Office for Budget Responsibility (Manifesto Audits)

Pat McFadden Excerpts

Wednesday 25th June 2014 Commons Chamber

[Ed Balls]

That is correct. I sent him draft clauses with an offer to reach a cross-party agreement around those. There are two ways in which we can approach these things. We can try to see off each other, or we can try to forge that consensus, and it is not too late. So let us give it another go.

The timetable issue has been raised by several hon. Members. The head of the OBR has told me that if we can reach cross-party agreement on the details of how we can take forward this role for the OBR during the summer, he would be content for the underpinning legislation to be put in place in the autumn. It is commonplace for Governments to move forward on a policy, to agree the details and modalities, while putting the legislation in place. He would be content with that, which brings me to the key timetabling issue.

A number of detailed procedural issues will clearly need to be worked through if the reform is to go ahead this year. When we met in February, following his discussions with the Select Committee, the head of the OBR told me that in his view we would need to have the discussions on the details concluded by the end of the summer. He said that that would be possible only if we could achieve in-principle agreement to proceed by the early summer, by the end of June.

I know that the head of the OBR is pessimistic that it will be possible to get that in-principle agreement, as we heard from the hon. Member for Macclesfield (David Rutley) a moment ago. If there is no in-principle agreement to do this, it will not be possible to proceed in this Parliament. But I told the head of the OBR that we were having this debate today and that we still sought to achieve that consensus, and I asked for his view. He confirmed to me last Friday that his view at the beginning of the year is still his view today: that if we can reach agreement in principle to proceed by the end of June—in the next few days—we can work out the details over the summer, complete those discussions by the end of the summer, and put in place the legislation in the autumn, during which time the work of the OBR could commence.

I understand the view of the Institute for Government, which says that perhaps we should give up and do this in the next Parliament, but I do not want to do that because we owe it to the public to do the right thing. The head of the OBR’s view is that if the Chancellor and those on the Treasury Front Bench are willing to come along today and agree in principle to proceed, we can go ahead. There is no issue of timing and timetable to get in the way.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

May I get to heart of the point about timing and consensus? We have already heard some quotes from Robert Chote. This is what he said when he gave oral evidence to the Select Committee and was asked whether this could be done by the next election: “It would be difficult but by no means impossible. The key thing that you would need to have is agreement in principle across the parties that it was a good idea to do it. At the end of the day, if Parliament wants us to try this, we will do it to the best of our ability given the resources and the time we have available.” Given that those statements are on the record, does my right hon. Friend agree that if this does not happen, it is because there is not a political consensus? I hope that the Minister will not say that this is about timing but will be up front about why the consensus is not there, and admit that she and her colleagues are blocking it.

[Ed Balls]

My right hon. Friend is absolutely right. If we, as a House, decide to proceed in a cross-party way today, and in the coming days, this reform can be agreed over the summer, the legislation to back it can be put in place, and we can have independent audits of manifestos at the next election. It is not a matter of timetabling, because the head of the OBR says that it can be done: it is only an issue of political will. If, in the end, the Chancellor—who has not turned up—does not want to do it, it is not going to happen. It is not going to happen not because the OBR will not do it, because we will not do it, or because it cannot be done, but because Government Front Benchers do not want it to happen.

amendment of the law

Pat McFadden Excerpts

Monday 24th March 2014 Commons Chamber

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

I am very interested in the figures that my right hon. Friend is reading out. What does he think the implications are for the Government’s policy to sell the student loan book?

[Mr Denham]

If I may, I will come to the student loan book in a moment, because that is a serious point.

One final point from the model that I have outlined is that the average amount paid back by each graduate would fall by £5,000 in total. On this model, usable university income would rise by at least £650 million a year.

The current approach is astonishingly wasteful in terms of public money and private graduate contributions —and that is not the end of it. As he said in the autumn statement, the Chancellor wants to encourage an additional 90,000 students, funded by the sale of the income-contingent student loan book. I do not object to the principle of selling the loan book. I tried to do it myself for two years when I was a Minister, but I became convinced that value for money was impossible to achieve. Buyers face such unknown risks on future inflation, earnings and the level of evasion that either the loan book has to be sold at a massive mark-down on face value or the buyer’s income has to be guaranteed through taxpayer subsidies—the so-called synthetic hedge, which is not so much plastic privet as guaranteed private profit. Selling a capital asset to fund hypothecated revenue spending is a short-term fix that exposes higher education to unsustainable costs when the money runs out. The Public Accounts Committee has said that it has no confidence in the ability of the Department for Business, Innovation and Skills to work out what is value for money.

This cannot go on. Universities are pressing for higher fees, and Ministers have refused to rule out an increase, but the financial futility of that is now clear. Every time fees go up, the cost and rate of debt cancellation will increase. Graduate repayments will rise, yet fewer and fewer graduates will repay their debts. The Prime Minister’s former head of policy, Paul Kirby, recently suggested closing 25% to 40% of all university courses—all those where graduate incomes are not enough to repay fees. Higher education is not simply a private benefit; it is a public benefit and a private benefit. It is now clear that we can reset the system so that there is a fair partnership between the state and the student. As my modelling has shown, we could have lower fees, lower borrowing and lower debt cancellation, with higher usable incomes for universities, within the current envelope of public spending. Only the ideological dogma and blinkered embarrassment of this Government stands in the way of doing just what is needed.

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[Mr Pat McFadden (Wolverhampton South East) (Lab)]

The Chancellor told the House last week that his policies had been vindicated. His basic case is that austerity is working so well that we need it for two Parliaments rather than one, as was planned. Of course, it is welcome that we have economic growth after so many lean years, but the inescapable fact is that the targets in the growth and spending plans set out at the beginning of this Parliament have been missed by huge margins. The cumulative effect is that cuts will last years longer than planned, and an extra £190 billion is being borrowed, compared with the figure in the plans set out after the election. If Labour had borrowed £190 billion more than was planned, I am not sure how Government Members would describe it, but I doubt whether they would be reaching for the term “success”. The return of growth cannot hide the fact that the outcome of the strategy pursued in the past four years is that one of the Government’s fiscal targets has been missed, and the other—the five-year rolling target—continues to be pushed into the future.

The increases in investment allowances are welcome, but let us be in no doubt: this is a U-turn from the Conservative manifesto and from the 2010 post-election Budget. At that time, when the Chancellor was talking about the “march of the makers”, he cut support for investment in manufacturing by £3 billion a year, and called it getting rid of complex allowances and reliefs. Rhetoric and policy were pulling in entirely different directions. I therefore welcome the U-turn, and on this point at least, rhetoric and policy are now pulling in the same direction, although needless barriers were placed in the way of investment by the policy previously pursued.

[Frank Dobson (Holborn and St Pancras) (Lab)]

Does my right hon. Friend agree that when the investment allowance was reduced, corporation tax was reduced, which did not benefit manufacturing but benefited the banks?

[Mr McFadden]

That is absolutely right: a cut in support for manufacturing was used for business as a whole.

Although it makes sense to support investment decisions through the tax system, we should not kid ourselves that investment allowances alone will be enough. The UK’s export performance has been routinely described as disappointing in report after report by the Office for Budget Responsibility. Speak to any manufacturer and they will most likely say that their key challenge is skills. If companies cannot get the right people with the right skills, they cannot innovate, they cannot meet orders in time and they cannot operate as efficiently as they want.

If the Government are really serious about supporting UK manufacturing, they should heed the call coming from their own Back Benches today to stop chasing UKIP and putting in place policies that stop the brightest students and workers from around the world coming to the UK. The Government’s arbitrary net immigration target is a barrier to our accessing the best talent in the world, and the exclusion of such talent is not in the interests of UK businesses or the economy; nor is the threat of withdrawal from our biggest export market, the EU. It is no good supporting investment decisions through the tax system with one hand, and threatening to pull away from our biggest market with the other. The stance the Government have adopted on this is a complete failure of leadership: it is party management first, and the interests of the country second. No amount of support through investment allowances would undo the damage that pulling out of our biggest market would do. I am glad that my right hon. Friend the Leader of the Opposition made the announcement he made a couple of weeks ago, exercising leadership on this issue and rejecting the option of following the Government down this path.

Perhaps enough has been said about beer and bingo in recent days. As someone whose father was a labourer and whose mother worked in a local authority children’s home, the only thing I would add is that a more serious working-class aspiration is an education system that opens up opportunity to all; social mobility that is not based on but challenges closed elites; and a path to rising living standards that has been sadly absent in recent years. I suggest to the Government that a poster based on those things might have been truer to the heart of working-class aspiration than the one that was produced.

I echo some of the sentiments expressed by my hon. Friend the Member for Sedgefield (Phil Wilson) on the pension changes. There has been an attempt to reduce this proposal to the question of whether people can be trusted with their own money. Of course people can be trusted in that way, and empowering them to make their own decisions is a good thing. It is something that we should support in politics. Choice in public services empowers people. It has worked well in the area of personal payments for social care, for example. As my hon. Friend said, however, what is in question is not trusting people but trusting the financial services sector that sells people these often complex financial products. I serve on the Treasury Select Committee, and we have seen many mis-selling scandals in recent years, ranging from endowment mortgages to payment protection insurance. We should have learned the lesson that there is often a serious information mismatch between those selling those financial products and those buying them, and that customers are not well served when things go wrong.

