UK Economy
Baroness Falkner of Margravine Excerpts(2 months, 1 week ago)
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Baroness Falkner of Margravine (CB)
My Lords, the Minister referred to global headwinds. Would she accept that an economy such as the United States has experienced exactly the same headwinds? Instead of opening our newspapers and reading that the Chancellor intends to give enormous universal tax cuts on 6 March, would it not be more sensible for the Government to acknowledge that the people who are hurting the most from the cost of living crisis are the people at the bottom lower income deciles? Those are the people who should be targeted for assistance if there is any money going.
Baroness Vere of Norbiton (Con)
Obviously, I cannot comment on any potential tax cuts. I am sure the noble Baroness will agree that the US has a very different economic structure from the UK and tends to offer slightly less support to those at the bottom end of the ladder. She mentioned those who are the most vulnerable. Personal allowances have gone up by 30% in real terms than in 2010. That means that 30% of people now pay no tax. We are focusing our interventions on people at the lower end of the income scale, but we are also focusing them on growing business.
Brexit: Financial Services (European Union Committee Report)
Baroness Falkner of Margravine Excerpts(7 years, 2 months ago)
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Baroness Falkner of Margravine
That this House takes note of the Report from the European Union Committee Brexit: financial services (9th Report, HL Paper 81).
Baroness Falkner of Margravine (LD)
My Lords, I am delighted to introduce this European Union Committee report. In doing so I congratulate the noble Baroness, Lady Neville-Rolfe, on her recent appointment to the Treasury and on her role as Minister in charge of “EU exit financial services”. I hope to have a very positive interaction with her in the future.
In the wake of the referendum of 23 June last year, the EU Select Committee agreed to undertake a series of short, co-ordinated inquiries into the implications of Brexit for various policy sectors. The Financial Affairs Sub-Committee began by looking into the impact on financial services. The committee took evidence from nine panels of witnesses—21 in total—during September, October and November 2016 and received written evidence. We are extremely grateful to all those who contributed to our work.
At this juncture it is customary for a chair to thank the members of the committee, but I do so today with particular emphasis, because we all, as a committee, worked at a frantic pace to produce this report in a timely manner so that the Government might take our views into account in setting their strategy for Brexit and financial services. So far we have not had sight of their response. I also want to single out for particular thanks the committee clerk, John Turner, who with depleted resources—as our policy analyst had been recruited by the Treasury—heroically managed to get us to this point. He was periodically assisted by Pippa Westwood, on loan from the EU Select Committee, and we owe her thanks as well.
From the outset we were aware of the huge importance of the financial services industry to the UK economy. The UK is the world’s leading exporter of financial services, with net exports in 2013 of $71 billion. The industry employs more than 1.1 million people—double that if related professional services are included—and contributes around 7% of UK GDP. The implications of a change to our trading status with the EU are potentially enormous. The consultancy Oliver Wyman estimated that £40 billion to £50 billion of the sector’s annual revenues—around a quarter of the total—were related to its business with the EU.
The relationship between UK-based financial services providers and the EU is underpinned by a system of so-called “passports”, which grant rights to do business across borders. This system is not as straightforward as it first appears: passporting rights are provided for by different pieces of EU legislation, affecting the provision of different services, and their use does not map onto the business models of firms in a straightforward manner. Unpicking the reliance on passports is therefore complicated—we were told that even the firms themselves did not have firm grasp of their own reliance on passporting—but it was clear that UK-based firms were likely to suffer from loss of access to the single market and the passporting rights that came with it. That has become more evident since our report was published.
As we were undertaking our inquiry it was not clear what model of engagement with the single market the UK would seek. The Prime Minister, in setting out the UK’s negotiating aims on 17 January, and in the subsequent White Paper of 2 February, said that the UK would seek a free trade agreement to allow for,
“the freest possible trade in goods and services between the UK and the EU’’,
but she ruled out,
“membership of the Single Market”.
This would also rule out any automatic passporting rights: they would need to be negotiated as part of the bespoke agreement she is aiming for.
If the UK were unable to negotiate a bespoke deal on access, it would have to fall back on third country equivalence provisions. However, we found that these were,
“patchy, unreliable and vulnerable to political influence”.
They are patchy because they do not cover the full range of activities in which businesses engage: a bank might be able to rely on provisions under MiFID II for its investment activities but could not carry out traditional banking services because the relevant legislation underpinning that, CRD IV, does not include equivalence provisions. Third country equivalence provisions are unreliable because financial regulation is liable to change: as EU legislation evolved, the UK would have to adapt its own regulation in order to remain equivalent, and be assessed to be so every single time. They are vulnerable to political influence because the European Commission has a role in deciding whether a country is equivalent.
