Financial Services Bill

Part of Oral Answers to Questions — Home Department – in the House of Commons at 9:17 pm on 6th February 2012.

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Photo of David Rutley David Rutley Conservative, Macclesfield 9:17 pm, 6th February 2012

Thank you, Mr Deputy Speaker, for giving me the opportunity to speak in this important debate. Financial stability is the foundation that every economy requires for sustainable growth, so it is critical that we rebuild trust in the financial system and address the continuing crisis of confidence surrounding it. The Bill will play a pivotal role in achieving that objective, and I give it my wholehearted support.

It has been well documented in the debate that the tripartite system, of which the shadow Chancellor was one of the chief architects, comprehensively failed when the credit crunch came along. A lack of clear accountability created real confusion and, instead of seeing an overlap of competing powers—the usual challenge that occurs in bureaucracies—we saw what my hon. Friend David Mowat described as an “underlap”, a potent power vacuum. The Bill rightly seeks to address that problem.

Even before the credit crunch began in earnest, Dr Willem Buiter, a former member of the Monetary Policy Committee, raised his concerns with the Treasury Committee in 2007. He said that the tripartite system was “risky”. He went on:

“It is possible, if you are lucky, to manage it, but it is an invitation to disaster, to delay, and to wrong decisions.”

Sadly, Dr Buiter’s concerns fell on deaf ears. The previous Government failed to heed such warnings and, just a few years later, they were completely unprepared to cope with the credit crunch. It has been left to this Government to clean up the mess, and to put in place a framework for financial stability that will work through the financial cycles. The Bill will play a critical role in that task.

The Bill will move the British financial services sector on from the failed model of the past and, most importantly, seek to address the issue of accountability that was so confused under the previous arrangements. The new framework addresses the key flaw in the old system by putting the accountability back where it belongs—to the Bank of England. Just as the Bill has a clear focus on monetary policy through the Monetary Policy Committee, it will provide a clear focus on financial stability through the Financial Policy Committee. Its job will be to monitor the overall risk in the financial system, to spot dangerous trends and to stop excessive levels of leverage before it is too late. The creation of the FPC is a vital step on from the previous system.

I also welcome the Chancellor’s announcement today about the new oversight committee. The Bank of England will continue to be accountable to Parliament, and the

Treasury Committee will play an important role in guaranteeing oversight of the Bank’s new powers, about which I know some colleagues have expressed their concerns.

With greater accountability and the right tools for facing a crisis, a clearer and more coherent framework will be in place to create the financial stability for which there is this overarching need. We should not forget, however, the importance of the European Union dimension to this debate. As my right hon. Friend Mr Lilley explained earlier, it is vital not to let the EU tie our hands in regulating Britain’s financial services sectors, and vital, too, for the capital requirements directive, currently making its way through Brussels, to give Britain the flexibility to take a robust approach to financial regulation. Britain should work with interested member states to ensure that any future EU regulation respects the rights of individual member states, including Britain, to set their own terms for financial stability.

The Bill’s structures should be designed to achieve that objective, and I know that the creation of the committee that we have discussed today will be a vital step in this direction. Now is not the time to replace a domestic box-ticking agenda, which was so prevalent in the previous Government’s framework, with an EU one, which would be a further disaster.

In my remaining time, I would like to talk about one of the most damaged parts of the existing system—the Financial Services Authority. Plainly, it is no longer fit for purpose. Even the FSA’s own report on the failure of the Royal Bank of Scotland acknowledged its own woeful capability in meeting its dual obligations of oversight and consumer protection. Clearly, it is time for change.

The new framework will help to create a prudential regulation authority and, most importantly for my remaining remarks, the financial conduct authority. I believe that the FCA will help to protect consumers and drive competition. In the UK today, the big four banks have a staggering 77% of personal current accounts, which illustrates how concentrated market power has become in retail banking. All serious commentators recognise that it is time to instil greater competition in the sector.

The barriers to entry for new entrants have simply been too high for too long. This problem must be tackled; I feel very strongly about it. For several years before I was elected as a Member of Parliament, I led Asda’s move into financial services. In so doing, the company genuinely sought to do something more than just add a new brand to familiar products. It was a very challenging process, and it is good to see relatively new entrants there nowadays, such as Metro Bank, the Co-op, Virgin Money and Tesco, working to do things differently from the established high street banks. There is much more work to be done; it is vital that the FCA encourages activity in this area.

Beyond competition, the FCA will have important powers to protect customers from predatory behaviour. Again, it is vital for the FCA to be involved; it must name and shame the firms that are causing the problems. Without that, customers will not have the confidence in the financial markets that underpins an active, productive and, hopefully, world-beating financial services sector here in the UK.

In conclusion, I give my support to this critically important legislation. It has been an honour to be involved in scrutinising parts of the Bill in my capacity as a member of the Treasury Committee. I hope that Members of all parties will support it this evening.