How do the Government propose to address that issue? Simply shouting that we should trust people with their own money is not enough, given that the PPI compensation alone has had to be set at £20 billion; and nor is it the philosophy that has been pursued on a cross-party basis for auto-enrolment into the pensions systems. If customers are to be well informed, they need good advice and alternative products in which they can trust. It is perfectly reasonable—indeed, a duty—for a responsible Opposition to ask questions about how that is to be achieved, and to point out the dangers if it is not.

The recent economic growth is welcome, but if it is being funded by consumer spending, people will rightly ask how can we ensure that it has solid foundations and is not simply the froth from another unsustainable housing boom, and how we can ensure that Britain remains engaged with the world and does not turn away from the trade and exports that we need.

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[Sir Edward Garnier]

Yes, I do. I find that view deeply depressing, although not in the least surprising. The right hon. Gentleman is a good old-fashioned socialist and I respect him for that. I wish that more of his colleagues were as clear in their views as he is. I happen to take the view, however, that Mr and Mrs Retirement Person should be allowed to do what they like with their pension funds and that if the financial services sector misconducts itself, we should prosecute it or take regulatory action against it. We should not act to prevent the vast majority of individuals from doing what they think best for their financial future, either pre-retirement or post-retirement, simply because we fear that there might be one or two bad hats in the financial services sector. If those of us who are about to retire wish to invest our pension funds in property or in stocks and shares—

[Mr McFadden]

rose—

[Sir Edward Garnier]

I fear that I am limited to one free hit, and the right hon. Gentleman may not have one. Perhaps he should see his financial adviser instead.

If those of us who are about to retire wish to invest our pension funds in property or in stocks and shares—or in buying an annuity—let us do it. Let us be allowed to make informed, adult decisions. Yes of course we must build protections into the system to prevent people from being mistreated or misled, as the Chancellor made clear in his Budget statement, but we must allow them to make their decisions from a position of knowledge. For goodness’ sake, let us not imagine that Mr Whitehall Man, or even Mr Labour Cabinet Minister, is better able than anyone else to decide how I should lead my life. I really object to that form of nanny state—

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[The Economic Secretary to the Treasury (Nicky Morgan)]

Let me begin by thanking hon. Members on both sides of the Chamber for their contributions this evening. I will do my best to respond to as many of the points raised as I can.

I will start by saying this: of course the Government, and everyone in the Chamber, want to see our economy growing and our living standards rising. The best way to achieve that is by ensuring that more people are going to work every morning and that those people are keeping more of the money they earn. That is exactly what last week’s Budget will help everyone to achieve.

Let me turn to the comments made in this wide-ranging debate. My right hon. Friend the Member for Mid Sussex (Nicholas Soames), in setting out his support for the Budget, mentioned the fact that we need more productivity. He also mentioned the need for investment in skills, as did other hon. Members. The right hon. Member for Ross, Skye and Lochaber (Mr Kennedy) talked about a sense of opportunity for the youth of this country and a sense of security for older people. He welcomed the freezing of whisky duty. My hon. Friend the Member for Henley (John Howell) set out his support for the development at Ebbsfleet and mentioned neighbourhood plans, which he said were key, explaining that it was Thame in his constituency that launched the neighbourhood plan.

My hon. Friend the Member for Wolverhampton South West (Paul Uppal) talked about Labour always raising taxes—how very observant he is—and set out the help for businesses that the Chancellor announced last week and the successes in his constituency.

My hon. Friend the Member for Brentford and Isleworth (Mary Macleod) talked about the support that the Government are giving air ambulances, as well as the support for tax-free child care, for which 1.9 million families will be eligible. She also mentioned the record numbers of people in work, including women.

My hon. Friend the Member for Cardiff North (Jonathan Evans) talked, as other Members did, about the support that the Government are giving energy-intensive industries, and my hon. Friend the Member for Milton Keynes South (Iain Stewart) made a bid for the Alan Turing institute to be based in Milton Keynes. I am sure that my right hon. Friend the Minister for Universities and Science will have noted that plea. My hon. and learned Friend the Member for Harborough (Sir Edward Garnier) said that he was in favour of freedom for those with pensions to make decisions that are right for them, which was a key cornerstone of last week’s budget.

My hon. Friend the Member for City of Chester (Stephen Mosley) made a terrific speech about falling unemployment in his constituency and the great work that he has done on jobs fairs. My hon. Friend the Member for Dartford (Gareth Johnson) welcomed the Chancellor’s announcements about Ebbsfleet, of which I know he will be a great champion.

My hon. Friend the Member for North Herefordshire (Bill Wiggin) talked about the cuts in cider and beer duty, which he rightly said were good news for pubs and brewers. He also mentioned that the mother-in-law of my hon. Friend the Exchequer Secretary to the Treasury lives in his constituency. I am not sure whether there is any connection with cider and beer, but perhaps that is how those in Herefordshire like to spend their time.

My hon. Friend the Member for Romsey and Southampton North (Caroline Nokes) mentioned funding for flood defences and the repairing of potholes. The Government have introduced a £6.5 million severe weather recovery scheme to support local authorities, including for highway infrastructure repairs. The scheme is now paying 100% of local authority costs above the threshold, rather than the usual 85%, and the threshold has been reduced for all county councils and unitary authorities to make it easier for them to claim support. Of course, we have also provided a further £140 million to help repair roads hit by weather damage and, in the Budget, £200 million for repairing potholes.

My hon. Friend the Member for Rugby (Mark Pawsey) talked about the importance of new homes and, like other Members, rightly pointed out that the rise in house prices is not universal across the United Kingdom. There is a particular impact in London and the south-east. My hon. Friend the Member for Mid Dorset and North Poole (Annette Brooke) mentioned the rise in the personal allowance, which the Government are proud to have delivered, and financial support for exporters.

My hon. Friend the Member for Braintree (Mr Newmark), the founder of the Million Jobs campaign, talked about the work that he has done, including on the Braintree jobs fair, and said that more growth needs more jobs. My hon. Friend the Member for Elmet and Rothwell (Alec Shelbrooke) mentioned the Labour newsletter put out in his constituency about Labour’s economic policy. I wonder whether he would like to share it with Opposition Members, particularly the shadow Treasury team, because we did not hear much about that today.

My hon. Friend the Member for Spelthorne (Kwasi Kwarteng) mentioned the recovery, as the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) just has. He reminded us that a year ago the Opposition said that there was no recovery. Now, of course, it is the wrong kind of recovery. To say that it is hard to please them would be an understatement. My hon. Friend the Member for Macclesfield (David Rutley) talked about the important reductions in corporation tax and employment allowances.

I turn to the speeches that Opposition Members made. I must congratulate them on one thing—at least most of them talked about the Budget. That is remarkable given last week’s Budget response speech by the Leader of the Opposition, in which I think he failed to mention a single Budget measure. I have to say that listening to Opposition Members is like watching arsonists making a call after they have started a fire and saying, “Please, the fire’s not being put out quick enough.”

The right hon. Member for Leeds Central (Hilary Benn) asked various questions. I probably do not have time to go through all of them, but it is interesting to note that Tower Hamlets, one of the poorest boroughs in London, has received £49 million from the new homes bonus, compared with £6 million for Wokingham, so he is not entirely right to say that money has been taken from the poorest authorities in the country. He also asked about the Financial Policy Committee’s remit on monitoring the housing market. The latest remit was published last week, on 19 March, and, as the FPC has said, it will monitor in particular developments in house prices,

“relative to indicators of affordability and sustainability.”

The right hon. Member for Southampton, Itchen (Mr Denham) talked about student loans and debt. I do not think he is in his place now, but—[Hon. Members: “Yes, he is.”] I am sorry, I missed him. I ask him just what Labour’s policy is on student loans. I represent a large university in Loughborough, and the vice-chancellor would like to know.

The hon. Member for Stoke-on-Trent South (Robert Flello) spoke about fuel price cuts. Average pump prices under this Government’s policies will be 16p per litre lower than under the plans of the previous Government. The hon. Member for Blyth Valley (Mr Campbell), who sadly is not in his place, blamed the entire financial crash on Lehman Brothers, but I point out to him that Northern Rock collapsed before Lehman Brothers.

The hon. Members for Glasgow North (Ann McKechin), for Edinburgh North and Leith (Mark Lazarowicz), and for Sedgefield (Phil Wilson), talked about protecting pensioners from themselves, which I think is deeply patronising.

[Mr McFadden]

Will the Minister give way?

