What discussions he has had with the Financial Services Authority on its decision to lift the ban on short selling in the financial markets; and if he will make a statement.
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The UK tripartite authorities—the Treasury, the Bank of England and the Financial Services Authority—are working closely together to ensure the stability of the UK financial system. The FSA, as an independent regulator, reviewed its ban and decided not to maintain it. It stands ready to reintroduce the ban should circumstances require it.
I thank my hon. Friend for that answer, but the FSA has let the public and business down, and it acts like a toothless tiger. It is time that it got tough. The only time that it got tough was on short selling, and what did it do? It withdrew the ban. The time has come for the Minister to introduce strong regulation and make the FSA use it, because the people of this country would not forgive it if this were to happen again. Let us get tough and take action now.
I understand what my hon. Friend says about tough regulation, but I have to say that there is no evidence that hedge funds and speculators are short selling and driving down the stock of banks at the moment. There is a short selling disclosure regime in place, whereby if short selling transactions reach 0.25 per cent. they must be disclosed. All the evidence that we have at the moment shows that there is no significant short selling activity in bank stocks. Of course the FSA, as the independent regulator, will continue to monitor the situation and stands ready to reintroduce a ban if it is necessary to do so.
I am not distancing myself from it at all. I am just making it clear that the FSA is an independent regulator and takes its own decisions, although it works closely with the other tripartite authorities, the Bank of England and ourselves in Her Majesty's Treasury. As the hon. Gentleman will know, in addition to the current temporary disclosure regime, the FSA is proposing greater transparency in short selling more generally. We believe that that is important and can help to protect all UK firms, not just those in the financial sector. A discussion document was issued just over a week ago on this issue.
In his discussions with the FSA, will my hon. Friend ask for an explanation of why the building societies pay 15 per cent. of their pre-tax profits into the Financial Services Compensation Scheme while the banks pay only 5 per cent.? Will my hon. Friend meet colleagues and representatives of the building societies?
My hon. Friend refers to the Financial Services Compensation Scheme. We consulted on the rules over a couple of years, and the scheme was introduced in April 2008. I remember that, at the time, the building societies said that they wanted to be in the same category as the banks for deciding the rate that they pay for their protected deposits. They might have changed their minds since, and they will want to take that up with the FSA as an independent regulator, but I am always happy to meet my hon. Friend to discuss any problems.
Perhaps we should demystify short selling a little. I do not know whether the hon. Gentleman buys goods over the internet, but if one buys books, hi-fi equipment and televisions, they are often bought from a supplier who does not have the goods, but makes a commitment to get them from a purchaser. That is short-selling activity. We believe—and the markets understand—that short selling can help facilitate price discovery, which is important for valuing companies fairly, price efficiency and liquidity in the market. However, we need to ensure great transparency about the matter. We do not want to go back to the days of George Soros, speculation, and major runs on companies and countries. That is why the disclosure regime is important.