We concluded that any bespoke deal should seek a deal to bolster the current equivalence arrangements, to cover gaps in the regime and to ensure the continuation of equivalence decisions as regulation develops. There was, and still is, considerable uncertainty over the level of access to the single market that the UK will retain. Our witnesses were consistent in advocating a transitional period during which businesses could plan for and adjust to the new circumstances. We were told that a “cliff edge”, with regulation and market access changing suddenly and without sufficient warning, would represent a grave threat not only to the business interests of the firms involved but to financial stability more generally. So the “new deal” scenario might prove extremely damaging.
I therefore welcome the Prime Minister’s reassurance that the Government will seek a “phased process of implementation”. An early declaration on this transition period by both parties—the UK and the EU—would help allay the fears of businesses and possibly prevent them moving operations out of the UK on the basis of a worst-case scenario. I draw noble Lords’ attention here to the advice prepared by PricewaterhouseCoopers for the Association for Financial Markets in Europe, which found that it would take banks between two and four years to put in place contingency plans for a hard Brexit.
The UK has been Europe’s dominant financial centre for some time. It has been particularly dominant in recent years in derivatives clearing through central counterparties. In April 2013 the UK accounted for half the world’s turnover of interest rate derivatives, and one-third of foreign exchange derivatives. It was even more dominant in euro-denominated interest rate derivatives, accounting for nearly three-quarters of world turnover.
This has drawn unwelcome attention from our EU partners. In 2011 the European Central Bank launched its location policy, which would have required euro-denominated trades to be cleared in the eurozone. The Government successfully resisted this at the European Court of Justice, but it is possible that the scheme could be revived—with appropriate legislative changes. It was notable that the President of France, François Hollande, made such a suggestion on 28 June, just five days after the referendum.
So the political incentive is there, and so are the legal means, with some tweaking. But would it be wise to remove London’s ability to clear euro-denominated trades? Clearing works through counterparties posting a margin, or collateral, with the clearing house. Because this is done centrally, the margin can be netted across multiple trades in multiple currencies, reducing the amount of collateral required. Research by Clarus Financial Technology suggests that disaggregating the euro component of one clearing house’s operation—LCH.Clearnet’s, for example—would cost the financial services industry $77 billion in additional margin, which would then not be available to lend to the real economy.
Our witnesses expressed doubts about whether a clearing operation comparable to that in London could be migrated to another European city. Some suggested that New York was the only plausible alternative location for such a service. Of course, any revival of the location policy would also apply to New York. This suggests that the benefits of the UK’s clearing system currently enjoyed by businesses throughout Europe would be lost or greatly diminished. Ultimately, it would not be in the EU’s economic interest to repatriate euro clearing. We hope that pragmatism will prevail.
This leads me to my final point. The real economy in the EU benefits from the financial services provided in the United Kingdom to an extent that militates against any large-scale attempt to prevent UK-based firms doing business with the EU. We heard a lot in our inquiry about the financial services “ecosystem”: the various services provided in the UK that interconnect in such a way that the effects of unpicking the ecosystem would be unpredictable. Unless another European centre could replicate that system, real businesses in the EU would lose out.
London has recently been ranked as the world’s number one financial centre again. Nowhere else in the EU comes close. Luxembourg is 12th and Frankfurt is 19th. We were not convinced that another EU location could step up and provide the services as efficiently and effectively as the UK currently does. If the economic argument trumps the political one, the EU should be willing to do a deal—but deals are ultimately dependent on rationality as well as goodwill. We hope that the UK Government will approach these negotiations with enormous goodwill and pragmatism, as the costs to the real economy of both the UK and the EU—and to real people’s lives—could be very high indeed. I beg to move.
Baroness Falkner of Margravine
My Lords, this has been an extremely fruitful debate and I am particularly grateful to the Minister for giving us, in the absence of a formal government response, a clear line of vision about how she is proceeding with her role. I particularly want to thank those noble Lords who spoke in this debate today who were not members of the committee—the noble Earls, Lord Caithness and Lord Kinnoull, the noble Viscount, Lord Eccles, and the noble Lord, Lord Dykes. We have benefited greatly in this House from hearing from them as well.
The tone of the debate touched on optimism and pessimism. As all Select Committees should do—and I believe do—we followed the evidence. When our interlocutors were extremely concerned about their future businesses, workforces and livelihoods, we reflected that in the debate. Frankly, we did not encounter too many voices cheering the impact of Brexit on financial services from the rooftops.
