Tax: Aggressive Tax Avoidance
Lord Barnett Excerpts(9 years, 10 months ago)
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Lord Barnett
To ask Her Majesty’s Government what is their definition of aggressive tax avoidance; and what specific examples they can instance.
Lord Peston (Lab)
My Lords, on behalf of my noble friend Lord Barnett, and at his request, I beg leave to ask the Question standing in his name on the Order Paper.
Economy: Interest Rates
Lord Barnett Excerpts(9 years, 11 months ago)
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Lord Barnett
To ask Her Majesty’s Government what is their assessment of the analysis of likely interest rate movements by the Governor of the Bank of England.
Lord Newby (LD)
My Lords, the UK’s monetary policy framework, set out in the Bank of England Act 1998, gives operational responsibility for monetary policy to the independent Monetary Policy Committee, the MPC. Decisions on setting bank rates are for the judgment of the MPC, with the aim of meeting the inflation target of 2% in the medium term.
Lord Barnett (Lab)
My Lords, I take it from that that the noble Lord is saying that the Chancellor agreed with the Governor of the Bank of England. It was a long-winded Answer but I assume that was what was saying. It has very serious consequences in many different areas for people who are already paying interest rates of well above 0.5%. However, the biggest problem is growth. At the moment it is very good, but the consequences of higher interest rates could be very serious for growth, and could mean that growth levels might not be sustainable. What evidence does the Minister have for saying that inflation is going to rise so much that we require this interest rate hike?
Lord Newby
My Lords, I did not actually say that. As the noble Lord is aware, the level of inflation at the moment is at a low of 1.5%. The Governor of the Bank of England has made it clear, through the work in reviewing forward guidance, that interest rates will rise when the Bank believes that excess capacity in the economy is being used up and where the forward outlook is for higher inflation over a two-year period, which is the remit of the MPC. The Bank has made it very clear, though, that any increase in interest rates, whenever it takes place, will be gradual, and that any new equilibrium rate of interest that is reached is likely to be significantly less than the 5% that obtained before the financial crash.
Airports: Heathrow Third Runway
Lord Barnett Excerpts(9 years, 11 months ago)
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Lord Newby
My Lords, I am not going to speculate on what might happen in any scenario, but one of the key points which I think lies behind the noble Lord’s question is that having an aviation hub in the UK is extremely important for the economy. The aviation sector employs tens of thousands of people and the Government believe that maintaining that hub status is very important.
Lord Barnett (Lab)
Would the Government care to give us a case for delaying the decision—or is it the Lib Dems’ fault?
Lord Newby
I am tempted to say that I sometimes think that everything is the Lib Dems’ fault. However, this is an extremely important decision. It is a difficult decision, and it is very important that it is taken after the fullest possible consideration of all the factors.
Finance: Interest Rates
Lord Barnett Excerpts(10 years, 2 months ago)
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Lord Barnett
To ask Her Majesty’s Government whom they consider ultimately responsible for United Kingdom interest rates.
Lord Newby (LD)
My Lords, the UK’s monetary policy framework, set out in the Bank of England Act 1998, gives operational responsibility for monetary policy to the independent Monetary Policy Committee. Decisions on setting the bank rate and the remuneration rate on reserves are for the judgment of the MPC. It uses its macroeconomic tools to aim to meet the inflation target of 2% in the medium term.
Lord Barnett (Lab)
My Lords, the noble Lord did not quite answer my Question, about where the ultimate power rests. The Bank of England Act, which he cited, is worth quoting. Section 19(2), on reserve powers—as he knows, the Treasury never gives away old powers without some reserves—says:
“An order under this section may include such consequential modifications of the provisions of this Part relating to the Monetary Policy Committee as the Treasury think fit”.
In those circumstances, surely the noble Lord must accept that the real power rests with the Chancellor, who has power as he thinks fit. Will he be so kind as to tell us, first, why he normally never answers the question properly and, secondly, whether he now accepts that the Chancellor has the ultimate power, as my Question asked?
