Financial Regulation

Oral Answers to Questions — Treasury – in the House of Commons at 2:30 pm on 8th February 2011.

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Photo of Karl McCartney Karl McCartney Conservative, Lincoln 2:30 pm, 8th February 2011

What progress he has made in reforming the tripartite system of financial regulation.

Photo of Jane Ellison Jane Ellison Conservative, Battersea

What progress he has made in reforming the tripartite system of financial regulation.

Photo of David Tredinnick David Tredinnick Conservative, Bosworth

What progress he has made in reforming the tripartite system of financial regulation.

Photo of George Osborne George Osborne The Chancellor of the Exchequer

The tripartite system of financial regulation put in place by the new Chancellor and his advisers in 1997 failed spectacularly and cost the British people billions of pounds. That is why we are replacing the tripartite system with a much tougher and more coherent regime led by the Bank of England. We aim to have that system in place by the end of 2012. I repeat what I just said: we have today increased the rate of the Government's permanent bank levy for this year in order to raise £2.5 billion net. This will mean that the banks pay more in tax in each and every year of this Government than they did in the last year of the previous Government. Through this new bank tax being made permanent and with the revenue announcement today, the banks will be making a fairer contribution to our economic recovery.

Photo of Karl McCartney Karl McCartney Conservative, Lincoln

Does my right hon. Friend regret the fact that the system of financial regulation, which was drawn up by Ed Balls, failed to prevent the greatest financial crisis in our country in living memory?

Photo of George Osborne George Osborne The Chancellor of the Exchequer

Of course I regret it, because we are all having to deal with the consequences. We still do not know-the legislation will come before the House of Commons-whether the Opposition support changing the system of regulation that was established by Ed Balls in 1997. I guess we will find out. The Government are clear-we must fix the system of regulation that went so badly wrong, and we believe that giving the Bank of England the lead responsibility on that will help.

Photo of Jane Ellison Jane Ellison Conservative, Battersea

As the Chancellor knows, the Leader of the Opposition has admitted that the previous Government got regulation wrong. One area that was wrong was inadequate customer protection in the consumer credit market. Given considerable recent interest in the subject in the House, can he update us on the creation of the consumer protection agency?

Photo of George Osborne George Osborne The Chancellor of the Exchequer

My hon. Friend is right. It was an interesting admission from the Leader of the Opposition that things started to go badly wrong when he was an adviser at the Treasury. Maybe the man he did the photocopying for will make a similar admission. The creation of a consumer protection and markets agency will provide a stronger consumer voice and a consumer champion. It will be a world-class regulator. We are assembling the right team to run that agency, including many talented people who were at the Financial Services Authority. I am delighted that Martin Wheatley has been appointed as the chief executive designate. He has an outstanding record as a regulator around the world and his arrival bodes well for the future of the new agency.

Photo of David Tredinnick David Tredinnick Conservative, Bosworth

Was the three-way split in financial regulation the worst financial decision taken by the previous Government, or has something else caught my right hon. Friend's eye?

Photo of George Osborne George Osborne The Chancellor of the Exchequer

There is the selling off of the gold at a record low and the pensions tax that destroyed our pensions system, but I have to say that, in terms of sheer cost to the British taxpayer, the system of regulation designed by the shadow Chancellor was pretty catastrophic.

Photo of Sharon Hodgson Sharon Hodgson Shadow Minister (Education)

Why did the Chancellor endorse the report published by Mr Redwood just a few weeks before the collapse of Northern Rock, which called for the deregulation of the mortgage market? Does he still support its conclusions?

Photo of Chris Ruane Chris Ruane Labour, Vale of Clwyd

Come on, straight answer.

Photo of George Osborne George Osborne The Chancellor of the Exchequer

The new Parliamentary Private Secretary is barracking; what a shame he has moved four Benches down, because he is probably going to get louder. I can tell the hon. Lady that I explicitly disagreed with that recommendation in the report at the time.

Photo of Stewart Hosie Stewart Hosie SNP Chief Whip, SNP Deputy Leader, Shadow SNP Spokesperson (Treasury)

It is understood that the new Prudential Regulation Authority intends to do less than the Financial Services Authority did to reduce the probability of bank failure. Given that the failure of any bank, even with a proper resolution regime, could contribute to a systemic crisis in confidence, can I have the Chancellor's assurance that he will put all the pressure he can on the PRA to ensure that it continues with active supervision to minimise the probability of bank failure at any level?

Photo of George Osborne George Osborne The Chancellor of the Exchequer

The hon. Gentleman can rest assured that I will certainly do that. I do not think that he has given a fair representation of the role that we expect the prudential regulator to fulfil. What I will say about the prudential regulator and the fact that it will come under the aegis of the Bank of England is this: I hope that it will exercise discretion and judgment as well as simply making sure that boxes are ticked. The decision to allow Royal Bank of Scotland to buy ABN AMRO in 2007 might have ticked the various boxes in the regulations at the time, but it was clearly the wrong judgment. I expect and hope that in future our new regulator would be able to step in at that point.

Photo of Angela Eagle Angela Eagle Shadow Chief Secretary to the Treasury

Instead of making politically convenient and economically ludicrous pronouncements that it was the UK's tripartite system of banking regulation that somehow caused the global credit crunch, can the Chancellor explain to the House why his own flagship banking reforms are now running late and why his cosy private talks with the banks on bonuses have failed to materialise? Was not today's panic announcement just further proof that with this Chancellor, as CBI chief Richard Lambert has said, it is all politics and no economics?

Photo of George Osborne George Osborne The Chancellor of the Exchequer

The hon. Lady asks why the legislation is "running late". The previous shadow Chancellor wrote to me and asked for pre-legislative scrutiny, and I agreed to the request. Obviously, that has not been communicated to those on the Opposition Front Bench.