Where I entirely agree with the optimists is about the durability of the City of London to innovate, reinvent itself anew and adapt. Voltaire picked this up in the early 18th century when he was in London—enriching himself on the back of the City of London. He exhorted the French to move in the same direction. “Nobody understands commerce like the English,” he said. As I reminded the House today, President Hollande is, somewhat belatedly, trying to take France in that direction.
In conclusion, it is people who are at the heart of this. It is not fashionable to defend bankers, nor to say that the financial services sector does a very good job in liquidity and capital markets. Our committee saw how important it was that the livelihoods of people in this country and in the European Union should continue to benefit from that most essential commodity—capitalism.
Greece
Baroness Falkner of Margravine Excerpts(8 years, 10 months ago)
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Lord O'Neill of Gatley
My Lords, my noble friend raises some very interesting ideas and suggestions, and in the course of our ongoing discussions with our friends in all parts of the eurozone, which I am sure will continue through the rest of today and tomorrow, we will pass those ideas on. I thank him.
Baroness Falkner of Margravine (LD)
My Lords, the noble Lord, Lord O’Neill, is wise to resist the encouragement of the noble Lord, Lord Lawson, to comment on his own views about the current situation in Greece, particularly given the role that Goldman Sachs played in Greece’s original submission to join the eurozone. However, I will ask a concrete question which is covered in the Minister’s brief. He said that his right honourable friend the Chancellor of the Exchequer has had conversations with the head of the IMF. Given our exposure to Greece, given the IMF’s exposure to Greece—something in the region of £23 billion—and given that the IMF believes that the debt sustainability needed by Greece is roughly £50 billion, would the United Kingdom Government be prepared to expose themselves further, were the IMF to go ahead and offer Greece emergency lending at this point?
Lord O’Neill of Gatley
My Lords, Greece has already missed a payment to the IMF, as everybody knows, and has fallen into arrears with the fund, which is not technically a default. The IMF has said that its shareholders will not suffer losses, saying:
“Notwithstanding the overdue obligations, member countries’ claims on the IMF are fully secure and the IMF will continue to meet its obligations to members and lenders”.
Greece has, of course, an existing IMF programme and it is important that future support for Greece helps it to meet the conditions necessary to continue with that programme, including the agreements of conditionality, sufficient financing assurances and the clearance of any arrears.
EU: UK Membership
Baroness Falkner of Margravine Excerpts(10 years, 6 months ago)
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Baroness Falkner of Margravine (LD)
My Lords, I, too, thank my noble friend Lord Shipley for having secured this debate. It is an important debate and it is an important time for our country to have these discussions. Before I move to the substance of my speech, I could not possibly not congratulate my noble friend Lord Wrigglesworth on his fabulous speech, which, as the noble Lord, Lord Giddens, said, was delivered with such verve and conviction. My acquaintanceship with my noble friend goes back to SDP days when he was one of the grandees and I was one of the workers. It is very nice to see him here on slightly more equal terms, which I have to say are to my benefit.
This debate is hugely significant in the sense that, while most speakers have spoken from more or less the same hymn sheet, some speakers have not. Of course, it is important to mention the contribution made by the noble Baroness, Lady Noakes, as well as that of the noble Lords, Lord Stevens of Ludgate and Lord Stoddart of Swindon. These debates on the other side of the fence to most of us will be hugely significant as we move forward to cross swords over the referendum campaign. I was not surprised to hear what the noble Baroness, Lady Noakes, said. She quoted Professor Congdon and Professor Minford who, distinguished as they are, are also known to be very long-standing critics of EU membership. In a sense, it might have been more fruitful if we had heard from more authoritative and more impartial sources on the other side of the camp. I regret that we did not get that. However, the noble Lord, Lord Desai, illustrated ably why their analysis needs further scrutiny and I am sure, particularly since the paper by Professor Congdon is relatively recent, that research institutes will analyse his findings very seriously.
The Department for Business, Innovation and Skills per capita calculation takes a longer-term look at those figures on the basis that:
“EU countries trade twice as much with each other as they would do in the absence of the single market programme”.
That of course was based on the OECD’s estimates.