Lord Newby
My Lords, interest rates are set by the Monetary Policy Committee. The noble Lord quoted rather selectively from the Act. If he had read Section 19(1) instead of Section 19(2), he would have found that the Treasury’s powers to which he referred are applicable only if they are,
“required in the public interest and by extreme economic circumstances”.
In the absence of “extreme economic circumstances”, the Treasury has no reserve powers.
Economy: Inflation
Lord Barnett Excerpts(10 years, 2 months ago)
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Lord Newby
My Lords, I agree with the EEF on the desirability of wage increases, particularly for those on lower incomes and not only, as has happened all too frequently in recent years, for those on the board. I also agree that raising the income tax threshold further is an excellent way of helping people on modest incomes and I hope that we can do more of it.
Lord Barnett (Lab)
My Lords, I take it that the noble Lord agrees with Robert Peston of the BBC—I am not referring to my dear and noble friend Lord Peston—who said that, on the figures given by the Government, the change from RPI to CPI would cost £83 billion over 15 years. That would mean substantial losses in retirement for pensioners in private sector businesses, not those in the public sector. This is a substantial loss in revenue for those people. What plans do the Government have to compensate those pensioners in retirement, who will suffer considerably?
Lord Newby
My Lords, the noble Lord knows that this Government and the previous Government decided to move to CPI from RPI as a measure of inflation simply because we believe it is a more appropriate way of measuring inflation. It is as straightforward as that. Everyone who is affected by CPI rather than RPI will be affected by a better measure of inflation.
Taxation: Fuel Duty
Lord Barnett Excerpts(10 years, 4 months ago)
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Lord Newby
My Lords, the policy that we have already adopted will assist people in those areas, as it will everywhere else. We are looking at the scope for extension of the rural fuel rebate scheme, which gives an additional 5p rebate in the most sparsely populated areas. We hope to be able to make an announcement of that in the relatively near future.
Lord Barnett (Lab)
My Lords, the Question on the Order Paper asked the Minister a simple question. Should not his answer have been no?
Lord Newby
No, my Lords. The noble Lord knows better than anybody else that it would be foolish to set out at this point firm plans for individual taxes for the course of the next Parliament.
National Savings and Investments
Lord Barnett Excerpts(10 years, 4 months ago)
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Lord Newby
My Lords, the Government are not doing quantitative easing, the Bank of England is. On the rate payable on National Savings, as the noble Lord will know, the role of National Savings is to contribute to the Government’s funding requirements. In doing that it has to operate in line with market rates because otherwise the Government are paying more for their money via National Savings than through the gilts market.
Lord Barnett (Lab)
My Lords, does the noble Lord’s answer to the noble Lord, Lord Lamont, mean that the Chancellor is advising the Governor of the Bank of England that if he has early plans to increase interest rates the Chancellor will use the reserve powers given to him under the Bank of England Act to stop it?
Lord Newby
My Lords, the reserve powers in the Bank of England Act are to be used principally when inflation is outside the target level. That is not the case at the moment. The question of interest rates is very much a matter for the Bank of England. It has adopted a new policy that incorporates forward guidance, which was agreed with the Chancellor in the middle of last year, and that is the basis on which it is operating.
Financial Services (Banking Reform) Bill
Lord Barnett Excerpts(10 years, 5 months ago)
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Lord Barnett
Lord Barnett (Lab)
My Lords, in Committee I promised the House that I would table amendments to debate the question of whether we should have separation rather than the present system. The arrangements under the Bill show that it may not work very well.
The speakers we had on the first day in Committee went to the heart of the issue. The noble Lord, Lord Turnbull, a distinguished former head of the Civil Service, told us that the amendment he moved dealt with the whole issue. In practice, I hope that my amendment deals with what I said it would deal with. However, given the problems with drafting amendments to this complex Bill, I had to use the services of a very excellent person in the Public Bill Office, Simon Blackburn. Between us we drafted the amendments, which I hope work. If they do not, and the House agrees, no doubt the Minister will be able to amend the amendments to make sure that they do what I want them to do—that is, reconstruction, not ring-fencing.
