commission the piggy-in-the-middle in this matter. That is most unfair. The Competition Commission will take the place occupied by Ministers in the competition scrutiny regime. It, rather than Ministers, will take the final decision on whether a rule or practice is anti-competitive, or whether it is justified. The commission's decision will stand and will be put into effect, unless exceptional circumstances—some of which I set out earlier—lead Ministers to a different conclusion. Far from being the piggy-in-the-middle, the Competition Commission will be the final arbiter of competition matters.

Finally, several hon. Members have said how important it is to get the right balance between competition and competitiveness, and regulation. All have their proper role to play, but it is misleading to suggest that good regulation is anything other than an asset. The circumstances governing the competitiveness of the City of London are important, but so is the very good regulation in the UK, which continues to assure the City's position in the global market.

Photo of Sir Nicholas Lyell Sir Nicholas Lyell Conservative, North East Bedfordshire

The Minister is disagreeing with Don Cruickshank, the whole point of whose report was to tell the Government that the "have regard to" formula in clause 2(3), on which she is relying, is too weak. The report called on her to extend the regulatory functions in clause 2(2) to cover the requirements set out in clause 2(3).

Photo of Miss Melanie Johnson Miss Melanie Johnson Economic Secretary, HM Treasury

As I said earlier, in his comments on his interim report and the Bill, Don Cruickshank said that he was not wedded to any particular means of achieving the balance between competition and competitiveness. We do not believe that the Opposition amendments would be useful in that regard, whereas we consider that the Government amendments will achieve the balance that we seek. They give full force to the role of competition when the FSA considers how it should perform its business.

I commend the measures to the House.

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

The debate has been about a fundamental aspect of the Bill that goes to the core of what the FSA is set up to do. The Minister's responses have not measured up to the importance of the subject, and there has been no real attempt to answer the many questions of Opposition Members.

The Liberal Democrats tabled one sad little amendment that was not selected. That lack of enthusiasm is not surprising: almost no Liberal Democrat Members turned up to the sittings of the Standing Committee, which ran from last July to just before Christmas. Given that they could find no one to man the Benches then, it is hardly surprising that none has intervened in the debate. But given that that party is inclined to lecture the rest of us about the need for parliamentary scrutiny and all the changes it wants to improve it, it is treating the House with some contempt when it does not bother to put in the hours and the work to hold the Government to account on a Bill of this importance.

The Minister started her last speech rather unfortunately by saying that she was not clear whether we supported competitiveness or competition, when it is perfectly clear in our amendments, particularly amendment No. 192, that it is both. All my right hon. and hon. Friends who have spoken have made perfectly clear their concerns about both. If the hon. Lady has not understood our position on that, she cannot have been listening to us.

It is really quite simple: we want to elevate the importance of competition at home and the maintenance of international competitiveness to being an objective of the FSA. At present they are referred to as principles to which it must have regard. We are trying to do so on behalf of consumers at home, who will be better protected by a fully competitive market, and the million or so people who work in the industries concerned, whose jobs depend on maintaining international competitiveness.

This is a vulnerable, fragile market in a ferociously competitive global environment. Nothing that the regulator does must needlessly undermine that competitiveness. Therefore, it is essential that it be elevated from being simply a principle to which the authority must have regard to an objective that must be pursued. That is why Mr. Cruickshank in his report emphasised the importance of making competition an objective in the Bill.

Instead of that comparatively simple approach, the Government now wish to erect a fantastically complicated bureaucratic system, whereby supposed inadequacies in the Bill and in the way in which the FSA exercises its authority on this subject are referred to the Director-General of Fair Trading, then to the Competition Commission and then to the Treasury, which will have the final say, and then back to the authority to make the changes. How much better it would be to put in the Bill the duty, the obligation, the requirement, the objective of competition so that the FSA can do it right at the start.

Photo of Sir Nicholas Lyell Sir Nicholas Lyell Conservative, North East Bedfordshire

Does my right hon. Friend agree that this is all pointless on the key question of international competitiveness, because under the Competition Act 1998 none of these important bodies has any role in that repect whatsoever?

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

My right hon. and learned Friend reminds me of that essential point. International competitiveness is nothing to do with the authority's duty, so that would go entirely by the board.