The noble Baroness, Lady Noakes, also made a point about EU jobs that are engaged in trade from the EU to the United Kingdom. I think she used the figure of 4 million jobs, rather than the widely accepted figure in terms of UK jobs relating to trade with the United Kingdom. There was a difference of 1 million on her side. I would argue that while we are talking about 3 million jobs that may be lost if we disengage from the European Union, the noble Baroness says that there would be 4 million jobs and that therefore the European Union would be loath to disengage from us, which would give us the benefits of non-tariff barriers, free trade and so on. Of course, 4 million jobs spread across 27 states with a population of 420 million is a very much smaller impact than the impact that it would have on a single country—that of the United Kingdom.
I turn now to recent debates on the cost of welfare through inward immigration, because that has become the flavour of the time and it needs rebutting. There is clear evidence to show that EU migrants pay more in taxes than they receive in benefits and services here in the United Kingdom. The Department for Work and Pensions recently published figures for 2011. Of those receiving working-age benefits, it is true that 25% were from within the EU, but Poland, which had the highest figure of those receiving benefits, was in the seventh slot, behind Asia, Africa, the Middle East and several other countries. Of EU accession countries, only one figured in the top 20 of countries from which people claim benefits in the United Kingdom. That compares to the 10% of Britons who claim benefits in Germany alone, so it goes both ways and we must not allow this debate to run away. The idea that migrants from the accession countries and from the wider EU are coming here for some sort of benefit or health tourism needs to be looked at more carefully.
The free movement of peoples is also enormously significant in terms of its impact for us in the United Kingdom. The Centre for Economics and Business Research estimates that if we curbed EU migration—mostly young people, in terms of demographics, who are coming into an ageing society and who will ameliorate the impact of the demographic changes of ageing here in significant proportions—it would cost our economy something like £60 billion, or 2% of GDP, per year by 2050 and increase public borrowing by something like 0.5%. Moreover, we also benefit from inward tourism from the EU. Some 19 million visits were conducted by EU citizens in 2012 and some £7 billion was spent here.
To conclude, I come to the very important point made by the noble Lord, Lord Giddens, that this is not just a dry cost-benefit analysis, not just about how many pounds in and euros out. What matters to our trade and our economic position is not just money. What matters is the future of our young people, the status of our country internationally and the debt we owe succeeding generations if we do not take the right decisions in the forthcoming referendum.
European Banking Union: EUC Report
Baroness Falkner of Margravine Excerpts(11 years, 3 months ago)
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Baroness Falkner of Margravine
My Lords, I, too, thank the noble Lord, Lord Harrison, and his committee for this excellent report on the European banking union. In doing so, I make one or two observations in general about the European Union Committee and its reports. I can see in the Chamber five brave people who were not involved in the report of the committee, when our debates can attract, as we know, an attendance of perhaps 450 a day. It saddens me to see debates on reports of such significance to the lives of people, both men and women, in this country so poorly attended. I am extremely glad that the chairman of the European Union Committee is in his place, because I wonder whether the House might consider debating reports from Select Committees on scrutiny days so that they attract wider dissemination, wider knowledge sharing and greater attendances. My gender, which represents more than 50% of the people of this country, is equally affected by the implications of banking union and the financial crisis, and it saddens me that we do not seem to have in this Chamber the interest in these issues that we might have. I spoke to the noble Baroness, Lady Vadera, last night, who has all the expertise to be able to add to debates of this kind. Of course, she is on leave of absence. I was meant to speak in the earlier debate on nuclear non-proliferation until I noticed the composition of the speakers list for this debate and decided that it was important that I bring my non-expert knowledge, but some voice, to it as a priority.
Roughly a year ago, we were debating the break-up of the eurozone in this Chamber. At that point, it appeared possible that the scale of the problem, the lack of its recognition among some eurozone members and political inertia, combined with institutional sclerosis, would lead to a Greek exit, with the potential for Portugal, Spain, and Italy to follow. In this Chamber, we were divided between those who believed that the demise of the eurozone altogether was nigh and those who, such as us on these Benches, could imagine a winding road ahead but recognised the determination within the leaders of the eurozone countries to avoid that catastrophic outcome.
We are still on that winding road, but the pointers for the way ahead for the eurozone are clearer. What has been less clear this afternoon is where the United Kingdom is going. While a significant part of the European Union is negotiating deeper integration, the result of which is not yet evident, I find it difficult, apropos the Prime Minister’s landmark speech yesterday, to consider a referendum in response to a treaty that may not happen and may not ask anything of the United Kingdom.
Within the eurozone, the landmark event was last year here in London, when the Governor of the European Central Bank, Mario Draghi, spelt out the message that the ECB would do “whatever it takes” to save the euro. The outright monetary transactions bond-buying programme saw immediate reductions in bond yields to which Spain and Italy were subject, and signalled that the institutional changes so badly needed were finally to be addressed.