The noble Lord, Lord Turnbull, told us at col. 18 —and of course he knows about these things—that the Government’s response to the problem here, and what they plan to do, is to “change banking for good”. Of course, if that could be done, it would be marvellous. However, the plain fact is, as the noble Lord, Lord Turnbull, pointed out, that the reality is somewhat different. The Government have, of course, embraced some recommendations, but the provisions in the Bill make sure that they are heavily diluted. Speaking as a senior official, the noble Lord knows about dilution. Certainly, if you look through the Bill, there are all kinds of dilutions and provisions that make a nonsense of the original recommendation. However, with this complex new Bill it is good to have a former distinguished leader of officials tell us what it will and will not do.
The noble Lord went on to speak about the vigorous debate the parliamentary commission had on Glass-Steagall, which is the US separation of banking. He said that eventually they came down against it because the United States had abandoned it. He was followed by my noble friend Lord Eatwell, who spoke of the importance of reviews. He said that what is being proposed here is,
“a leap in the dark and we have no idea whether it will work”.
As it is, it is a “novel innovation” and we,
“cannot be sure whether it will … have … unintended consequences”.—[Official Report, 8/10/13; col. 20.]
I do not know what kind of unintended consequences those might be, but clearly all kinds of consequences could arise from not dealing with the real issue here.
We therefore have my new amendments, which I hope that the House will eventually approve. However, we are a long way at the moment from achieving what we all want to see. We started with a Bill of 37 pages; the noble Lord, Lord Deighton, paid a well deserved tribute to his staff, who had converted 37 pages to 170 pages—virtually a new Bill. By the time we finish it is likely to be more than 200 pages long, as he knows from his own amendments that have been tabled. I certainly share his approbation of his officials, who have done an incredible job in the most difficult of circumstances. I have never known a Bill of this kind before in either House of Parliament. However, I assume that the House of Commons, which gave us this 37-page Bill, will now have to have a Second Reading on a new Bill, because it will not be able to cope with it as it is.
The Commercial Secretary to the Treasury (Lord Deighton) (Con)
My Lords, it is a great pleasure for me to resume our debates on the Bill. We do not believe that there is any need to recommit it. These are radical and important reforms—ring-fencing, bail-in, depositor preference, a new senior person’s regime and new criminal sanctions. The Government wish to put them in action, move forward and leave the period of deliberation behind. We wish to end the uncertainty for the economy, consumers and taxpayers that prolonged reviewing can bring. Where the reforms can be improved to increase their effectiveness, the Government have been prepared to listen, and you will see that we have responded. However, where the Government do not believe the proposals are backed by evidence, or are unreasonable, we have respectfully disagreed and set out our reasons. This is the approach that we have taken to all the amendments.
Specifically on Amendment 1, from the noble Lord, Lord Barnett, the ICB recommended that only retail deposits—that is, the deposits of individuals and small businesses—should be ring-fenced. This amendment would require all deposits to be ring-fenced. The ICB recommended that large organisations and wealthy individuals should be able—though, importantly, not obliged—to deposit with non-ring-fenced banks. This was because these depositors are sufficiently financially sophisticated to tolerate an interruption in access to a single bank, for example because they have multiple banking relationships. These sophisticated depositors therefore do not need the protection that is being mandated inside the ring-fence provides. They may choose to deposit in a ring-fenced bank if they wish, of course. It also provides a little bit more competition. It gives wealthy individuals and businesses the opportunity to shop around.
Large corporates and financial institutions also use complex financial products which ring-fenced banks will rightly be prohibited from selling. To obtain these products, such as complex derivatives, large companies or financial institutions will need to go to a non-ring-fenced bank. Given this, it is reasonable that these customers should be permitted also to deposit with non-ring-fenced banks, as the ICB recommended. The Government accepted the ICB’s recommendation. Therefore the Bill allows the Treasury to specify by order that a non-ring-fenced bank can accept deposits in certain circumstances.