[Nicky Morgan]

No, I will make some progress. The right hon. Member for Neath (Mr Hain) talked about exports. Exports to countries outside the EU continue to grow, rising by 23% since 2010. The right hon. Member for Wolverhampton South East (Mr McFadden) talked about the referendum on the EU damaging investment. That is a common theme on the Labour Benches, but the Government believe it is time to trust the people and ask them about important issues. Labour Members clearly do not.

The hon. Member for Penistone and Stocksbridge (Angela Smith) talked about support for energy-intensive industries, which she and I have discussed before. She encouraged us to make strong representations to the European Commission for the extension of compensation, and I take those points on board. The hon. Member for Southampton, Test (Dr Whitehead) spoke about the carbon price floor, and the hon. Member for City of Durham (Roberta Blackman-Woods) talked about the north-east needing more support. The right hon. Member for Holborn and St Pancras (Frank Dobson) talked about Euston station.

The hon. Member for Barrow and Furness (John Woodcock) talked about Olympic-scale investment under this Government, and the hon. Member for Hartlepool (Mr Wright) mentioned productivity. He is right; the job is not yet done. That is why we do not think that anyone should entrust the keys to those who crashed the car. The hon. Member for Washington and Sunderland West (Mrs Hodgson) missed the fact that this Government are already spending £5 billion on child care, before we get to tax free child care.

I welcome the hon. Member for Wythenshawe and Sale East (Mike Kane) to the House. I know this was not his maiden speech, but if he can raise a laugh after five hours of a Budget debate he is a welcome addition to the House. He mentioned reform of air passenger duty. That is what I was discussing with his predecessor just before Christmas, and I look forward to continued discussions on that.

My hon. Friends the Members for Wolverhampton South West and for Brentford and Isleworth said that we need greater business investment, and they are right. Investment has been too low for too long, and it has held back growth. Had business investment increased by just 10% in 2012, the level of GDP would be £12 billion higher. We must create an environment that encourages business to invest.

Financial Services (Banking Reform) Bill

Pat McFadden Excerpts

Wednesday 11th December 2013 Commons Chamber

[Sajid Javid]

My hon. Friend raises a good point. A number of charity groups involved in the debt advisory sector share those concerns. However, most of them agree, especially in the light of emerging evidence from other countries such as Australia and from certain parts of the United States, that it is possible, if researched properly, to set a cap at a level that can protect consumers but at the same time prevent extortionate costs. That will be the job of the FCA when it looks at the matter, and I know that it will take it very seriously.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

Following on from the previous question, surely the Minister agrees that we can do better than offer people a choice between having their legs broken and interest rates of several thousand per cent. Government Ministers accepted that logic in their recent announcement about an interest rate cap. Surely it is possible to bring in a system that gives some measure of protection to the consumer without driving them into the arms of illegal loan sharks.

[Sajid Javid]

I agree with the right hon. Gentleman that it is certainly possible to have a better system than the current one. There will be a number of changes, including the moves towards a cap and the change of regulator from the Office of Fair Trading to the FCA, which set out in October some of its planned measures with regard to continuous payment authorities, roll-overs, advertising and affordability. Those are all part of a package that will help to protect consumers in the sector.

National Infrastructure Plan

Pat McFadden Excerpts

Wednesday 4th December 2013 Commons Chamber

[Danny Alexander]

I think Stonehenge has been there for more than several generations, and I do not intend to remodel it at this Dispatch Box or anywhere else. My hon. Friend is absolutely right to draw attention to one of the issues on that route. We are conducting the feasibility study to work out what are the right steps to take at every stage. I am sure that his concerns will have been heard by colleagues in the Department for Transport, and I will certainly make sure that they are taken on board, as the feasibility plan is developed.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

The Chief Secretary paid tribute to my right hon. Friend the Member for Edinburgh South West (Mr Darling). I hope that he will also condemn the stupid, destructive briefing against him that has been coming out of the Government in recent days.

I do not know whether the Chief Secretary has ever seen the film, “Groundhog Day”, but if he has not, I recommend that he go home and watch it later. Infrastructure spending fell by 3.7% in the third quarter compared with a year ago, the CBI has said that progress is too slow, and most of the projects in the top 40 list were begun under the Labour Government. Can he give us a simple answer to the simple question why we should believe this statement any more than those that he gives every year at this time?

[Danny Alexander]

I have seen the film, “Groundhog Day”, and listening to the right hon. Gentleman’s Cassandra-like remarks, it feels a bit like that in the House, because he has made them before. The plan is based on a detailed pipeline worked on with industry and with Government, and he should have a great deal of confidence in it. On the first part of his question, let me take this opportunity to pay tribute to the work of the right hon. Member for Edinburgh South West (Mr Darling), who is doing a fantastic job in leading the campaign to keep Scotland in the United Kingdom. I very much hope that we will continue to work together in making sure that this country stays together.

Interest Rate Swap Derivatives

Pat McFadden Excerpts

Thursday 24th October 2013 Commons Chamber

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

I pay tribute to the hon. Member for Aberconwy (Guto Bebb) and all the supporters of this debate on raising an important issue. I also pay tribute to my Treasury Committee colleague, the hon. Member for Wyre Forest (Mark Garnier) for his detailed explanation of a complex aspect of this subject that probably not everyone understands.

This is the latest in a series of issues that has corroded, damaged and sometimes destroyed trust between banks and their customers following the payment protection insurance scandal. We should pause and consider a couple of features of the PPI scandal. It was characterised, first, by a refusal to admit that there was a problem; secondly, by a refusal to take responsibility for that problem; and finally, by a huge bill for the banks because it had taken too long to face up to those things. I wonder whether any of those lessons have really been learned given the way that this issue is being dealt with.

Like the hon. Member for Wyre Forest, I spent much of the past year serving on the Parliamentary Commission on Banking Standards chaired by the hon. Member for Chichester (Mr Tyrie), where we looked into the standards and culture of the banks more widely. We found a sales culture, backed by the bonus systems, going right down to branch level. The banks pushed products like this, often allied with a product that the customer wanted, namely a loan, yet sometimes the customer was not even aware that a product was being sold to them or, if they were, whether it was a voluntary agreement or something they had to accept as a condition of the loan.

[Stephen Lloyd (Eastbourne) (LD)]

The right hon. Gentleman has hit on something really important, which is that the banks’ whole modus operandi was to sell products that individuals wanted and slip in the interest rate swaps underneath. I am glad that he has reminded us of that. Does he agree that it is important for these businesses to know that it has been agreed on the Floor of the House, and it is recorded in Hansard, that they will be offered compensation that aims to put them back in the position in which they would have been if there had not been a mis-sale, plus interest rates of about 8% a year?

[Mr McFadden]

I do agree, but there is also the question of who gets that redress and who does not.

Underneath this sales culture, we found that instead of a culture of a duty of care to the customer there was—characterised by the combining of products, often a simple product with a complex one—a culture of “buyer beware” that put the responsibility for fully understanding and being aware of all this in the customer’s lap, with, in many cases, the bank showing a lack of responsibility.

[Mr Straw]

I entirely endorse what my right hon. Friend has said. Does he accept that what made the banks’ behaviour even less acceptable is that such was the complexity of the swap products that often—and to my certain knowledge in a case that I have dealt with—the person providing the loan from the bank had no proper understanding of how the hedge product was going to work?

[Mr McFadden]

That is a really important point. Having heard the speech by the hon. Member for Wyre Forest, I wonder how many of the people selling these products would have been in a position to explain the consequences to their customers. I think we know the answer.

Products were being sold, allied to another product, that may or may not have been suitable for the person buying them. The customer may or may not have fully understood what they were buying, but they were left fully with the consequences of having bought it, to the extent that we had the situations highlighted in this debate whereby the banks pursued customers to such a degree that they were put out of business. We should recognise that hedging is not always wrong, and trying to insure against risks is not always wrong, but a degree of understanding is important. People have to understand what they are buying and the product has to be suitable for them. When the lifetime of the hedging product is completely different from that of the loan, there is a serious problem about that product’s suitability.

This issue provides a really important test of the standards and culture in the banks after everything that has happened. They have to show whether they have learned the lessons of previous mis-selling scandals or whether there has been a repeat of the pattern of behaviour that we saw before in which there was first a refusal to face up to responsibility. That was followed by increasing anger among the customer base and the destruction of trust, followed by a redress scheme that might have ended up being more expensive than the one that might have been put in place earlier.

This is also a test of the FCA. We are in the early stages of a new regulatory system, as the FCA has been in existence for only about six months. The system of redress that it has proposed is an important test of whether it is going to be able to do its job in restoring trust between banks and consumers in the face of sometimes increasingly complex financial products;

[Mr Heath]

The right hon. Gentleman is absolutely right to say that restoring trust between customers and banks is a crucial element. Businesses must not only get redress for what they have lost but be put back into the position that they would have been in and that includes the relationship with the bank, credit lines, and everything else that makes small businesses work.

[Mr McFadden]

The hon. Gentleman makes a good point. Culturally, we should be trying to get to a situation in which the banks have a duty of care to their customers instead of marketing and developing products that are driven by a sales and bonus culture that, in effect, says “Buyer beware” and puts all the onus on to the customer.

