People talk about banking being a very dry subject, but this has been an interesting debate with different views and varying opinions that I have found enjoyable to listen to. I hope I can make a small contribution.
Historically and, indeed, even now financial services and the City have been, and are, a vital part of the UK economy. London in particular and the financial industry in general have made a massive contribution to the prosperity of this country.
London is recognised as one of the, if not the, pre-eminent financial centres in the world. London is a world city, partly because of its location, our language and our legal system, but also because of the financial industry. In our system, there is huge expertise and skill and many successful companies and businesses, not just banks, have their headquarters in England. It is a city that we should be proud of and a financial capital that we should not underestimate.
Through the financial sector and its successes, we have the most precious commodity of all—jobs, and not just in London but up and down the country. There are financial services in my constituency, Carlisle. It is skilled employment that is often well paid and it creates wealth and prosperity for many that goes beyond the financial industry into other aspects of our economy, such as law, accountancy and consultancy as well as other support industries, creating many jobs in the wider economy.
There is also taxation. We should not underestimate the substantial contribution to the public purse made by the financial sector. We might bash bankers, but taxes pay for public services and a high proportion of the tax take in this country comes from the sector. Bonuses are taxed, profits are taxed and those taxes go towards our public services. They make a positive contribution. The balance of trade supports our economy year in, year out. We would probably have a real crisis were it not for the invisibles that earn us considerable sums, compared with the manufacturing sector.
If this debate were taking place in 2007, we would probably be saying that everything in the garden is rosy and we would believe that nothing needs to change, but we know how different the situation has become. Banks became arrogant and thought they were invincible, Government became complacent—“No more boom and bust”—and where were regulators? It was a lethal combination and we all know what happened. In 2008 there was a failure of policy and regulation on a huge scale. Since 2008 we have been dealing with the fall-out of the previous Government’s failures. Arguably it is this problem, the banking problem, that is still holding back recovery. Since the bail-out there has been much discussion of what direction Government and our country should take in managing and regulating our banks and the banking sector.
We have various choices. We could do nothing and allow banks gradually to recover, carry on as they did before and hope that the banking crisis never happens again. Alternatively, we could split the banks completely—split retail from investment—and create a clear, absolute divide. We could help change the sector completely by creating smaller banks and more of them, in effect creating a banking sector where banks are small enough to fail. Finally, we could pursue the middle way, which is in effect what the Government propose. All these options could be equally correct. They may be different solutions to the same issue, but who knows if one of them might be more successful than the others? However, there appears to be broad consensus that there should be some form of divide within banking services. I therefore support the Government’s proposals as they have a certain degree of flexibility within them, allowing for changing circumstances.
We all acknowledge that the financial sector is critical to the success of businesses up and down the country. Central to that is the success of the banks themselves. The goal for Government must be to ensure that the country has financial stability at the heart of the banking sector. Clearly, stability must be the priority. We do not want our recent experience to be repeated, but we should not lose sight of other considerations for Government: lending to businesses and consumers, which is vital to growing our economy; choice through competition; awareness of the risks to the health of the nation’s finances; and the need to ensure stability and strength in the wider economy. I appreciate that some of these issues are not relevant to the Bill and do not require legislation. Nevertheless, it is important that the Government do not lose sight of the other aspects that support a strong and vibrant economy.
The Government clearly take the issue of banking stability very seriously, and so they should. We have had the Vickers report, the Parliamentary Commission on Banking Standards and the Government’s response to them. We now have the Bill before us. The issue for the House is whether it will achieve the Government’s aims and objectives, and whether those are the right solutions. In general, I support the direction of travel and the thrust of the Government’s aims. The concern, as ever, is the detail. The Bill is a skeleton. Much flesh still needs to be put on the bones. There is clear provision in the Bill for further orders and regulations, which the Minister touched on in his speech. I acknowledge that he will be making further amendments to the Bill and that he has indicated that he will be open-minded about amendments. That is to be welcomed, but to understand the Bill fully we need to see those orders and regulations to judge whether the effect is likely to be successful. I assume that that will be done in Committee. That was the indication that the Minister gave.
I appreciate that those on the Treasury Committee and on the commission have a much better understanding of the issues, but I would like to touch on three aspects of the Bill. First, a number of questions arise from the provisions relating to a ring-fenced body. Which banks will be affected? What will be the de minimis level? If there are going to be only a few such banks, can we name them? As for the reserve power to split up a group structure, the proposal is not for a general industry-wide reserve power, but for a specific power. Is this potentially a nonsense if there are only a few ring-fenced banks? The same thing could be achieved by applying the specific reserve power to each of them. In some ways we want our banks to be small enough to fail and we want plenty of them so that they do not need to be ring-fenced.
What of the ring-fenced institutions themselves? They may be separate legal entities, but how independent will they be? What of the boards? Who will the directors be? Will they be entitled to be on the board of the subsidiary as well as of the parent company? How independent will they be? What of the employees? Who are they responsible to? Who will key and talented employees look to as their bosses? Will it be the parent company or the ring-fenced company that they are actually working for? They will obviously be considering their careers, and that could have an impact on their judgment.
What about the systems of the ring-fenced institutions—the computers, the customer information? How separate will these be from the parent company’s or those of the other institutions within the group? What about management? Will it be totally separate? It could be argued that even the buildings would have to be separated. Who has access to information and decision making? Human resources, systems and management issues need to be addressed to ensure that the whole structure of the proposals will work.
With reference to core services, the proposed primary legislation deals only with deposits. Is that it? What other services may be included or specifically excluded? I appreciate the need for flexibility, but we still need to have a clearer idea of the proposals or at least of the Government’s thinking. On the core activity, the acceptance of deposits, what about small and medium-sized enterprises and high net worth clients? What is the definition of an SME or of a high net worth client? That could mean different things to different banks and to different people. There are still many issues that need to be addressed so that we have a better understanding of what we are being asked to support and to ensure that we pass legislation that will work.
We all want to see a strong, stable and successful financial sector. Within that we want a robust and competitive banking industry, which is itself stable but able to finance and support the wider economy. Although I support the Government’s intentions in the Bill, I encourage the Government always to remember that a competitive market with low barriers to entry and sensible regulation robustly applied should always be at the centre of a successful banking and financial sector. That should be our goal and it should certainly be the goal of the Bill.