The committee’s report highlights the important areas for change before a single currency zone can be stabilised. It is also clear that the United Kingdom’s vital interests are at stake, irrespective of whether we are in or out.
The first and overarching priority is to address the so-called death spiral born of the interdependence of banks and sovereigns within the single currency. For those participating in the eurozone, the price of stability will be the loss of sovereignty, with all the political implications that that brings. So although progress towards creating a federal structure in banking has been kicked off with the creation of a single supervisory mechanism, there is, nevertheless, a loss of momentum on a common resolution authority, or indeed a common deposit protection scheme, as the noble Lord, Lord Harrison, mentioned. That impasse has been attributed to the German electoral timetable; and people suggest that we will not see moves to resolve other institutional questions until after September 2013. I am a little pessimistic as to the pace of progress even after that. I fear that the emergence of slow growth in late 2013 and the relief that the crisis is abating, will act as a drag on action necessary for stability to be consolidated.
Let me address why it is so important to proceed with a complete federal settlement to underpin the single currency. At the time of the Maastricht treaty, serious academic work was undertaken in the UK on the experience of the United States in the early operation of a single currency there. The American example still stands us in good stead today, and suggests why, if the eurozone is to succeed, it will have to become more like the United States. In doing so, I draw on an excellent paper from the Centre for European Reform, What a Banking Union Means for Europe, which I was very glad to see this morning included in the Library briefing pack for this debate.
As the paper points out, the US has undoubtedly had a faster and stronger recovery from the 2008 financial crisis than that seen in the eurozone economies. Part of the reason for that is that the decentralised state-level institutions in the eurozone states have actually served to amplify the initial shock from 2008, transforming a financial crisis into an existential crisis for the single currency. Without a federal budget, fiscal forbearance for banks is made on the basis of national considerations and political risks. The mutualisation of deposit protection makes free-riding more likely, so it does not exist, and the bonds of solidarity between states are naturally weaker than they are in the US, despite its federal diversity.
Significant key functions are now recognised across the board, even here in the UK, as being necessary if we get a banking union and then, eventually, fiscal and political union within the eurozone. The first, as the committee recognises, is to break the death spirals within the eurozone whereby individual states are pushed towards insolvency by bank rescues, being completely at the mercy of financial markets with higher and higher borrowing costs. Ireland knows the lessons of this well, which is why it is so keen to use the European stability mechanism’s funds for direct recapitalisation of its banks’ legacy debts. It will be interesting to see how this argument sits with the German taxpayer.
The other unresolved issue is the lack of a eurozone authority to restructure or wind up banks that run into difficulties. In the US, the Federal Deposit Insurance Corporation does this; since 2008, it has wound up more than 450 insolvent banks in an orderly manner. Within the eurozone framework, zombie banks continue—thanks to cheap ECB funding—so while we have a road map for single currency stability, there is still much detail to be worked on.
Let me turn to some of the issues that engage United Kingdom interests more directly. It was instructive to read the response from the Financial Secretary to the Treasury, Mr Greg Clark, to the letter from the noble Lord, Lord Boswell, regarding the committee’s concerns. The Government should undoubtedly be congratulated on their success in negotiations at the December Council. We have progress on the institutional relationship between the ECB and the EBA and, significantly, we have achieved solid protections in respect of the voting rights between the “ins” and “outs” when decisions are taken in the EBA. I recognise the concerns of the noble Lord, Lord Trimble, and I note that Mr Clark does not give complete reassurance, as there is still no clarity about what will happen if and when there are four or fewer “outs” left in the system. However, that is some way away and, in my view, we could not have got a better outcome at that point last month. We also did well to gain agreement on the memorandum of understanding securing the co-ordination of cross-border banking supervision.
However, we in the UK will also be affected by events beyond our control as we go forward. Just this week, we have seen moves towards the establishment of a financial transaction tax for 11 of the eurozone members. This came about as a result of the enhanced co-operation, which will now leave us without a say at the table as the shape of this tax is negotiated—with significant implications for eurozone banks that operate out of the City of London. While some Eurosceptics might be pleased at the potential gains for the City of London, particularly if the actual proposals result in driving trading in shares, foreign currency or derivatives out of Frankfurt and Paris into London, I would warn that there are dangers, too.