The proposed system of redress is based heavily on the sophistication test. That leaves a lot to be desired, because unless it is very carefully designed it cannot take account of the wide variety of types of business. Size and sophistication are not the same thing. It cannot take account of the wide variety of circumstances in which these products were sold or the wide variety of difficulties that businesses find themselves in.

Previous mis-selling scandals have been characterised by years of unnecessary delay that have caused incredible grief to those subject to them. If there is one further lesson that should be learned about interest rate swaps, it is that this process should not drag on for years. We need a system of redress that learns the lessons of the past and is implemented as quickly as possible.

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[Nia Griffith (Llanelli) (Lab)]

Thank you, Madam Deputy Speaker, for allowing me the opportunity to speak in this very important debate. I congratulate the hon. Member for Aberconwy (Guto Bebb) on the work he has done over the years and on bringing the matter to the House’s attention through this debate.

This issue affected successful businesses that were trying to expand and help create more jobs in the local economy. Some of the businesses that have visited me were successful and had excellent plans for expansion. The really sad thing is that during their negotiations to change or expand their loans, it was often the case, as my hon. Friend the Member for Alyn and Deeside (Mark Tami) has said, that they were told right at the very last minute that, unless they accepted this clause, the whole thing would be shelved and they would lose all the transactions and work they were about to undertake. That was significant for them, because it meant having to say yes or no to a very important loan.

I think that such businesses are intrinsically fearful of going to the banks, which is a real problem. The terms and conditions for small businesses have changed so much over the past few years that they are fearful that, if they explain their difficulties to a bank, they will suddenly be told that their terms and conditions for a loan will be changed again. That is a real disincentive. The key thing to remember is that these are people who genuinely are trying to do the right thing, but who are fearful—perhaps ashamed—because they did not know exactly what was going on in the first place, even though, as my right hon. Friend the Member for Wolverhampton South East (Mr McFadden) has said, the people who sold them the scheme were incentivised to do so in an underhand way. Often they would not make it at all clear to the businesses exactly what they were entering into. We need to redouble our efforts and look in particular at why there are so many delays, because every delay means businesses raking up yet more debt.

[Mr McFadden]

On the sales culture, what does my hon. Friend have to say about the evidence that the Parliamentary Commission on Banking Standards received from the trade unions representing bank staff that said that, sometimes, if branch staff did not meet their sales targets, they would be taken aside, given special management and pressurised to sell more products over the next month or two in order to meet the targets on which their bonuses were based?

[Nia Griffith]

My right hon. Friend makes a valid point. I have met people who were put in that situation and who ended up leaving the bank because they found it so difficult and uncomfortable working in that sort of culture. That does not help small businesses, which want a decent banking system from which they can get decent advice and the loans they need.

The worry is that the Financial Conduct Authority and the banks are not doing things as speedily as they might and that there will be a distinct delay. We are all aware that the agreement was that an independent reviewer would look at each case and that that process would be overseen by the FSA. My hon. Friends the Members for Nottingham East (Chris Leslie) and for Chesterfield (Toby Perkins) wrote to the Chancellor over a year ago outlining what we wanted to happen. When the Financial Secretary sums up, will he tell us what progress has been made?

We want a clear message that there will be no adverse effect for people if they tell their bank that they think they may have been victims of this particular mis-selling. We also want a moratorium on the foreclosure of affected businesses by their banks. People are really worried that, if they start looking at the issue in detail and open the box, they might be forced to reschedule their loans in an unmanageable way and that they eventually might be foreclosed on by their banks. The Chancellor and the Business Secretary need to send a much stronger message to the FCA about how we want the banks to work.

As many Members have said, we want the quickest resolution possible, but time limits also need to be looked at. The problem is that businesses that signed up to these agreements back in 2006 and 2007 are now reaching the six-year limit, and they will find themselves in considerable difficulties if they do not get redress through the scheme and end up going to court. We need to look at the way in which complaints are handled and the time limit that is being allowed. Perhaps there could be movement on that issue.

In summary, this issue needs urgent attention. We need a much speedier resolution and people need to be treated properly and courteously by their banks. They should not have to be fearful of loans being rescheduled or of being thrown out of the frying pan into the fire, which is their real worry. Speed is of the essence, because these businesses provide jobs in our communities and if they go under, it could mean not one lost job, but many job losses. I urge the Financial Secretary to say what more the Government can do to put pressure on the FCA and the banks to ensure a speedy resolution.

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[The Financial Secretary to the Treasury (Sajid Javid)]

First, let me take this opportunity to welcome you to your new Chair, Madam Deputy Speaker. It is a great pleasure to see you in your place. I also welcome the hon. Member for Birmingham, Ladywood (Shabana Mahmood) to her new role and wish her luck with it.

I start by thanking all the hon. Members who secured this debate and by congratulating everyone on presenting their case well. Special thanks must go to my hon. Friend the Member for Aberconwy (Guto Bebb) for the time, energy and passion that he has put into this issue and for the leadership he has shown. We can see from this debate that this issue is very serious; 17 of my hon. Friends and four other hon. Members have spoken today. I am sure that everyone in this Chamber, like all those others watching in the Public Gallery, at home and elsewhere, including the hundreds watching in the Central Methodist hall from the many businesses that have been affected, is keen to see a quick conclusion to the FCA review and to see that those businesses that were mis-sold financial products are compensated accordingly.

When I was growing up, my father ran a small family business in Bristol, so I was made aware from a young age about the importance of cash flow and the dangers of unexpected costs. As such, I sympathise wholeheartedly with the small businesses that have been affected by this mis-selling scandal and have put such energy into lobbying on this issue. This Government have made it clear from the beginning that the mis-selling of financial products is totally unacceptable. We take extremely seriously the abuse that has taken place, and we are determined that any wrongs that have been inflicted on businesses should be righted.

I share the disappointment of fellow hon. Members about the progress made under the FCA review to date. I stood up in a Westminster Hall debate about four and a half months ago to discuss this very issue, and the fact that the FCA has not made any significant progress since that debate is, frankly, not good enough. As we have heard today, the FCA said in January this year that the full review process would begin, but it has since confirmed that the full process did not start until May this year. That delay has been disappointing, and the FCA should have been much clearer about exactly when this full review actually started. However, the review is now up and running, with the large majority of cases being looked at. I understand from the FCA that it believes that about 85% of cases are now under review, but hon. Members are absolutely right to say that it is time for the banks and the FCA to do more to speed up the process and get redress out the door. As such, the Government will continue to push the banks and the FCA to complete the process as quickly as possible. As the motion says, the redress scheme’s progress has been too slow. That is costly and has caused further undue distress to the businesses involved. The FCA and banks need to get on with the job.

[Mr McFadden]

Before the Minister leaves the issue of the FCA, will he say what he thinks of the FCA’s reply to some businesses in distress—that it will not consider individual cases?

Financial Services (Banking Reform) Bill

Pat McFadden Excerpts

Tuesday 9th July 2013 Commons Chamber

[Chris Leslie]

That broadens things out into a whole new terrain, but suffice it to say, we should be able to trust our banks. We should be able to know that all these issues will be going on safely. To be fair to the banks—I do not say that often—some of their systems are able to cope, and complaints mechanisms are in place to deal with these things.

This is just about the customer being able to grasp and understand what is going on. The grey mist descends on many constituents—and, heaven knows, on many hon. Members, as we can see—at the mention of financial services, and that is without getting into pensions and some of those issues. Basic bank account services are incredibly important and we need the Government to say a little more than warm words in their response on this issue. I commend the hon. Member for South Northamptonshire on her campaign and we are very much behind the spirit of the changes she suggests, hence our new clause 12.

Finally, I wish to deal with new clause 10, which relates to the sale of state-owned bank assets. We feel that before a sale takes place of assets in the ownership of Her Majesty’s Treasury—we are very much focused on the Royal Bank of Scotland and Lloyds at the moment —the Treasury ought to set out clearly a report discussing the manner in which the best interests of the taxpayer will be protected in the sale, and the expected impact that any sale might have on competition for customers and on the rate of economic growth. That should be accompanied by a proper appraisal of the options for potential structural change in the banks concerned, including: whether there should be any changes to the division between retail banking and investment banking in those institutions; whether some asset classes need to be held back—this is sometimes characterised as a good bank/bad bank split; and, crucially, the impact of the sale on the creation of a regional banking network. We think that is essential.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

My hon. Friend will know that the banking commission recommended having a proper study of the good bank/bad bank option for RBS. Does he think that in advance of that study it might help if the Government exercised a little more care in their stewardship of RBS, given that their disastrous political meddling of the past month has resulted in a fall in the share price of some 20%, the bank losing a chief executive without a plan being put in place for replacing him, and confidence among investors being lost by the Government’s handling of the bank?