The deposits of individuals—other than very wealthy and sophisticated ones—and small businesses will have to be within the ring-fence. There is no compulsion for large organisations or wealthy individuals to deposit outside the ring-fence, only the option for them to do so if they so choose. This option is provided for in secondary legislation. The Government published a draft of the relevant order for consultation in July this year. It is appropriate that detailed provisions such as this should be made in secondary rather than primary legislation to allow the legislation to keep pace with future developments in the market and to keep it fit for purpose. This approach was endorsed by the PCBS in its first report.
It is also important to highlight that under the Bill the Treasury does not have unlimited power to determine which deposits do not have to be ring-fenced. The Treasury may only allow deposits outside the ring-fence if it is convinced that doing so does not undermine the ring-fence and that the depositors concerned do not need the protection of the ring-fence. This is therefore a constrained power that is needed to implement the recommendations of the ICB. I therefore urge the noble Lord to withdraw his amendment.
Lord Barnett
My Lords, I do not think that the Minister has dealt with the central arguments about separation; he dealt mainly with something quite different and did not reply to my questions. Whether or not he has the information to hand, perhaps he could think about whether the staff of the FSA received millions of pounds in compensation for redundancy before they were reappointed to the FCA. Can he at least tell us that?
Lord Deighton
The central question of full separation is in Amendment 2, which we will address next, and we can go on to discuss it. With respect to the FSA redundancy arrangements, I would be delighted to write to the noble Lord with that information when I have it at my fingertips.
Lord Deighton
The clarification is that the ring-fence effectively operates on the liabilities side, so we are dealing with core deposits. Just to correct the point and make it clear, the most sophisticated investors can be either inside or outside the ring-fence, and they have the choice. However, the asset side of the bank’s balance sheet is unconstrained in the rules.
Lord Barnett
My Lords, I will withdraw Amendment 1 and then move Amendment 2, although I spoke to it generally in my first speech and I do not wish to detain the House for too much longer. But as the noble Lord, Lord Lawson, said at the time, these are two totally different cultures and it is going to be virtually impossible to put the two together—those were his words. I therefore suggest to the Minister that Glass-Steagall, which worked for 60 years in the United States, could be made effective here if we had stronger regulations to make sure that those banking lobbyists could not succeed in stopping the separation. That was the major point that I made, and will continue to make. That is also where I would like to leave it so that the Minister can reply to Amendment 2. I beg leave to withdraw the amendment.
Lord Barnett
“Group restructuring powers142K Group restructuring of ring-fenced bodies
(1) A ring-fenced body may not be part of a group which—
(a) carries on an excluded activity or purports to do so, or (b) contravenes any provision of an order under section 142E.(2) The appropriate regulator must exercise the group restructuring powers if it is satisfied that a ring-fenced body is operating in contravention of subsection (1).”
Lord Deighton
My Lords, this Bill legislates for ring-fencing. That is the Government’s policy, not Glass-Steagall-style full separation. The Government support ring-fencing, but not as a compromise option or a lukewarm version of separation, and not as a watered-down policy. Rather, the Government have adopted the ring-fence after careful consideration of the recommendations of the Independent Commission on Banking. As noble Lords will recall, the ICB was established in June 2010. It deliberated for 15 months before making its recommendations in September 2011. As part of its deliberations, the ICB considered full separation as an alternative to ring-fencing, but it rejected that alternative and instead recommended ring-fencing. The Government have accepted the ICB’s recommendation, and the commission set out its rationale for rejecting full separation in its final report.