It is entirely feasible that the regulation might be sufficiently light touch, with a very narrow focus on individual share transactions, not to result in any greater business for the City. What is seen now as an obstacle to growth—the FTT—might have no adverse impact at all but bring revenue gains to the participating countries. Alongside this, we would have the scenario of the UK being seen as an uncertain bet, with the spectre of its referendum. City institutions may well consider it more worth while to be based within a recovering and more stable eurozone.
The overarching issues for both the United Kingdom and other EU and eurozone countries are the looming recession in most eurozone states, the seemingly never-ending austerity, with its record unemployment—never experienced before—and, most urgently, the loss of competitiveness in relation to emerging markets. These problems on their own, if taking place against the kind of recessions that we have experienced before, would have significant effects. However, taking place as they are against a backdrop of political uncertainty and shaky political resolve about seeing the thing through to its conclusion, they do not augur well for a speedy resolution to the eurozone crisis. That does not remove the responsibility for the UK to play a positive, engaged and compromising role if we are to see it though.
Eurozone
Baroness Falkner of Margravine Excerpts(11 years, 11 months ago)
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Lord Sassoon
My Lords, like my noble friend Lord Howell, I did not see the article. I thought that my noble friend’s answer yesterday was exactly to the point. Ideas have been floated around that the European Investment Bank should increase its capital and stability and in some way its ability to lend. If proposals come forward, we will look at them, but it is very important that the EIB does nothing to prejudice its own debt rating.
Baroness Falkner of Margravine
My Lords, given the relatively healthy state of the German economy and its growth rate, are the Government having any conversations with the Germans about using fiscal measures to unleash some consumption and spending within Germany so that 80 million Germans do not keep their money under their mattresses but use it as a spur to generate further growth?
Lord Sassoon
My Lords, we do not offer advice to the Germans on how to manage their own economy any more than they would offer advice to us.
European Union Membership (Economic Implications) Bill [HL]
Baroness Falkner of Margravine Excerpts(12 years, 5 months ago)
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Baroness Falkner of Margravine
My Lords, I, too, start by paying tribute to the noble Lord, Lord Pearson of Rannoch. He is indefatigable in pursuit of making our country think again about its role in the European Union. It is right that we periodically debate the big picture of our relations with our neighbours, our allies in our relationships with the rest of the world and, of course, our largest trading partners, the European Union.
The Bill is a modest measure on the face of it, but of course has profound implications. The committee that it calls for is intended to merely state the economic facts so presumably, and despite the lessons of the last few years in terms of the global economic crisis, we are still to have a blind faith in economists and economic theory as the basis for decisions which will have the most significant impact on our country's welfare for both our and future generations. That is quite astonishing.
I will return to the broader case in a few minutes. Let me concentrate narrowly on the measures in the Bill right now. The composition of the committee is rather fanciful: two members for; two against; and three neutral. One wonders which planet we will find the three neutrals from. The idea that we might be able to find persons of exceptional calibre—potentially economists, businesspeople, academics or lawyers—presumably of considerable sagacity and professional experience, who will have no opinion on the biggest single issue of their generation is slightly cloud-cuckoo-land, is it not?
The question also arises of the representation of the views of people from other nations on this committee. I appreciate that the United Kingdom Independence Party obtains a rather limited mandate in elections in three of the four nations of the United Kingdom. In Scotland, it obtained under 1 per cent of the vote, in Wales 2.3 per cent and in Northern Ireland just 0.6 per cent. It should infer from this showing that the views of these nations do not chime with its sentiments for withdrawal from the EU. I wonder if the noble Lord might be able tell us in his concluding remarks how the committee might reflect the views of people in Scotland, Wales and Northern Ireland on his proposals.
My final point on the Bill relates to the need for it in the first place. If a narrow cost-benefit analysis is what the noble Lord believes should form the basis of big strategic decisions that states make, then I fear that his interpretation of statecraft is rather different from that of these Benches. A fundamental of international relations over centuries has been the recognition that the national interest changes over time. It needs to account for a country's security needs, its geographical position in relation to its neighbours and, above all, its understanding of the world around it, against a backdrop of history. If all we need is a quantification of costs and benefits, we can obtain that in numerous library papers, think-tank reports and business analyses. We would not need a committee to tell us the answers. The noble Lord himself is prodigious in obtaining information on these matters at considerable effort and cost.