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

I hope that the hon. Gentleman will forgive me if I do not give way. I am concluding.

To express our dismay over the way in which the whole issue of competition has been handled, we shall divide the House on new clause 27, as a mark of our suspicions and doubts not only about the new competition authority, but, more important, about the Government's wholesale rejection of our alternative approach, which would be simple and which has the support of outside commentators and experts, including Mr. Don Cruickshank. We believe that a Division is essential to demonstrate those points.

Question put, That the clause be read a Second time:—

The House divided: Ayes 282, Noes 124.

Division No. 53][6.28 pm
AYES
Adams, Mrs Irene (Paisley N)Campbell, Alan (Tynemouth)
Ainger, NickCampbell, Rt Hon Menzies (NE Fife)
Ainsworth, Robert (Cov'try NE)
Alexander, DouglasCampbell, Ronnie (Blyth V)
Allan, RichardCann, Jamie
Allen, GrahamCaplin, Ivor
Anderson, Donald (Swansea E)Casale, Roger
Anderson, Janet (Rossendale)Cawsey, Ian
Armstrong, Rt Hon Ms HilaryChapman, Ben (Wirral S)
Ashton, JoeChaytor, David
Atkins, CharlotteClark, Dr Lynda (Edinburgh Pentlands)
Austin, John
Ballard, JackieClarke, Eric (Midlothian)
Banks, TonyClarke, Rt Hon Tom (Coatbridge)
Barnes, HarryClarke, Tony (Northampton S)
Barron, KevinClelland, David
Battle, JohnClwyd, Ann
Bayley, HughCohen, Harry
Beard, NigelColeman, Iain
Beckett, Rt Hon Mrs MargaretColman, Tony
Beith, Rt Hon A JCook, Frank (Stockton N)
Bell, Martin (Tatton)Corbett, Robin
Bell, Stuart (Middlesbrough)Corbyn, Jeremy
Benn, Hilary (Leeds C)Cotter, Brian
Benn, Rt Hon Tony (Chesterfield)Cousins, Jim
Bennett, Andrew FCranston, Ross
Benton, JoeCryer, John (Hornchurch)
Berry, RogerCurtis-Thomas, Mrs Claire
Best, HaroldDarvill, Keith
Betts, CliveDavey, Valerie (Bristol W)
Blackman, LizDavidson, Ian
Blears, Ms HazelDavies, Rt Hon Denzil (Llanelli)
Blizzard, BobDawson, Hilton
Bradley, Keith (Withington)Dean, Mrs Janet
Bradley, Peter (The Wrekin)Denham, John
Brand, Dr PeterDismore, Andrew
Breed, ColinDobbin, Jim
Brinton, Mrs HelenDonohoe, Brian H
Brown, Rt Hon Nick (Newcastle E)Dowd, Jim
Browne, DesmondDrew, David
Burden, RichardEagle, Angela (Wallasey)
Burnett, JohnEagle, Maria (L'pool Garston)
Edwards, HuwLiddell, Rt Hon Mrs Helen
Efford, CliveLloyd, Tony (Manchester C)
Ellman, Mrs LouiseLlwyd, Elfyn
Ennis, JeffLock, David
Fearn, RonnieLove, Andrew
Field, Rt Hon FrankMcAvoy, Thomas
Fisher, MarkMcCabe, Steve
Fitzpatrick, JimMcCartney, Rt Hon Ian (Makerfield)
Flint, Caroline
Follett, BarbaraMcDonagh, Siobhain
Foster, Rt Hon DerekMacdonald, Calum
Foster, Don (Bath)McDonnell, John
Foster, Michael Jabez (Hastings)McGuire, Mrs Anne
Foster, Michael J (Worcester)McIsaac, Shona
Gapes, MikeMcKenna, Mrs Rosemary
Gardiner, BarryMackinlay, Andrew