Let me remind the House of the ICB’s line of reasoning. The ICB argued that an effective, robust ring-fence would deliver the same benefits to financial stability as full separation, on the model of Glass-Steagall. A robust ring-fence will insulate vital retail banking services from shocks to global financial markets—for example, reducing the risk that British high-street banks will be brought down by swings in the prices of complex securities. Let us recall, too, that retail banking has its risks and that market discipline demands that badly run banks must be allowed to fail. If a retail bank fails, a robust ring-fence will enable the authorities to manage that failure in a controlled way, with essential services kept running with the core deposits we were talking about, but without any injection of taxpayers’ money. So, a strong ring-fence will minimise the chance that a future Government will ever be forced to bail out a failing bank. The moral hazard that encouraged excessive risk-taking before the recent crisis would be removed.
The ICB argued that a robust ring-fence would deliver the same benefits as full separation, and would avoid some of full separation’s main disadvantages. In particular, a ring-fenced bank that found itself in financial difficulties could be supported by other group members, such as a healthy sister investment bank. Full separation would not allow this. Essentially the ring-fence is a valve; it does not let any of the bad stuff get into the ring-fence but allows support to come in if it needs it.
Under ring-fencing, a banking group could offer a one-stop-shop service to customers, especially business customers, so there is a strong marketing advantage to the group. Deposits or simple loans could be arranged with the group’s ring-fenced bank, while more complex products are supplied by the group’s investment bank. Full separation would not allow this. Finally, the ICB estimated that by denying banks the legitimate benefits of diversification, full separation would impose higher costs—costs that would likely be passed on to banks’ customers and to lending.
In summary, ring-fencing will bring the same benefits as full separation, but with fewer disadvantages. A rational, sober evaluation of the two thus brought the ICB to identify ring-fencing as the superior policy. I would like to use this opportunity to put paid to some myths around ring-fencing versus full separation. First, some claim that full separation is simpler to legislate for, and there is no complexity. Any separation of banks’ business will inevitably involve detailed rules to specify where the line, whether it is a ring-fence or a complete separation, is to be drawn, and prescribe which activities must take place either side of that line. As banks’ business is complex and involves a wide range of different products and services, so drawing that line will inevitably be complex. But a line will have to be drawn and someone will have to decide what is in each separated type of bank. It is the same problem for ring-fencing and full separation.
Secondly, either form of separation will, unless vigilantly maintained, be vulnerable to erosion or bank lobbying. There are plenty of examples of that through history. I do not, therefore, accept that full separation is either more simple or more robust than ring-fencing. As I have already said, the ICB conducted an exhaustive and detailed investigation of the case for different types of structural reform before coming to its recommendation in favour of ring-fencing. That recommendation commanded a wide consensus—including regulators, industry and the Opposition. Let me quote the shadow Chancellor speaking in the Commons when the Government first responded to the ICB in December 2011. He said that,
“we, too, support the commission’s radical reforms on ring-fencing”.—[Official Report, Commons, 19/12/11; col. 1074.]
Of course, no matter what the weight of evidence, there will always be some who disagree with the consensus. But to those who advocate full separation as an alternative, we need to ask: what is the evidence that supports this alternative policy? Throughout this process so far, the Government have openly invited others to give their views and present new evidence. We consulted widely, and submitted this Bill to pre-legislative scrutiny by the PCBS to seek its input. I do not think that the PCBS produced hard evidence in favour of full separation. It presented nothing that compared the two proposals, although it elicited some strong expressions of scepticism on whether it would work. Those are valid. It is certainly a new way of doing things.
Baroness Cohen of Pimlico (Lab)
My Lords, I have spoken before against ring-fencing and for full separation. We may not be in any kind of agreement on that, but what we ought to be in agreement on is that ring-fencing will require particularly scrupulous and detailed regulation. It will require more of our regulators than full separation, because institutional separation to some extent requires less regulation.
I wonder whether we are quite sane in putting so much faith in our regulators. The people who gave us Mr Flowers as chairman of the Co-operative are hardly those I feel very confident about exercising the very complex regulation that ring-fencing will require. It is complex and it is difficult. It is more difficult than it needs to be than with the policy of full separation. I therefore continue to support my noble friend Lord Barnett in his amendment.