[Chris Leslie]

My right hon. Friend is completely correct about that. If the British public realised what has happened to the value of that taxpayer stake in RBS, they would be appalled. Today’s figures show that £2 billion-plus has been taken off the value of RBS since the botched handling of the departure of the chief executive, Stephen Hester. That mishandling forced the Chancellor to back down from a foolhardy dash towards a fire sale, which we know was part of the plan from the conversations that Sir Philip Hampton, the chairman of RBS, let slip in comments to journalists around that time. Labour Members, however, are absolutely focused on the need for the taxpayer to get good value for money, to get our money back. That is entirely possible. Stephen Hester revealed the flaw in the Chancellor’s strategy for a hasty sale driven by the electoral timetable when he gave an interview to the BBC last month. When asked whether taxpayers would get back their £45.6 billion, he answered:

“RBS is capable of being worth more than what the government paid for the shares”.

When asked again whether it is possible for us to get our money back, he said:

“RBS is capable of that and I would be disappointed if over the passage of time that that won’t be the case.”

--- Later in debate ---

[Mark Garnier]

Yes, without a shadow of a doubt. A great many of the smaller banks that are looking to enter the marketplace have to use a piggyback system with the big clearers. For example, C. Hoare & Co., which has been around for 341 years and is still a private bank, uses RBS for its clearing. To that extent, the larger banks are providing a service, but ultimately it is causing a great problem for them. Over the past two years I have met about 20 potential challengers looking to enter the marketplace, and certainly it is largely the regulatory barriers to entry that have caused the problem.

Ultimately, the challenger banks are going to be running current accounts. Some of the larger ones, such as Metro Bank and Virgin Money, are 100% behind having full account number portability and recognise—I think that this is one tribute to them—not only that that will be an opportunity for them to attract accounts from existing banks, but that they will have to work incredibly hard to meet the challenge of a more sophisticated consumer in order to keep those accounts once they have them. That is crucial to one of the key points of the Parliamentary Commission’s report, which is the need to ensure that we drive better standards.

I return to the fundamental point that the best way to drive better standards is to have a very discerning and demanding consumer in order to ensure that those banks provide a service, and for that discerning consumer, once we have taught them how to do it, to hold the banks’ feet to the fire, so they need to be able to move their account very simply and overnight.

[Mr McFadden]

I want to make a few points about new clauses 10, 12 and 14.

New clause 10 deals with securing the best interests of the taxpayer as regards the state-owned banks and their future. If the best interests of the taxpayer were in the Government’s mind in recent weeks in their stewardship of RBS, that has been shown in a very peculiar way. This story does not begin with the departure of the chief executive. It begins before that with a briefing from the Minister’s Department about the share price in which it said that the previous Government had overpaid for the shares, and the briefing tried to set the scene for a pre-election fire sale of the bank that would have short-changed the taxpayer. I am glad to say that despite that briefing, the Government seem to be edging away from that strategy. If they were holding out hope that the banking commission would have given them comfort on that front, it did not turn out like that, and rightly so, because it would have been wrong to give a running commentary on the share price for an institution. An institution’s share price should be determined by the market, based on its future prospects.

After the briefing, we then had the unseemly departure of the chief executive at the Government’s hands. Most people saw him as doing a good job of reducing the risks on the bank’s grossly overblown balance sheet and trying to get it back into a healthier position, in the best interests of the taxpayer. Not only was he bundled out before he had completed that task, but this was done without any proper succession plan being put in place. Over the period of a month, we have had political briefing about the bank’s share price and the announced departure of the chief executive with no successor in place, and, as a result, a loss of investor confidence in the Government’s future strategy for the bank. That is no way to exercise stewardship of arguably one of the most important banks in the country. It has undermined the Government’s reputation as regards these state-owned assets and done harm and damage to the bank. I hope that in future the best interests of, and best value for, the taxpayer will be uppermost in the Minister’s mind rather than the politically motivated dabbling that we have seen in recent weeks.

On a happier and more bipartisan note, I turn to the new clause tabled by the hon. Member for South Northamptonshire (Andrea Leadsom) and the very similar new clause tabled by my hon. Friend the Member for Nottingham East (Chris Leslie). At the heart of this is how much banks care about reputational loss; the hon. Lady referred to that. If the banks were in a normal business environment and there were a big IT failure or another failure of conduct such as mis-selling or LIBOR interest rate fixing, they would care because they would worry that their customers would walk, but they are not in a normal business environment. Banks seem to be immune to, and careless about, reputational damage that would really matter in another business environment.

During the banking commission’s deliberations, a parallel was drawn with the car industry. When a fault appears in a model of one of the big-brand car makers, they will very quickly issue a recall notice to ask the customer to come in and have the fault fixed at no expense and at a time that is convenient to them. Car companies do that because they care about their reputation and want that customer to buy a car from them the next time they get one. The same logic does not apply in banking, because the same forces of easy departure do not apply. There are two sides to this story. It is not all about the easy transfer of accounts, although that is important; it is also about what one would be transferring to and from. There is little point in creating a perfect exit system if the choice is merely between three or four offers that are all much the same anyway. There is inertia on both sides. We need more competition among the banks as well as an easier system of transferring accounts.

The seven-day switching process that will come into play in September is an advance, and it should be given a chance to work; we should test it properly. At the same time, the new clauses tabled by the hon. Member for South Northamptonshire and by my hon. Friend the Member for Nottingham East call for proper reports to be produced on full account portability. The hon. Lady set out very well the reasons why we need a proper report, one of which is the issue of cost. The incumbents say, typically, that this will cost a fortune and that it will have to be passed on to the consumer, so let us explore the cost properly and get to the bottom of whether that argument is valid.

--- Later in debate ---

[Andrea Leadsom]

The right hon. Gentleman may recall a meeting we had with senior bankers in which they said that, although they were reluctant about bank account number portability, if it is going to happen let us make sure that we will be the first country in the world to do it and not wait until somebody else does it. That would give us first-mover advantage and it could provide a huge business opportunity for UK plc. What does the right hon. Gentleman think of that idea?

[Mr McFadden]

The hon. Lady may be right and that is another reason that we should have a proper report to drill into the issue.

On privacy, in addition to the cost argument I think that customers could also be discouraged by the argument that all their account details could be held in a single black box to which all the banks in the country have access.

[Mark Garnier]

The right hon. Gentleman raises an incredibly important point. I think that the vast majority of consumers would be very fearful of a central database holding their bank details. The beauty of the system proposed by VocaLink is that, although the payment system and the central infrastructure will hold the sort code and account number, the identity of the holder of the account number will be held by the bank. Therefore, the customer’s relationship will be with the bank, not with the payment system.

[Mr McFadden]

I thank the hon. Gentleman for making that important point. If consumers are going to have confidence in a system of speedy switching such as that being advocated by the hon. Members for South Northamptonshire and for Wyre Forest (Mark Garnier), these questions about privacy and security of information will have to be bottomed out to the public’s satisfaction. My view is that that will be a more important argument than the one about the cost to the banks of whatever IT changes will be necessary to put this system in place.

In conclusion, it is important that we give the seven-day switching service a chance to operate, but the report that the hon. Member for South Northamptonshire and my hon. Friend the Member for Nottingham East are asking for is also important, because it would bottom out theses issues and others that I have not mentioned. It is a shame that the hon. Lady does not intend to put her new clause to the vote. After all, it only asks for a report; it does not seek to mandate a change before we have done the work and got the proper evidence. I hope that the Minister will respond positively to her suggestion and that of my hon. Friend. It is really important that there is proper competition between providers in this sector to attract consumers and that the kinds of free choices that enable consumers to walk away and get another product from another provider are available in practice, not just in theory.

[John Thurso]

I also rise to support new clause 14 tabled by my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) and to which I have added my name.

The right hon. Member for Wolverhampton South East (Mr McFadden) chaired a panel of the banking commission and one of the first visits we undertook was to Birmingham, where we had a number of sessions, one of which was with representatives from small and medium-sized enterprises who were very vocal about the importance of securing a fair deal from the banks.

Which? organised an evening session that allowed us to visit different tables where individuals talked about their experiences. I had an interesting experience when I asked a table of people of a variety of ages, although mostly younger than me—not that that is difficult—about the ability to switch bank accounts. They were not really that keen and said, “It’s too much hassle. Why bother? It won’t be any different.” I said, “Suppose you could do it in the same way that you change your mobile phone, where you take your SIM card-equivalent and plug it into another machine.” At that point they all said, “Oh, that would be wonderful. What a good idea. Is it possible?” I said, “Not yet, but it is very likely to happen.” They said, “Actually, even that won’t work because it will just be the same old names that I will be going to.” I said, “How would you feel if the chap who has that nice transatlantic airline had a bank?” They said, “Oh yes, that would be jolly good.” That bunch of average customers had no idea that it might be possible to move accounts and no idea of the array of accounts that might be available as a result.