Gerrard, NeilMaclennan, Rt Hon Robert
Gibson, Dr IanMcNulty, Tony
Godsiff, RogerMacShane, Denis
Goggins, PaulMactaggart, Fiona
Gordon, Mrs EileenMcWalter, Tony
Griffiths, Jane (Reading E)McWilliam, John
Griffiths, Win (Bridgend)Mahon, Mrs Alice
Grocott, BruceMarsden, Gordon (Blackpool S)
Grogan, JohnMarshall, David (Shettleston)
Hain, PeterMarshall-Andrews, Robert
Hall, Mike (Weaver Vale)Maxton, John
Hall, Patrick (Bedford)Meale, Alan
Harris, Dr EvanMerron, Gillian
Heal, Mrs SylviaMichie, Bill (Shef'ld Heeley)
Healey, JohnMilburn, Rt Hon Alan
Heath, David (Somerton & Frome)Miller, Andrew
Henderson, Ivan (Harwich)Mitchell, Austin
Hepburn, StephenMoore, Michael
Heppell, JohnMoran, Ms Margaret
Hesford, StephenMorris, Rt Hon Ms Estelle (B'ham Yardley)
Hewitt, Ms Patricia
Hill, KeithMountford, Kali
Hoey, KateMudie, George
Hood, JimmyMullin, Chris
Hope, PhilMurphy, Denis (Wansbeck)
Hopkins, KelvinMurphy, Jim (Eastwood)
Hoyle, LindsayMurphy, Rt Hon Paul (Torfaen)
Hughes, Kevin (Doncaster N)Naysmith, Dr Doug
Humble, Mrs JoanO'Brien, Mike (N Warks)
Hurst AlanOlner, Bill
Hutton, JohnO'Neill, Martin
Iddon, Dr BrianOrgan, Mrs Diana
Illsley, EricPearson, Ian
Ingram, Rt Hon AdamPendry, Tom
Jackson, Helen (Hillsborough)Perham, Ms Linda
Jenkins, BrianPickthall, Colin
Johnson, Alan (Hull W & Hessle)Pike, Peter L
Johnson, Miss Melanie
(Welwyn Hatfield)Plaskitt, James
Pollard, Kerry
Jones, Helen (Warrington N)Pond, Chris
Jones, Ms Jenny (Wolverh'ton SW)Pope, Greg
Pound, Stephen
Jones, Jon Owen (Cardiff C)Prentice, Ms Bridget (Lewisham E)
Jones, Dr Lynne (Selly Oak)Prentice, Gordon (Pendle)
Jones, Martyn (Clwyd S)Prosser, Gwyn
Jowell, Rt Hon Ms TessaPurchase, Ken
Keen, Alan (Feltham & Heston)Quinn, Lawrie
Kelly, Ms RuthRadice, Rt Hon Giles
Kemp, FraserReed, Andrew (Loughborough)
Kennedy, Jane (Wavertree)Roche, Mrs Barbara
Khabra, Piara SRooker, Rt Hon Jeff
Kilfoyle, PeterRoy, Frank
King, Andy (Rugby & Kenilworth)Ruddock, Joan
King, Ms Oona (Bethnal Green)Russell, Bob (Colchester)
Kirkwood, ArchyRussell, Ms Christine (Chester)
Kumar, Dr AshokRyan, Ms Joan
Ladyman, Dr StephenSalter, Martin
Laxton, BobSarwar, Mohammad
Leslie, ChristopherSavidge, Malcolm
Lewis, Ivan (Bury S)Sedgemore, Brian
Sheerman, BarryTurner, Dennis (Wolverh'ton SE)
Sheldon, Rt Hon RobertTurner, Dr Desmond (Kemptown)
Shipley, Ms DebraTurner, Neil (Wigan)
Short, Rt Hon ClareTwigg, Derek (Halton)
Simpson, Alan (Nottingham S)Tynan, Bill
Singh, MarshaVaz, Keith
Skinner, DennisWalley, Ms Joan
Smith, Rt Hon Andrew (Oxford E)Ward, Ms Claire
Smith, Angela (Basildon)Watts, David
Smith, John (Glamorgan)White, Brian
Smith, Llew (Blaenau Gwent)Whitehead, Dr Alan
Snape, PeterWicks, Malcolm
Soley, CliveWilliams, Rt Hon Alan (Swansea W)
Southworth, MS Helen
Williams Mrs Betty (conwy)
Starkey, Dr PhyllisWillis Phil
Steinberg, GerryWilson, Brian