Lord Barnett
My Lords, the Minister has told us that the Government consulted widely and got agreement. Well, more recently, there were 300 professionals who were consulted in a survey and only 35 of them thought it would work. I do not know who he consulted. He also talked about the robust regulations. Who is going to supervise these robust regulations—the old FSA, now called the FCA? Is he confident that it can? I am certainly not clear myself, nor do many people have a lot of confidence that the old FSA, now the FCA, can do that job. He is confident, however, that it can.
My noble friend Lord McFall pointed out what Volcker said to that committee: the chairman of a holding company, of which some part got into trouble because of the lack of regulation or whatever—what would he do? I know what he would do. He would seek to save it. These merchant banks may lose money at times—indeed they have done—but most of the time they make a lot of money and do not want to lose it. They want it separated, but under the same roof, with one holding company. That is what they have got and are going to get under the new administration.
I cannot see this regulation working and would like to hear the views of any other Member of the House who has an interest in this.
Lord Flight
My Lords, can I ask the Minister whether I am right in thinking that the PRA would be the main regulator of the balance sheets of the two entities under ring-fencing, and not the FCA, which is about protecting customers? Secondly, if there were a Glass-Steagall separation, is the job not exactly the same, in that you would need to look carefully at a separate investment bank and a separate banking bank to make sure that one did not have things in it which ought to be in the other? I would have thought that the job of regulating would be exactly the same as under a ring-fenced structure.
The Lord Speaker (Baroness D'Souza)
Does the noble Lord wish to withdraw his amendment?
Lord Barnett
If the House is no longer interested in the matter, I beg leave to withdraw.
Banking: Lending
Lord Barnett Excerpts(10 years, 6 months ago)
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Lord Barnett
To ask Her Majesty’s Government what steps they will take to encourage banks to prioritise their lending to the manufacturing sector compared to the property sector.
Lord Newby (LD)
My Lords, the Government are committed to improving the flow of credit to all businesses, including those in the manufacturing sector. The Funding for Lending scheme has contributed to an improvement in the bank funding environment and banks are now passing this on to the real economy, including to small businesses. The Business Bank and the Business Finance Partnership are developing alternative sources of finance for smaller businesses.
Lord Barnett(Lab)
That is a very different story from the one given by the chief executive of RBS, who, as the noble Lord will know, has told us that the bank is working very closely with the Treasury—by which he means Treasury officials. RBS has now set up an internal bad bank, while the Chancellor, whom I assume the officials talk to occasionally, has refused to set up a bad bank. Between them, they have found £38 billion of high-risk assets which they have decided will go into the bad bank. They have also said that they propose to finish the rest after writing off £4.5 billion by 2016. For those who owe that money, there is now an incentive to wait until the very end, which will mean the bank having to write off even more. Is that something that the officials, with the Chancellor’s consent, have agreed to?
Lord Newby
My Lords, as the noble Lord knows, there was a review about whether there should be a formal good bank/bad bank split of RBS. The Government decided that the cost and disruption of doing this was not justified. However, as the noble Lord says, the bank has itself decided to make an internal split, enabling it to have a greater focus on lending and on dealing in a more orderly way with many loans which will not be repaid or will be only partially repaid. Many of these are related to the property sector.
Lord Newby
My Lords, it is important to look at what is happening in the real world. The CBI’s SME trends survey, published yesterday, showed that SME business optimism was rising at the fastest rate since the survey began some 25 years ago. Among SMEs, output grew for the fourth quarter and is expected to grow more rapidly going into 2014. More generally, vacancies—the best indication of growing or falling demand for labour—are rising at the sharpest rate for more than six years.
Lord Barnett
My Lords, the noble Lord forgot to answer my question. Did the Chancellor agree with his officials in setting up the internal bad bank?
Lord Newby
My Lords, the decision on setting up the bad bank was, primarily, for the management of RBS. The Treasury and UKFI are obviously in regular contact with RBS.