That experience drove home to me that the relationship between banks and their customers has been the reverse of what it should be. We go cap in hand and say, “Will you please take my account?” It ought to be the other way around. The banks should be coming cap in hand to us saying, “Please can I have your business?” New clause 14 goes to the heart of that dilemma. All right hon. and hon. Members who have spoken have made the point that the new clause is not a silver bullet and that many other measures are required, but it would be one of the key enablers of that change in the relationship, along with the payments regulator and other things that might be done. Ultimately, we need banks to be genuinely fearful of losing business—at the moment they are not, because they know that people cannot go anywhere else —and genuinely to want to win business. The commission has made progress on that and new clause 14 is very much a part of that.

I am sorry that my hon. Friend the Member for South Northamptonshire told us early on that she will not press her new clause to a vote. I always find that Ministers go a bit further if one waits until they have said nice things before telling them that. Clearly, she has had a tremendous impact on the Minister ahead of the debate. I look forward to hearing what he has to say.

--- Later in debate ---

[Mr McFadden]

This is an unusual Bill, in that at the same time that it has sought to implement a reform recommended by the Vickers commission two years ago, it has run in parallel with the Parliamentary Commission on Banking Standards, which periodically has produced reports and asked the Government to use the Bill to implement their findings.

I place on record my thanks to colleagues who served on the commission and all its staff. It was an intense effort and I do not think we could have produced our reports without the able efforts of the many staff who worked for us, led by Colin Lee, who is a great servant of this House.

I want to draw the Minister’s attention back to yesterday’s official response from the Government to the commission’s report of a few weeks ago. We read in yesterday’s newspapers that the Government were going to accept the vast bulk of the recommendations and the Minister opened the debate by saying something very similar. However, I have looked through the Government document in detail and wonder whether the Minister could confirm that the position is not that simple.

Paragraphs 2.32 and 2.33 reject part of our recommendations on pay. Paragraph 4.5 makes no commitment to legislation on access to basic bank accounts. Paragraph 3.24 passes to the regulator only consideration of the changes that we recommended on the corporate governance responsibilities of executives and bank chairmen. Paragraphs 3.34 and 3.35 in effect reject our recommendation for gender reports on operations on the trading floor. Paragraph 5.11 rejects our recommendation to consider splitting RBS into regional banks as part of the Government’s study on RBS. Paragraph 5.28 rejects our recommendations on the governance of the Bank of England. Paragraph 5.31 rejects our recommendations on the chairmanship of the Prudential Regulation Authority.

As my hon. Friend the Member for Nottingham East (Chris Leslie) said, the Government have also rejected recommendations on leveraging and ring-fencing, in particular ring-fencing in respect of the sector as a whole. When it comes to the implementation of recommendations, the chairman of the parliamentary commission yesterday described the attempt to ring-fence one particular group as “virtually useless”.

I stress to the Minister that it is not accurate to say that the Government have accepted the vast majority of the parliamentary commission’s recommendations. The document that was published yesterday is full of excuses and sleights of hand that pass on to the regulator for consideration firm recommendations that we made. I stress to those in another place, who may have a greater opportunity to amend the Bill, that they should read the document that was published yesterday with a careful eye to see what has been accepted and what has not.

[Greg Clark]

The right hon. Gentleman is not giving the response a fair reading. First, not all of the recommendations were addressed to the Government. Some of them were addressed to the regulators. Secondly, some of the recommendations that were made to the Government have been taken forward through actions that can be taken by the regulators. When colleagues look at the response, they will see that it is a broad endorsement of what was an excellent report.

[Mr McFadden]

Perhaps the Minister and I have different interpretations of the word “broad”. He may be able to persuade the hon. Member for Chichester (Mr Tyrie), on the basis of some warm words, that these are great concessions, but I remain to be convinced.

The Government have a great deal more to do to convince Parliament—this House and the other House—that they endorse the vast majority of the recommendations. The more one reads the report that was published yesterday, the less one comes to that conclusion. I hope that those who are in a position to amend the Bill in future take heed of that and press with greater determination than Members of this House the amendments that would fully and faithfully implement the recommendations of the Parliamentary Commission on Banking Standards.

Financial Services (Banking Reform) Bill

Pat McFadden Excerpts

Monday 8th July 2013 Commons Chamber

[Mr Love]

The press release that was—

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

On a point of order, Mr Speaker. I rise to seek your guidance, because the Minister is making, in effect, a statement on a series of Government policies related not to clause 1 or amendment 1 but to policy areas where amendments have not yet been tabled. Is that in order? Should this not have been done in the proper way—making a statement and allowing the House to ask questions in the normal way?

[Mr Speaker]

The Minister may wish to reply, because it is important to be clear about the context in which the observations he is making are made. That is central to this matter, and it is difficult to rule on it unless there is some clarity on the subject. I am grateful to the right hon. Gentleman for his point of order and let us hear what the Minister has to say.

--- Later in debate ---

[Greg Clark]

I do not agree with that. We will come on to talk about what the commission referred to as the electrification of the ring fence, and whether it is appropriate to have a power to break up the whole system, so I will address that in a second, if I may. Amendments 6 to 10 concern that electrification of the ring fence, to use the memorable phrase of my hon. Friend the Member for Chichester—or, I dare say, the whole commission.

[Mr McFadden]

The Minister is being generous in giving way. I would like to take him back to the intervention by my hon. Friend the Member for Edmonton (Mr Love). Will the Minister confirm that paragraph 5.11 of the publication that his Department published today states:

“The Government does not believe that the case for breaking RBS’s core operations into multiple entities meets the objectives of maximising the banks’ ability to support the British economy”?

In layperson’s terms, the Government have today rejected the notion that their review will look at regional banks, as distinct from a good bank/bad bank split. Is that how we should read that?

[Greg Clark]

No. The right hon. Gentleman has not got it quite right. We are absolutely enthusiastic about creating regional banks, and the exchange that I had with my hon. Friend the Member for Hexham, and the changes made by the regulator to the approvals process, underline that. The right hon. Member for Wolverhampton South East (Mr McFadden) asks a specific question about whether RBS, in which we, of course, have a very substantial stake, should be broken up in that way. It is important that we have regard to value for the taxpayer. I suspect that we will talk about these things tomorrow, but I confirm that it is the Government’s view that we should not damage the potential value to the taxpayer in that way.

As members of the Bill Committee will recall, I made a commitment to introduce on Report amendments to implement electrification, and here they are. The amendments give powers to the regulator, with the consent of the Treasury, to require a group to separate completely its retail and wholesale banking operations. The regulator would be able to require the group either to sell its interests in ring-fenced or non-ring-fenced entities, or to transfer specified businesses to outside ownership. The regulator will be able to require separation if it is satisfied either that the group’s ring-fenced bank is not sufficiently independent of the rest of the group or that the conduct of any member of the group is such that it undermines the regulator’s ability to achieve its new statutory objective to ensure the continuity of core services.

The amendments set out a process for the exercise of that power. The first step is that the regulator must notify all affected members of a group that it is minded to exercise its powers and how it proposes to do so. The affected bank has the right to make representations following the receipt of each notice. Following that stage, the regulator is required to allow members of the group at least a year to take action to rectify the position. If, after that period, the regulator wishes to proceed it must issue a warning notice before a requirement to separate is imposed. The regulator would then allow five years to complete the separation required in line with the disposals required under competition law, particularly state aid interventions.

As the parliamentary commission recommended, the Treasury’s approval is required before that action can be taken. We agree with the commission that providing for a deterrent against any bank that seeks to game or evade the ring fence is a sensible reinforcement in keeping with the recommendations of the Independent Commission on Banking. Government amendments 11,12, 13 and 14 make technical adjustments to ensure that all the necessary components of structural reform comply with the ring fence and are brought within the scope of the ring-fencing transfer scheme.

--- Later in debate ---

[Greg Clark]

The hon. Gentleman gets to the nub of the matter, because of course any attempt to evade the ring fence or to nibble the electric fence, as dangerous to health as that would be, could be undertaken only on the part of a particular institution, not the system. That is why we agreed with the commission’s report—it was not part of the Vickers report—that it was necessary, for exactly the reasons the hon. Gentleman mentions, to have a sanction against that type of behaviour, and that is what we have done.

A further power to separate the whole system could not be triggered by an individual and could not punish the actions of an individual institution. That is why I think that is a very different policy. It commands the support of some very distinguished and influential people. The Glass–Steagall approach, which of course the policy is modelled on, has its place in history, but I think that history also reveals that the Glass–Steagall arrangements were not immune to the very dangers my hon. Friend the Member for North East Cambridgeshire (Stephen Barclay) pointed to. It is a good job my hon. Friend the Member for Chichester secured his amendment to the programme motion, because we are having a very interesting debate, but I would like to conclude, because there are other amendments that hon. Members would like to speak to. On that point, however, I urge the House not to allow at this stage the introduction of a very different policy into the Bill.

Let me turn to the amendments tabled by my hon. Friend the Member for Chichester, who I dare say will speak for himself in a few moments. I know that some of them were tabled to afford us the opportunity to discuss his commission’s report, and I think that this is now established as a very relevant opportunity. I will of course listen carefully to what he says. I am confident that the amendment the Government have tabled in response to the commission’s report can be improved during the Bill’s passage to take into account whatever concerns are embodied in his amendments.

