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I am pleased to be able to contribute to this debate and to follow Mr Mak, who gave a Panglossian view of the City and the Bill. When I first read this Bill, I thought it was disappointing, but the more carefully I looked, the worse I thought it became. Of course it contains some good steps, but one thing we see here is the Tory Government circling their wagons to protect their friends and funders in the City. The Bill gives us no hope of introducing the separation between retail and investment banking that we so obviously needed after the crash and for which many, including Professor John Kay of Oxford University, Martin Wolf of the
The main flaws in the Bill are on transparency at the Bank and the responsibility of senior managers across the sector. In the Treasury Committee, I questioned both the Chancellor and the Governor about the original draft of the Bill, which allowed the court, on an ad-hoc basis, to determine the scope of audits by the Comptroller and Auditor General. I am therefore pleased to see the redrafting of clause 11, which clarifies what the policy carve-outs will be, but I do not believe that is enough. First, we were promised a memorandum of understanding, agreed between the CAG and the Bank of England. Where is it? This House must see the memorandum before we pass this legislation. The Government are treating the House with the same disdain they do when they put substantial measures into statutory instruments and do not share those with the House either. Why have the Government brought the Bill back to this House before the memorandum of understanding has been drafted? The answer is obvious: it is because the senior managers regime comes into force in March and so the Government are desperate to get Royal Assent before that happens. I am not sure that CAG access will be enough. The Bank of England is independent in its existing judgments with respect to monetary, financial and prudential matters, and that is how it should be, but it is also democratically accountable. I believe citizens will be able to exercise their democratic rights only if we make the Bank subject to the Freedom of Information Act. Let me set out why.
When Treasury Ministers announced the RBS sale last summer, they waved about a letter from the Governor endorsing the sale. Writing this letter was not part of the Governor’s role on monetary, financial and prudential policy; it was an intervention in Government policy, at the Chancellor’s request, on the issue of a share sale. I asked the Governor whether he considered this letter to be policy, and he said it was. I asked him whether he would share the analysis that underlay the letter, but he refused, point blank, to do so. This is what he said:
“It is a policy judgment. I was asked as Governor by the Chancellor for a judgment with respect to the potential sale…as you know, and the terms of the question are outlined in the letter. I was asked as Governor; it was not a question of the FPC or the PRA Board. It was not a question in terms of safety and soundness but in terms of the overall impact. I consulted with the Deputy Governor for Prudential Regulation and the CEO of the PRA, Mr Bailey; and did analysis in the team.”
“The analysis rested on the supervisory judgments, the input of the stress test and then the broader perspective of an institution that had been stabilised”.
He went on to say that
“the overlap between the commercially confidential information that we obtain as part of the discharge of our supervisory responsibilities of the PRA and the analytic is perfect”.
It is, however, very far from perfect—it is a raggedy hotch-potch.
The letter the Governor wrote roamed far beyond these matters. It said:
“it is in the public interest for the government to begin now to return RBS to private ownership...a phased return of RBS to private ownership would promote financial stability, a more competitive banking sector, and the interests of the wider economy.”
No information has been shared with any of us as to how this sale promotes a more competitive banking sector—it does not—or what the benefits will be to the wider economy. I still live in hope that when the CAG undertakes his audit of the RBS sale he will see this analysis, but I believe we need a structural reform: the application of the Freedom of Information Act to the Bank of England. This Bill should be the vehicle for that change.
Let me now turn to the issue of personal responsibility and the catastrophic capitulation of Ministers to their friends and funders, the banks. At first blush, the extension of the new senior managers regime for banks and building societies to all authorised persons in all financial institutions looks like a good thing, but unfortunately the quid pro quo is the significant weakening in the way this will operate. Instead of senior managers having to show that they took reasonable steps to prevent regulatory breaches, as recommended by the Parliamentary Commission on Banking Standards, ably chaired by Mr Tyrie, the burden will be on the regulator to show that the senior manager failed to do that. As Lord Eatwell pointed out in an excellent speech in the other place, the only reason put forward by Ministers for this change is to deal with what they have described as “an excessive regulatory burden” and “costs” on firms. As he said, the Bill will result in less documentation; less awareness on the part of bankers of their responsibilities; and less examination of the relationship between the risks they take and the responsibilities they have.
The Government continue to believe it is acceptable for banks to privatise their profits and socialise their losses. Let us never forget the cost to all of us—to the British taxpayer: the £133 billion we had to stump up to save the banks. The banks continue to benefit from an implicit taxpayer subsidy, including to their risky investment activities, undertaken, as Lord Lawson said on Second Reading, “just for themselves”. But they continue also to whinge at the Government about the costs of documentation which would fall to them.
Ministers should also take note of the fact that a regime where the managers must show that they have taken reasonable steps is what applies in road traffic legislation, health and safety at work legislation, the Bribery Act 2010, legislation on terrorism, the Misuse of Drugs Act 1971, the Trade Marks Act 1994, the Criminal Justice Act 1988 and the Official Secrets Act. What, we want to know, is so special about bankers?
Another argument put forward by a series of lawyers in the other place is that this approach fundamentally is unfair and outwith the traditions of English law. As Lord Pannick said, the regime, as proposed by the Parliamentary Commission on Banking Standards, requires “strong justification”. What is the justification here? He said that he did “not understand it”.
Apart from the £133 billion bill and crashing the entire economies of the OECD, there is quite a lot to be said for what has gone wrong. Perhaps if those in the other place had constituents, they would understand that the appalling austerity now being wreaked on our constituents, especially disabled people, is something to which some of us must respond, “Never again”. If the £133 billion cost to British taxpayers is not enough justification, what about the fact that none of the senior bankers has taken responsibility or been punished for their criminally selfish and irresponsible behaviour?
In other words, what we see is yet another decision by this Chancellor of the Exchequer and this Government to put party interest before the national interest. After hours of hearings and work in the previous Parliament by the Parliamentary Commission on Banking Standards, the Chancellor was lobbied by his friends and funders in the City and he has let them off the hook again.