The London and Frankfurt Stock Exchanges

Part of the debate – in the House of Lords at 5:20 pm on 24th May 2000.

Alert me about debates like this

Photo of Lord Saatchi Lord Saatchi Conservative 5:20 pm, 24th May 2000

My Lords, many noble Lords have illuminated this subject with their contributions, perhaps none more so than the noble Lord, Lord Layard. I congratulate him on a marvellous maiden speech. The noble Lord is a great addition to your Lordships' House, and I hope that he will play a full part in its deliberations. The noble Lord exhibited great judgment in making one point very clear. As proof of that, it is precisely on that point that I wish to concentrate my remarks. The noble Lord spoke of the logic of globalisation which underlay the merger. He also spoke of the "related logic" of the merger of currencies. It is on the historic inevitability of the merger described by the noble Lord that I concentrate my observations. The same material determinism was reflected in the remarks of the noble Lord, Lord Haskel, who said that mergers and consolidations were inevitable.

What are those who have Britain's interests at heart, including all noble Lords present this afternoon, to make of this merger? Is it true, as the noble Lord, Lord Haskel, suggested, that this merger is nothing to do with Parliament or the Government; or is it true, as my noble friend Lord Blackwell said, that the merger has wider implications for the economy; or is it the case, as the noble Viscount, Lord Chandos, said, that there is a vital national interest at stake? Why has the merger struck such a chord in the minds of so many people? This is a dress rehearsal for what promises to be the most contentious debate of modern times about Britain's place in Europe and whether or not it should join the euro. When the time comes for that great national debate, the proponents of integration will put forward the very arguments that we hear in relation to this issue.

The noble Lord, Lord Layard, made the link explicit, for which I am grateful. This debate is a potent symbol of things to come. The financial services industry is a modern miracle. To my knowledge, it is the only UK industry in which Britain leads a global market. Yet the chairman of the London Stock Exchange, the jewel in the crown of British industry, tells us that Britain cannot make it on its own. He says that,

"the London Stock Exchange could not go it alone".

In evidence to the Select Committee in another place, Mr Kidney asked Mr Cruickshank:

"Is it implicit in deciding to do the deal at all that you have come to the judgment that the British Stock Exchange on its own cannot compete in international markets?"

Mr Cruickshank replied:

"I think that is a fair conclusion to reach".

I have no doubt that what the chairman of the Stock Exchange says is true. He explains to us that mergers of stock exchanges follow in the train of mergers of companies. Those mergers are a response to the dominant feature of our age--globalisation--to which the noble Lord, Lord Layard, referred.

It was in 1982 that the term "globalisation" first appeared in the pages of the Harvard Business Review. There it was famously said that companies which adopted this new approach would "literally pave over" companies still trapped in the old national ways of doing things. At the time that was a controversial notion, but today it is a truism. Twenty years later this merger of exchanges is the result.

It has been said today by my noble friend Lord Lamont and the noble Lord, Lord Newby, and by many outside this House, that American companies may have been behind the merger. That may well be true. Consider the view of Europe from the 67th floor of a US corporate headquarters building in Manhattan, Cincinnati or Washington. I believe that it would be to the following effect, "In Europe there are different countries with people having different habits, practices and customs. How tedious. If only those people were more similar. Then, instead of having six factories in 10 countries, with four research and development facilities, producing 32 products in 62 package sizes, we could have two plants, one R&D facility, and produce three standardised products for the whole of Europe. Think of the cost savings". That demonstrates the economic power of globalisation to which the noble Lord, Lord Layard, referred. That is quintessentially the American perspective.

In addition to economic power, it has a strong philosophical underpinning which was perfectly, and elegantly, described by Professor Sir Isaiah Berlin:

"The American vision is larger and more generous; its thought transcends the barriers of nationality and race and differences of outlook in a big, sweeping single view ... and, therefore, to it the differences and conflicts which divide Europeans in so violent a fashion must seem petty, irrational and sordid, not worthy of self-respecting, morally conscious individuals and nations; ready, in fact, to be swept away in favour of a simpler and grander view of the powers and tasks of modern man".

That is the power of the economic and philosophical logic behind this merger which so many noble Lords today either welcome or regard as inevitable. However irresistible may be this logic, we can still ask certain basic questions of our Government before they give their blessing to this marriage. Such questions are especially appropriate in the light of the revelation in the evidence given to the Treasury Select Committee that the London Stock Exchange received "no representations" from the Treasury, the Bank of England or the FSA about the merger before it was announced. Mr Cruickshank was asked:

"Did the FSA or the Bank of England or the Treasury have any role in the negotiations before the deal was struck?"

He replied "No", but went on to say:

"For the avoidance of doubt, there were no representations to me from senior officials or Ministers, officials of the Bank or of the FSA, as regards the terms of this arrangement".

A number of key issues emerge. The merger creates one exchange but leaves two regulators, two tax systems and two currencies. Taking each in turn, as to regulation the Minister conceded that the,

"appropriate regulatory arrangements for the merged body are not clear".

Many noble Lords in this debate have referred to that. He went on:

"I can, however, reassure the noble Lord, Lord Haskel, that the regulators are talking because the FSA has issued a press release stating that it is working closely with our German supervisory colleagues to arrive at a sensible regulatory outcome for iX".

However, the question is whether the resulting system will bear any resemblance to the regime under the Financial Services and Markets Bill over which Parliament has toiled for the past two years. The Government, extraordinarily in my view, say that the outcome of those talks between the regulators is "not a responsibility of the Government". But who will be responsible for ensuring a level playing field of regulation for all the participants in a merged exchanged? How can the FSA be the regulator for the exchanges of several countries and, at the same time, have the duty to look after the competitive position of the United Kingdom which is about to be given to it by Parliament under Clause 2(3)(e) of the Financial Services and Markets Bill? I hope that the Government will take a little more time, perhaps while the Bill is in the Commons, to think about the regulatory implications of these great proposed changes.

As to tax, my noble friends Lord Lamont and Lord Northbrook and the most distinguished former Chief Secretary to the Treasury, the noble Lord, Lord Barnett, have sought to deal with the anomaly that the UK imposes stamp duty on share transactions at the rate of 0.5 per cent whereas the German rate is nil. Is our tax regime to be harmonised? How can it not be?

I turn again to the evidence of the London Stock Exchange to the Select Committee. Mr Wheatley was asked about this point and said:

"Our position is that stamp duty will over time become something that is disadvantageous to United Kingdom companies raising capital".

According to the Treasury's projections, stamp duty will this year contribute £3 billion to the Exchequer. If stamp duty is abolished to match the position in Germany, which it surely must be, what new tax will be raised to generate the missing billions? It is the question to which the noble Lord, Lord Barnett, wanted an answer.

I conclude on currency. I do not think that it is wise to go over this sensitive ground. It has been addressed by many noble Lords. However, perhaps I may say how nice it would be for all those who are deeply interested in this merger if the Minister would state from the Dispatch Box in a clear strong voice--I hope that his cold is now much better--in terms as unequivocal as those of the noble Lord, Lord Barnett, the noble Lord, Lord Layard, and my right honourable friend the Leader of the Opposition, his plans for the future of our currency.