The evidence already tells us that the economic case is persuasive. The UK is part of the world’s largest single market in GDP terms: some £10.5 trillion in 2009, with 500 million consumers interacting without tariffs. If the internal dynamics of so many people trading is not sufficient, it also attracts benefits in the form of investment flows into the UK. Half of the overall stock of foreign direct investments in the UK now comes from EU member states. This investment has been augmented through our membership by an increase in non-EU FDI as well. That has been growing since the implementation of the single market, probably as a consequence of our membership of the EU. If we look at the US share of inward investment stock—some 27 per cent of the total in 2007—it is estimated that a significant proportion of this has come here because we are a hub into EU markets.
The implications of withdrawal would immediately be felt in a drying up of external investment. Why would a large corporation wish to base itself in the UK, when Ireland offers a considerably lower corporate tax rate, where skills levels are at least equal if not superior, and where English is spoken as well? What of FDI from the EU itself? Those companies own £315 billion of stock in the UK, which is about 50 per cent of total UK inward stock. Would they still feel the climate was conducive to a presence in the UK if we were no longer part of a common standards and regulatory regime?
At the current time of such singular austerity, it is also surprising that UKIP appears unconcerned about the impact on employment. The House of Commons Library research papers estimate that 3.5 million jobs, 10 per cent of the UK's workforce, are linked to the export of goods or services to the EU. So UKIP’s message would be that we must have our splendid sovereignty, and if all it gives us is an unemployment rate of some 20 per cent, well, that is no matter.
However, the case for sovereignty is also mistaken. It is collaboration with partners that UK companies want. Ask BAE Systems what European collaboration means for research, development and jobs. Would we have played a part in Airbus or the Eurofighter from our splendid isolation? EU membership gives us greater clout through collective action. In the geopolitical sphere, this becomes all the more important. Does the noble Lord believe that our membership of the UN Security Council would be sustainable today if we were not, with France, speaking for the EU? Could we have mounted the action in Libya without support from all the EU countries which worked alongside us? Could we take part in the quartet on Israel/Palestine if we were outside? Could we be part of the E3+3 negotiations on Iran without EU membership? Would we be capable of effective action on the environment without working through the EU, or have the clout to negotiate beneficial trade agreements on our own with some of the most important emerging economies outside the EU?
I could go on and on, but we will have considerable time when the Bill comes to Committee, so I will stop here. I look forward to pointing out the manifold benefits of our membership of the EU as we go on.
Eurozone Crisis
Baroness Falkner of Margravine Excerpts(12 years, 6 months ago)
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Lord Sassoon
My Lords, I am answering questions on the eurozone crisis. The question of Cyprus has nothing to do with it. I am sure there will be other opportunities to discuss that.
Baroness Falkner of Margravine
My Lords, today marks the beginning of a profound change in our relationship with the EU. If we are going to have fiscal and political integration in 17 countries, leaving 10 outside, it is undoubted that we are going to have a different relationship. Winston Churchill said that the British nation was unique in wishing to hear bad news, irrespective of how bad it was. In saying that British banks do not require recapitalisation in the assessment of the European Banking Authority, can the Minister tell us when the authority made that assessment in the light of the fast-changing nature of the evolution of this crisis and the lack of transparency in the role of credit default swaps? The timing of when this assessment was made would be very useful to know.
Lord Sassoon
It made the assessment very recently. Indeed, the numbers are going to be reworked over the coming days and weeks to make sure that they are as absolutely up to date as they need to be for the recapitalisation to take place.
Investment Bank Special Administration Regulations 2011
Baroness Falkner of Margravine Excerpts(13 years, 3 months ago)
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Lord Myners
My Lords, I support both the Investment Bank Special Administration Regulations 2011 and the Investment Bank (Amendment of Definition) Order 2011. The policy objective is to create a special administrative regime in the form of an administration procedure. The aim is to provide administrators with clarity and direction to resolve the firm without needing to approach the court on a frequent basis. These adjustments to current insolvency law will make the process less expensive and less disruptive for an investment firm, its clients and creditors and the market.
The Government have consulted widely and the response has been broadly supportive. It is important that we express our thanks to those who sit on the investment banking liaison panel for the time they have spent working on complex legislation and regulation to ensure that they achieve the Government’s purpose.
The regulations and the order are being made, of course, under the enabling powers in Sections 233 and 234 of the Banking Act 2009, which I had the honour to take through the House. This arose as a consequence of the insolvency of Lehman Brothers, when unanticipated complexities emerged in resolving that investment bank, particularly in connection with client money.
The Financial Services Authority has taken significant steps to improve the supervision of client money and to address a number of areas where there were shortcomings and deficiencies. In particular, it has put a very strong team under excellent leadership in place to be responsible for the supervision of client money. These regulations are important to maintaining public confidence in the stability of UK financial markets and the integrity of institutions and firms operating in these markets.