Stinchcombe, PaulWinnick, David
Stoate, Dr HowardWinterton, Ms Rosie (Doncaster C)
Stunell, AndrewWise, Audrey
Taylor, Ms Dari (Stockton S)Wood, Mike
Temple-Morris, PeterWoolas, Phil
Thomas, Gareth R (Harrow W)Worthington, Tony
Timms, StephenWray, James
Tipping, PaddyWright, Dr Tony (Cannock)
Todd, Mark
Touhig, DonTellers for the Ayes:
Trickett JonMr. David Jamieson and
Truswell, PaulMr. Gerry Sutcliffe.
NOES
Ainsworth, Peter (E Surrey)Hague, Rt Hon William
Amess, DavidHamilton, Rt Hon Sir Archie
Arbuthnot, Rt Hon JamesHammond, Philip
Baldry, TonyHawkins, Nick
Beggs, RoyHayes, John
Bercow, JohnHeald, Oliver
Beresford, Sir PaulHeathcoat-Amory, Rt Hon David
Blunt, CrispinHogg, Rt Hon Douglas
Boswell, TimHoram, John
Brady, GrahamHoward, Rt Hon Michael
Brazier, JulianHowarth, Gerald (Aldershot)
Brooke, Rt Hon PeterHunter, Andrew
Browning, Mrs AngelaJack, Rt Hon Michael
Bruce, Ian (S Dorset)Jenkin, Bernard
Burns, SimonKey, Robert
Butterfill, JohnKing, Rt Hon Tom (Bridgwater)
Cash, WilliamKirkbride, Miss Julie
Chope, ChristopherLait, Mrs Jacqui
Clark, Dr Michael (Rayleigh)Leigh, Edward
Collins, TimLetwin, Oliver
Cran, JamesLewis, Dr Julian (New Forest E)
Curry, Rt Hon DavidLidington, David
Davies, Quentin (Grantham)Lloyd, Rt Hon Sir Peter (Fareham)
Davis, Rt Hon David (Haltemprice)Loughton, Tim
Day, StephenLuff, Peter
Donaldson, JeffreyLyell, Rt Hon Sir Nicholas
Dorrell, Rt Hon StephenMcIntosh, Miss Anne
Duncan Smith, IainMacKay, Rt Hon Andrew
Evans, NigelMaclean, Rt Hon David
Faber, DavidMcLoughlin, Patrick
Fabricant, MichaelMadel, Sir David
Fallon, MichaelMajor, Rt Hon John
Right, HowardMay, Mrs Theresa
Forth, Rt Hon EricMoss, Malcolm
Fox, Dr LiamNicholls, Patrick
Fraser, ChristopherNorman, Archie
Gale, RogerO'Brien, Stephen (Eddisbury)
Gibb, NickPaice, James
Gill, ChristopherPaterson, Owen
Gillan, Mrs CherylPickles, Eric
Gorman, Mrs TeresaPortillo, Rt Hon Michael
Gray, JamesPrior, David
Green, DamianRedwood, Rt Hon John
Greenway, JohnRobathan, Andrew
Grieve, DominicRobertson, Laurence
Roe, Mrs Marion (Broxbourne)Taylor, Sir Teddy
Rowe, Andrew (Faversham)Trend, Michael
St Aubyn, NickTyrie, Andrew
Sayeed, JonathanViggers, Peter
Shephard, Rt Hon Mrs GillianWalter, Robert
Shepherd, RichardWaterson, Nigel
Smyth, Rev Martin (Belfast S)Wells, Bowen
Soames, NicholasWhitney, Sir Raymond
Spelman, Mrs CarolineWhittingdale, John
Spicer, Sir MichaelWiddecombe, Rt Hon Miss Ann
Spring, RichardWilletts, David
Stanley, Rt Hon Sir JohnWinterton, Mrs Ann (Congleton)
Steen, AnthonyWinterton, Nicholas (Macclesfield)
Streeter, GaryYeo, Tim
Swayne, DesmondYoung, Rt Hon Sir George
Syms, Robert
Tapsell, Sir PeterTellers for the Noes:
Taylor, Ian (Esher & Walton)Mr. Keith Simpson and
Taylor, John M (Solihull)Mr. John Randall.

Question accordingly agreed to.
Clause read a Second time, and added to Bill.