It is my pleasure to speak for the Opposition on Third Reading of the Bank of England and Financial Services Bill. The Chair of the Treasury Committee very kindly referred to the good humour and good nature I showed in one of my speeches. I am afraid that, if he were here now, he would be disappointed with the speech that I am about to make. People could be forgiven for thinking that I am returning to what some call my po-faced modus operandi.
The role of Government in legislating for financial stability and in ensuring that the Bank of England acts in the interests of the wider economy is to get the balance of regulation right. Righting the wrongs of the 2008 bankers’ crisis is an important task for any responsible Government—a task that Governments around the world have focused on fulfilling in the past decade. The task has been being attempted since the bankers’ crisis of 2008, and today the bankers’ Chancellor is threatening to set it back.
The Bill has seen a number of changes since it first appeared in the other place, some of them for the better, but the precipitate changes that the Government are making to financial services regulation through their new settlement with the financial sector, including through measures in this Bill, suggest that they have failed to learn the lessons of the 2008 bankers’ crisis.
The Bill is a missed opportunity. The measures we have challenged on Second Reading, in Committee and on Report include the proposed abolition of the Bank’s oversight committee, the proposed veto on the National Audit Office’s powers of investigation, the proposed downgrading of the power of the Prudential Regulation Authority to that of a committee of the Bank, and the proposed reversal of the presumption of senior managers’ responsibility for misconduct cases. However, we also welcome a number of measures, including the Lords-stage concessions on the powers of oversight for the Bank’s non-executive directors, the reversal of the veto on the NAO’s powers of investigation, and the measures announced on funding for illegal money-lending teams in Her Majesty’s Revenue and Customs.
We are disappointed that other proposals have not been accepted by the Government. The leak of the Panama papers in the past fortnight has reawakened public concern about our financial system. There has been publication of thousands of documents detailing the systematic use of tax havens for the registration of secretive trusts and shell companies that are serviced by UK banks and that hold trillions of pounds out of reach of HMRC—a state of affairs that rightly outrages people across the UK and the globe. That is why earlier today we offered the Government an opportunity to demonstrate their commitment to delivering the necessary tax transparency measures through our new clause 14.
That new clause, if the Government had supported it, would have instituted a new principle for the FCA: that of combating abusive tax avoidance arrangements, including by establishing a register of beneficial owners of trusts serviced by UK banks. Of course, that in itself is not sufficient, and Labour has set out its tax transparency enforcement plan. Earlier today, our new clause raised the vital issue of the UK banks’ involvement in the Panama papers, which the FCA has now asked them to report on.
The Government have set out initial plans but, with respect, they have not in our view grasped the bull by the horns. They have been dragged there by campaigners, charities and commentators who have rightly urged action on anti-abuse rules and country-by-country reporting. However, it is on the regulation of banks’ activity here in the UK, which has been such a dominant issue in recent years, that the Government have rolled back, watering down their proposals—or, should I say, U-turning on them.
Under the current presumption of responsibility that applies to senior managers, to avoid being found guilty of misconduct in an area for which they are responsible, they will have to show that they took reasonable steps to prevent that contravention. The Bill removes that onus on top bankers, an onus that is entirely reasonable, entirely proportionate and, as very bitter experience tells the British people, entirely necessary. Misconduct and misdemeanours in financial services are sadly not merely a tale from our history. In 2015, for example, the FCA had to fine firms more than £900 million. There was also the LIBOR scandal, foreign exchange fines and the mis-selling of PPI to the value of up to £33 billion, and the presumption of responsibility was so reasonable and so necessary that the policy was introduced with cross-party support. That should not be forgotten.
It is remarkable that only days after the leak of the Panama papers and the pressure on the Prime Minister to defend his creative financial arrangements, the Government can come to this House and defend their decision to reverse regulation that they chose to bring in back in 2013, following the comprehensive work of the Chair of the Treasury Committee, my colleague Lord McFall, and others on the Parliamentary Commission on Banking Standards. This measure, which the Government are yet to implement, has been rolled back by the bankers’ Chancellor under pressure from those who would have been scrutinised. This change of policy did not take place in isolation; as I say, it was part of the Chancellor’s new settlement with the financial sector.
Another idea that we supported today, alongside our Treasury Committee colleagues, was strengthening the role of the Treasury Committee in the appointment of the chief executive of the FCA. It is the Treasury’s influence over the FCA and financial regulation that has been the subject of so much debate and concern in the past year; there has been debate and concern about the removal of Martin Wheatley and the scrapping of the FCA review of banking culture. More widely, as part of the post-crash debate, there have been concerns about whether bank capitalisation and leverage would be at sufficient levels and whether a suitably strong ring-fence would be implemented.
Added to this toxic cocktail of the bankers’ Chancellor’s own stirring is his unhealthy obsession with flogging off the Government’s Royal Bank of Scotland shares at a huge cost to the public purse. I have previously asked the Minister whether the Government will establish a floor price for the sale of RBS shares, as they have with Lloyds shares—or do they accept that the Chancellor got it wrong when he said that his loss leader last year would lead to better sales?
There is also the issue of pension master trusts. In Committee, the Minister told my colleague the shadow Financial Secretary that the Government would bring forward legislation, but the Minister of State for Pensions has since told the Work and Pensions Committee:
“I have been pressing for a Pensions Bill but so far we don’t have one”,
even though the Government could not protect savers without one. Will the Minister say when the Government will take action?
This Bill is a missed opportunity to demonstrate how the Bank of England could carry out its work in the most efficient way possible, with transparency and accountability in its decision making, serving the interests of the people who have sent us here to represent them, and a missed opportunity to demonstrate that senior managers in the financial sector could continue to do their jobs while being effectively and appropriately regulated. These are more missed opportunities from the missed-target Chancellor.
The context of the Bill is vital to understanding our concerns, and the concerns and demands of the wider public. We are eight years on from the economic crisis—the bankers’ crisis, which brought the financial services sector and our country to their knees. The sector was rescued by the decisive action of the then Prime Minister.