I take the hon. Gentleman's point, but one of my recollections of the Northern Rock inquiry was the stand-off position that the FSA adopted regarding individual businesses; I mentioned that earlier in connection with the lack of regulation. The FSA thought that business models were not its priority, but I think that they should be, so we need a cultural change. I believe that we will therefore need extra powers.
The hon. Gentleman's question reminds me of the issue of insider trading. The FSA has been talking to me, and I have been talking to the Government, about the need to examine insider trading. We need to ensure that we have appropriate legislation; at the moment we do not have it. The more pressure we can put on the Government to ensure that the FSA has the powers to deal with insider trading, the better. I believe that in the future, given the cathartic experience we have had, regulation will be a competitive issue for environments in the future. If London develops a good regulatory framework, that will help it to maintain its position.
As for the issue of narrow banking, we must solve the problem of "too big to fail". If we do not, the status quo will continue. When he appeared before the Committee, the Governor of the Bank of England preferred to use the phrase "too important to fail". The problem, as he has noted, is this:
"Anyone who proposed giving government guarantees to retail depositors and other creditors, and then suggested that such funding could be used to finance highly risky and speculative activities, would be thought rather unworldly. But that is where we now are."
Like Dr. Cable, I see no reason for us to have a system that socialises the risks but privatises the profits. If a solution is not found, we will have to admit that we have not a free market in financial services, but a system of what could be described as communism for the rich, in which the state underwrites the enterprises and the bonuses of a select group of bankers. Of course we want the market to work-but in that case, the problem of "too big to fail" must be addressed. That is one of the issues on which the Treasury Committee will continue to focus.
Let me say something about mutualisation. One sad aspect of the financial crisis is that all the former building societies that demutualised in the 1980s and 1990s have disappeared. Perhaps there is a case for us to go back to the future. Mutuals have been shown consistently to give better service and better value for money to their customers than banks, and they consistently score higher in terms of customer satisfaction. I have prodded the Chancellor on this issue. He has said that he does not rule out the remutualisation of Northern Rock, but I agree with my right hon. Friend Mr. Clarke that this is an issue that the Government should take on board.
A big issue arising from the crisis, prompted by the response of the European Commission, is the issue of competition. We need more competition in the banking service. Adam Posen of the Monetary Policy Committee made the same point in his speech. If we do not have that competition-if we are dominated by five or six banks-we will have a monolithic structure. Another big issue is the idea of macro-prudential tools. What that rather fancy term means is anticipating the problems to a certain extent. Can we take risk out of the system? Absolutely not. Can we have a fire brigade that goes to the fire and puts it out before the whole building is on fire, which is what we have experienced? There has been great debate about who does what with the macro-prudential tools, but not about what the tools are. The Committee wants to impress that on the Government.
Public debt is another issue that we must consider as we move forward. I welcome the proposed legislation on fiscal responsibility, but I believe that we must not focus on spending cuts to the exclusion of the social dimension. Accompanying the banking crisis is understandable public anger about the current situation. When we go back to our constituencies and say that we have bailed out the banks, our constituents say, "But we need a new school," or, "We need more police on the streets," or, "We need better buildings and better education." That is what they think of the recapitalisation of the banks. We need to understand that, and to have a strategy to deal with it, but as yet the Government have no strategy.
If we proceed too quickly with spending cuts, the social costs will be extremely high. I was reminded of that yesterday evening when I went to a seminar involving City of London business people. The view was expressed from the platform that spending cuts, if taken too far, would plunge us backwards. Getting the public finances in order is important, but it has dangers if it is taken too quickly. We ignore the social costs of cutting spending at our peril.
There is a big job for the Government: the job of balancing the budget with a fiscal deficit strategy that is both transparent and realistic. That is the examination that the Treasury Committee is undertaking. At the same time, however, we must ensure that we stimulate growth and keep good companies going through this recession, and that we maintain prosperity and opportunities for our constituents and, not least, the young citizens of our country.
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