Amendment (a) to Government amendment 6 would add a new condition under which the separation powers could be used: namely, when the regulator

“judges that there are serious failings in the culture and standards of the ring-fenced body or another member of its group.”

Of course, under the Government’s amendment the regulator would have the ability to separate the group if its conduct threatened to undermine the regulator’s ability to meet its continuity objective, but I think that, as the commission’s extensive deliberations showed, cultural failings might be present in banks that can result, for example, in significant harm to individual consumers or groups of consumers but nevertheless do not have systemic consequences. I think that the relevance of the proposed new power to take into account the culture is adequately covered under the provisions already in the Bill.

Amendments (b) to (p) concern the procedures for exercising the separation power. They would remove from the process: the second and third preliminary notice stages that extend to six weeks the time for banks to make representations; the requirement that the group be given a minimum of five years to effect separation; and the requirement for Treasury consent before a group can be required to separate. It is, of course, essential that a clear process be established for the exercise of the separation power. As I have said, I will listen carefully to what my hon. Friend says about reducing the number of warnings, which I think is the essence of what he is recommending, and about departing from the standard practice in financial services of allowing 14 days, rather than the six weeks that he proposes, for representations.

[Mr McFadden]

I want to compare the Minister’s six-year timetable with the one that the hon. Member for Chichester (Mr Tyrie) has set out in his amendments. What would be the difference for an individual group between moving to full separation under the Minister’s timetable and its doing so under the timetable that would apply if the amendments tabled by the hon. Member for Chichester were accepted?

[Greg Clark]

As I have said, I shall hear from my hon. Friend. I do not think there is any difference of intent between us; we have accepted the commission’s recommendation. We have taken the period of five years because that is the standard time for the disposal of assets when they are required through competition law proceedings.

I am certainly concerned, however, that the banks should be given a chance to address the concerns, and that chance would be lost if amendment (k) were followed. If amendment (p) were followed, we would deny banks the five-year period for divestments to be made that is typical under competition law. But as I have said, I remain open to considering these matters further during the Bill’s passage. I am confident that it can be improved to meet the concern, as I know that there is no disagreement in principle between me and my hon. Friend on the issue.

The requirement for Treasury consent follows from the commission’s own recommendation, without which the regulator could, on its own initiative, instigate radical structural reforms.

Amendment 19 is retabled as an alternative to Government amendment 6, providing for the specific full separation power. As I explained in Committee when the amendment was previously debated—when the hon. Member for Nottingham East was channelling my hon. Friend the Member for Chichester, as he frequently did—it suffers from technical flaws. That is why I committed to introducing a Government amendment to deliver its objectives.

Specifically, amendment 19 is rather vague, giving the regulator power to require a group to take steps to separate without specifying what those steps are. It also lacks provision for a minimum period over which groups must execute a separation, leaving the risk of the regulator’s ordering a rushed disposal that could be destabilising to the system.

The Government amendment is intended to address those technical problems, although I have signalled our willingness to make any further improvements that may be necessary as the Bill progresses. I hope that my hon. Friend the Member for Chichester will be able to withdraw his amendment at this stage, pending further consideration.

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[Mr Tyrie]

There is considerable force in what my right hon. Friend says. We considered the issue in great depth and published a report—the third report—on exactly that. We discussed the case for full separation, but concluded that although the ring-fence proposals had merit, they should not be reconsidered until we have given the Vickers ring-fence approach a try. We also examined the merits of a closely related proposal for the separation of proprietary trading—exactly what is being suggested—from the rest of banking activity. We concluded that further statutory support was not needed for that approach now, because the Prudential Regulation Authority might already have the powers to implement an effective separation of prop trading. We asked the PRA to present a report to the Treasury and to Parliament on its use of a range of monitoring and corrective actions, which could serve as the subsequent basis for a full and independent review of the case for full separation of prop trading. Unfortunately, as far as I can tell—I have had very little time to absorb this publication, which came out only at 12.30 pm—the Government have rejected even examining the proposal for prop trading. That is a mistake. I regret that, but I hope it will be put right in the other place.

Returning to amendment (a), the Government accepted the case for ring-fencing, arguing that banks that test the ring fence should be strongly deterred and, if necessary, prevented from doing so. However, I am afraid that that will not be the effect of the Government’s amendments. On the contrary, the Government amendments almost guarantee that banks will not get a shock, and will not be discouraged from testing or gaming the ring fence. The regulator needs a useable and credible deterrent. This proposal creates too many obstacles and delays to the sanction of full separation.

Frankly, it is inadequate for three main reasons. First, it requires the regulator to issue—we have already heard a little about this—no fewer than three preliminary notices and a warning notice before it can act. Secondly, it then requires the regulator to obtain permission from the Treasury no fewer than three times while the process is in train. Putting that requirement on the statute book would transfer most of the effective regulatory decision-making power away from the PRA and the Bank of England to the Treasury. It cannot be appropriate for the Treasury to be the regulator. The commission argued for a Treasury override at the end of the process, not at the beginning or in the middle, but the Government’s amendment requires the regulator to secure the consent of the Treasury on three occasions prior to that point. Even so-called preliminary notices—in effect, expressions of concern by the regulator—will require Treasury consent. That is absurd and compromises the regulator’s independence.

The third objection has also been alluded to. The Government’s amendments allow at least five years for the completion of the separation after a decision has been made. That would create enormous scope—indeed, it would make it ideal—for lobbying for a change of heart in the interim. It would create far too much room for that and we can do without it. It also flies in the face of what the Minister said in Committee, where he alerted Parliament to the risk of what he described as an “inordinately long” delay in implementation. A tool that is so difficult and slow to use is likely to deter no one and that is why I have proposed a number of amendments that would remove some of the obstacles erected by the Government to taking action to separate banks.

[Mr McFadden]

I want to ask the hon. Gentleman the same question that I asked the Minister about the difference in time scales between his amendments (a) and 19 combined, and the five to six-year timetable in total that the Government have set out. Were we to go down the road recommended in the hon. Gentleman’s amendments, how long does he think it would take between a decision on separation of an individual group being taken and that eventually happening?

[Mr Tyrie]

That is something on which we can usefully take advice from the regulator, but I would have thought that two years would be a reasonable maximum. Five years is ridiculous. It might take less than two years, but we have people down the road who can give us a clear view and the Government should ask them, if necessary publicly.

I have also tabled an amendment that would give effect to the Banking Commission’s proposal for allowing for full separation, as well as trying to improve the Government’s faulty amendment a bit. I recognise that the amendment has been debated in Committee and that the Government said they did not like it, but their reasons for not liking it were frankly not strong. I still find it curious that the amendment was rejected as a starting point for putting in ring-fencing. When the Bill goes to the other place, I hope that that amendment might be seen to be a better starting point than the Government’s. The Government have had several months to get this right. It is regrettable that they have made so little progress on it, but we are where we are. In any case, even ring-fencing with electrification is no cure-all for the standards problems in banks. To improve them, we all have to move forward on many other fronts.

I would like briefly to refer to the main other areas that are needed. To improve competition, we recommended a range of measures. We asked the Competition and Markets Authority to initiate a market study of the retail and SME banking sectors. I noticed that the Government were so enthusiastic about that recommendation that they announced it as soon as they received the embargoed copy of our report. We asked the Government immediately to establish an independent panel of experts to assess ways of enabling much greater personal bank account portability. The Government appear to have ridden back a little from that in the proposals they published today, although I cannot be sure.

We also took a good deal of evidence on RBS. Competition is weak partly because RBS is weak. Further restructuring may well be needed. In our view, the Government will need to be bold. We recommended that they undertake a detailed analysis of a good bank/bad bank split as part of an examination of the options for the future of RBS. That is vital work. In the field of banking reform, a healthy RBS, with the restoration of normal lending to the SME sector, is probably the biggest tonic that could be given to the British economy.

The way in which banks run themselves also needs reform. An accountability firewall had grown up that allowed senior bankers to deny responsibility for their failings. That wall has to be taken down. To give effect to that, we proposed the introduction of a senior persons regime. This would ensure that the direct personal responsibilities of board members, particularly the chairman, reflected the importance of their roles, so that it was clear to bankers and regulators who should reasonably be accountable when things went wrong, and for what. Our study of HBOS—our fourth report—provided a clear example of exactly the opposite. It guided our thinking on this and a number of other areas. Senior board members at HBOS did not take responsibility for what went wrong.

The crisis of standards was partly caused, and considerably inflamed, by the fact that bankers were rewarded for doing the wrong thing. Bonuses were often paid out well before the risks of the actions that they ostensibly rewarded became apparent. Bankers took huge rewards and when the risks turned sour, taxpayers picked up the tab. That has to stop. The Government and regulators should not set levels of remuneration. However, much more radical steps are needed to incentivise better behaviour among all staff whose actions or behaviour could seriously harm a bank, its reputation or its customers. Deferred remuneration for executives should not be viewed as an entitlement. People should keep their deferred bonuses only when it is clear that they have really been earned. That will mean long deferral, in some cases up to 10 years.