I have two questions for the Minister. When Lehman Brothers collapsed, one of the difficulties we experienced was that Lehman was holding money in client accounts which were appropriately designated as client accounts and, accordingly, should have been kept separate from the assets of Lehman Brothers when it came to administration. However, Lehman had placed this money on deposit with a separately incorporated Lehman bank in Germany. The German authorities, after the collapse of Lehman Brothers, passed legislation to say that client money held on the accounts of this German banking subsidiary, when placed by an affiliated Lehman body, would not be deemed to be client money under German law. Is the Minister aware of whether any progress has been made on that point? Has this been raised at ministerial level recently with the German Government? It seems to strike at the very heart of the concept of the segregation of client assets which is intended to make sure that those clients are protected from any failure on the part of the institution with which they thought they had an agency rather than a principal relationship.
My second question relates to omnibus accounts. Will the Minister reflect on whether omnibus accounts are in themselves a source of hazard, and whether the practice of using omnibus accounts is one that the regulators should review in favour of looking at the case for requiring all accounts to be designated? Certainly in my experience, omnibus accounts undoubtedly increase confusion over the ownership of assets and the execution of certain fiduciary responsibility including, in particular, the voting rights of shares in UK companies at shareholder meetings.
Finally, I also express my support for the measures that the Government are taking in respect of the continuity of service arrangements, another problem that emerged with Lehman. The House should support the measures that the Government are bringing forward.
In closing I wish to mention a very crude term that is currently being used: banker bashing. Many members of the Government are engaged in banker bashing. The Secretary of State for Business and the Chief Secretary to the Treasury have made wholly uncomplimentary remarks about banks. Last night I was watching BBC “Newsnight” and was surprised to find the Mayor of London making uncharitable comments about banks. It is quite a volte-face, although it really takes him back to where he originally started.
It is important that we recognise that we have very many talented people working in investment banking in this country. I have had the privilege of working with them—they are in very many cases the best in the world, and they do not work only for our own banks. I would happily hear names like Royal Bank of Scotland. It is very easy to regard that as a bank associated with failure, but there are extraordinarily good people working there. Likewise, many people here in London work for firms such as Morgan Stanley and Citicorp, or for our own pre-eminent investment bank, BarCap. We need to maintain context here. Of course some of these problems continue to be self-inflicted by the banks, and I wish the Government well in their talks under Project Merlin, which are intended to bring some sense to bank bonus decisions. However, we need to keep in mind that investment banking, and banking in general, are a source of incredible competitive and comparative advantage for the UK economy. These regulations are entirely consistent with providing the support for a reputable, solid and prudent banking sector of the sort that we should seek to encourage in this country.
Baroness Falkner of Margravine
In his defence of the banking industry, with which I broadly agree, will the noble Lord accept that the idea behind the Government asking bankers to be more responsible and to have a social conscience is not to imply that individual bankers are not worthy of their role and status in the industry, which is very important to us, but is directed at certain levels of remuneration? Irrespective of how talented an individual is, no single individual can add the kind of value-added that we have started to see in terms of remuneration and the bonus pool.
Lord Myners
I had almost concluded my speech but the noble Baroness’s intervention has provided me with an opportunity to carry on and say more. There are very talented people working in UK banking and some of them are among the world’s very best. They earn their remuneration. Sir Philip Hampton, the chairman of Royal Bank of Scotland, referred to a gangmaster culture in some of the banks. I put down a Question for the Minister on this subject, to which he gave his standard Answer on bank bonuses which I can now recite. Regardless of the Question I ask, I get the same Answer. Perhaps it will change at some point, but I am beginning to lose any great hope that the Minister will seek to answer the Questions that I ask him on these subjects.
Inflation
Baroness Falkner of Margravine Excerpts(13 years, 3 months ago)
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Lord Sassoon
I agree absolutely with my noble friend that these are all critical policies to ensure that growth gets going again. It is precisely by the Government both reducing the deficit and ensuring growth that the Monetary Policy Committee of the Bank of England will have a firm policy background against which to make its decisions that bear on the inflation target.
Baroness Falkner of Margravine
Can my noble friend indicate at what stage, after a series of letters from the MPC to the Chancellor, the latter would be prepared to reconsider the inflation target of 2 per cent and revise it in either direction?
Lord Sassoon
My right honourable friend the Chancellor has no intention of revising the target for inflation. It is a matter on which he can write a new instruction whenever he wants, but he has no such intention.