Financial Services (Banking Reform) Bill
Lord Barnett Excerpts(10 years, 6 months ago)
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Lord Flight (Con)
My Lords, I strongly support these two amendments and the points made by the noble Lords, Lord Lawson and Lord McFall. I will add only the point that IFRS renders accounts virtually impenetrable, and fund managers have to convert them into a more understandable form of accounting to understand what on earth is going on within the organisation. I have been critical of IFRS for more than 10 years. The point was made to me initially that this was not a matter for Parliament but for the profession. It is of crucial importance to Parliament, because if it leads to things such as the banking mess, the nation at large is responsible. Secondly, as the noble Lord, Lord Lawson, pointed out, not only did it exaggerate profits in good times and create fictitious profits on the back of which excessive bonuses were paid, but it also exaggerates the other way in bad times, and therefore arguably can lead to an underappreciation of a bank’s strength. I had thought that France and Germany had some sympathy with this view and, notwithstanding other criticisms, I had been hopeful that the EU was looking to address this issue. I am disappointed that, to date, nothing seems to have happened.
I also make the point that, going back 20 years, Switzerland actually put a legal obligation on the auditors to do the compliance regulatory checking. The auditors were then liable if they had not done their job properly. I think it is a pity that Switzerland changed from that practice because I thought that it worked extremely well. I am not necessarily recommending it for this country but it was a novel idea, and the auditors ought to know what is going on within a bank if they have done their duty in auditing that bank properly. Switzerland has since changed its approach. Indeed, it was after it did so that Switzerland, too, encountered problems.
When the crisis broke in 2007-08, I asked myself: where were the auditors? Since then, candidly, there has been justified criticism of the regulators, but the issue of what the auditors were doing and why, and why bank accounts were so unsatisfactory, has not been adequately examined. I believe that the Treasury Select Committee has looked at this, but I am not sure whether it has done so in any detail. It is still quite an important issue and I believe that this Government should exercise pressure to effect reform of IFRS. In addition to the havoc it caused in the banking industry, it has also been significantly responsible for massive damage to our pension systems by overestimating the liabilities, especially when bond interest rates are artificially low. That has led to massive closure of justifiable defined benefit schemes. It really is a problem and it needs addressing.
Lord Barnett (Lab)
My Lords, I strongly support the amendment moved by the noble Lord, Lord Lawson. I declare what I suppose is a former interest, as many years ago I was a senior partner in an accountancy firm of modest size—I say “modest size” by comparison with the three or four firms that audit banks or, indeed, any of the FTSE 100 companies. That firm became bigger since I retired, because it merged with a fairly large international group, but at the moment it is not one of the likely auditors of any bank, whether small or large.
The noble Lord who just spoke asked where the auditors were. That question arose constantly, and understandably. If a bank gets into that kind of trouble, what were the auditors doing over the years? Never mind dialogue with the regulators; what about a dialogue with themselves or with the banks? Something serious will have to be done by the Government or by the profession about there being only three or four firms which audit all banks or, as I said, any FTSE 100 company. It is a serious matter and will obviously have to be addressed. It has been broadly spoken about for years, but nothing has ever been done about it.
Amendments 92 and 104D relate to some extent to leverage, which is what Amendment 93 concerns, and to whether banks have adequate capital to do the job of being a normal bank. This clearly is a serious issue, which nobody has properly addressed. How do we get to the situation where other major banks can be called on to have some kind of competition for who does that auditing job? When a firm knows that it will have that job permanently, the likelihood is that it does not do the job as well as it could or should. That has been happening all the time.
I hope that the Government will listen very carefully to what the noble Lord, Lord Lawson, my noble friend Lord McFall and others said, and what previous Select Committees said. This is an all-party issue, as the noble Lord, Lord Deighton, knows. I hope that he will be able to tell us that the Government will seriously consider what has been said today. If they cannot accept the amendment because the drafting is not quite as it should be—which I would understand—I hope that they broadly agree with it and will come back on Report with an amendment that does the job. We cannot just leave this; something will need to be done. I hope that the Government will listen very carefully today.