--- Later in debate ---

All this is a great challenge, but it is also a great opportunity. It is an opportunity for all of us, and in particular the banks, to demonstrate a commitment to improving standards and to putting an end to the rip-off—of both the taxpayer and the consumer—culture that has marked recent years. It is also incumbent upon us here to show a preparedness to help restore trust by supporting banks where they show a willingness constructively to engage in implementing these proposals.

[Mr McFadden]

I do not propose to follow the hon. Member for Chichester (Mr Tyrie) by making a wide-ranging speech on the recommendations of the banking commission’s final report, as he has set them out perfectly adequately. However, I do want to say that I do not think the Minister has served himself or this discussion well by publishing the Government’s conclusions at lunchtime today, and then coming along and making a de facto statement of new policy, thereby simply compounding the sense of frustration in this House about the adequacy of the procedures for discussing these issues. Instead of going over all of that in great detail, however, I want to concentrate on the amendments before us, and on the discussion of ring-fencing and separation. I specifically want to talk about amendments 17 and 18 in the name of the shadow Chancellor and his shadow Treasury team colleagues; and amendment (a) to Government amendment 6 and amendment 19 in the name of the hon. Member for Chichester.

The banking commission’s first report, issued before Christmas, focused on ring-fencing and separation. It made two principal recommendations in respect of what has become known as electrification of the ring fence, which is the power to go further than the ring fence and enforce full separation between investment and retail banking.

The first of those proposed powers was in respect of individual institutions, and it was accepted by the Government, at least in name. The second power was in relation to the sector as a whole, and it was not accepted by the Government. No convincing reason has been given for accepting one and rejecting the other. The Government have today tried to make a virtue of issuing a response to the banking commission’s final report which says they broadly support its conclusions, yet in terms of the legislation before us the Government are continuing to reject a major recommendation of our first report, and as we have teased out of the Minister, even in the document published at lunchtime, they are rejecting recommendations on UKFI and regional banking. We may learn about others, too.

On the question of backstop powers to enforce separation in respect of either individual groups or the sector as a whole, one of the clearest lessons from the banking crisis of 2007-08 was how interconnected the banking system is. Institutions involved in banking are not islands cut off from one another. They lend money to one another. They engage in the same practices. Their culture is often shared. They place similar bets. When one falls, it often has the capacity to drag others down with it, as we learned to our great cost.

The same is true of the standards and culture questions we examined in such detail after Christmas. The LIBOR fixing was the straw that broke the camel’s back in terms of the establishment of the commission, but that did not just happen within one bank. Groups of traders within banks were co-operating with one another to rig the interest rates, and groups of traders across different banks were co-operating with one another to rig the interest rates. Against that background, it makes no sense at all to restrict the policy armoury that this Bill establishes to respond to the undermining of the system by taking powers that will affect only individual banking groups and not the sector as a whole. As the hon. Member for Chichester said about our recommendation on new criminal offences, some of those powers may never need to be used, but their existence on the statute book should focus the minds of those running these major organisations.

[John Thurso (Caithness, Sutherland and Easter Ross) (LD)]

We also discussed at length the fact that, if we do not have the weapon in the armoury, we cannot use it, and it is usually too late to put it in place once a crisis comes along. Far better to have the gun in the locker, even if we never use it, than not to have it at all.

[Mr McFadden]

I entirely agree.

[Mark Garnier (Wyre Forest) (Con)]

To follow up on that point, rather than having a gun in the locker, some of these powers should be seen as akin to a nuclear deterrent. As parliamentary commission members will remember from doing the media rounds after the publication of the report, one of the big questions was whether Fred Goodwin would have gone to prison if we had had these powers in place. The answer to that is that RBS would not have gone bust in the first place. The deterrent element of these powers, rather than the enforcement element, is what is important.

[Mr McFadden]

The hon. Gentleman makes a very good point. Without wishing to pursue this analogy too far, the difference between a gun in the locker and the nuclear deterrent is that it is conceivable we would use the gun in the locker, but less so the nuclear deterrent. I am therefore not entirely sure which of the two commission members has got this quite right, but deterrence is certainly part of the effect we are looking for.

To return to the issue of the power to separate in respect of one institution or the sector as a whole, my overall reflection, having served on the commission for the past year is that, although its recommendations should be supported, even if we take all the steps set out—even if we put a new system of regulation in place, including the twin peaks system, even if we have the ring-fencing powers on structure that are in this Bill, and even if we faithfully implement the standards and culture recommendations to which the hon. Member for Chichester referred—it would still be rash to come to the conclusion that we had fully resolved the problems of too big to fail or too complex to manage. These reforms should be implemented and they can make a difference, but if we think we have fully resolved the problems of this huge sector, we will be guilty of complacency and possibly kidding ourselves. The problem of too big to fail is still there.

Our recommendations will make a difference but we also need powerful weapons, even if their use is unlikely, to enforce good standards and to make those running banks think long and hard about the consequences before they decide to test or game the system in any situation in future. That is why I think my hon. Friend the Member for Nottingham East (Chris Leslie) is right to say that a periodic review of ring-fencing and how it is operating is a good idea. It is why I support a more general power, to be held by the Government, to allow broader separation if the ring-fencing reforms do not work. That is what amendments 17 and 18 are designed to achieve and they are very much in line with the recommendations of the commission’s first report.

--- Later in debate ---

[Greg Clark]

I am grateful for my hon. Friend’s intervention. I always take praise when it comes—especially from him, as he is often very flinty in issuing it. I do not think that what I said amounts to a concession, because it has always been our intention to reflect the spirit of his suggestion.

Let me make an important point on the process that my hon. Friend describes. In his amendments, he does not have a time period in mind for the exercise of the power.

[Mr McFadden]

rose—

[Greg Clark]

I have one minute left, so the right hon. Gentleman will understand that I cannot give way. The proposal that there be five years to implement the action has been discussed with the regulators; it reflects best regulatory practice. In point of fact, if there were no time limit in the Bill, which is what one of the amendments tabled by my hon. Friend would ensure, that would render the use of the power without limit, so I think we are in the same territory—the right territory—in wanting to specify that there should be a limit. It should be clearly understood that there is a limit to the use of the electrification powers, in terms of a timetable, and a deadline for action. Of course it is right that the regulators should advise on the appropriate use of that. In terms of the amendment—

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[Mr Redwood]

Indeed. That point also shows that we need banks to be profitable—particularly RBS, which is still largely state owned. Until the bank is making profits, its capital ratios will not improve quickly enough and it will then not be in a position to lend the money that the Government would like it to. The taxpayer would be grateful if it could be more profitable, because our shares would be worth more, which would be in the general interest.

I conclude by making the same point to the Minister. Yes, I want us to get to stronger banks with tighter ratios, but I want us to get there through growth and growth in bank profits—particularly for HBOS and RBS, in which we have a large state stake and whose results have been disappointing for a number of years. If we can get to that happy position, we can have a bit of growth and some more profitability and then the regulator will have to have a sensible conversation with the banks; it will say that some of the money has to be put into cash and capital so that they are stronger. We will be the better for that.

[Mr McFadden]

I will not detain the Chamber for long; I just want to make a few points.

The argument is really about complexity versus simplicity in how banks are regulated. One of the points that my hon. Friend the Member for Nottingham East (Chris Leslie) is trying to bring out is the inadequacy of the over-complex Basel regulations, which have allowed banks to game the system and say they had hugely different capital ratios on similar classes of assets in different institutions. The truth is that the Basel system is so complex that it does not give confidence about the safety of our banks. That is why this debate about leverage is so important.

In all the debate about ring-fencing, separation and so on, what has perhaps been under-discussed is the fact that not enough attention has been paid to leverage—a basic measure of banks’ safety or resilience against future risks and very important in respect of banks’ ability to absorb losses. One of the features consistently pointed out, both to the Treasury Committee and the Parliamentary Commission on Banking Standards, was that in the run-up to the crisis banks were hugely over-leveraged. That meant that their capacity to absorb and deal with problems when they came was minimal.

Our banks still have very high gearing today. The banks lobby hard on the issue. I counsel caution on the basic trade-off that has been raised about lending and leverage. There are other ways for banks to improve their capital ratios than simply by reducing lending. They could, for example, look at the proportion that they give out in remuneration every year; that could make a difference to their capital ratios. Over the past decade or two, vast amounts of money have been paid out in remuneration that could have improved capital ratios without having any effect at all on lending. Let us not fall for the argument that we can either have banks that lend, or safe banks, but we cannot have both. It would be wrong of us to fall into that false dichotomy. We should aim for banks that are both safe and have the ability to lend.

Corporate Structures and Financial Crime

Pat McFadden Excerpts

Thursday 4th July 2013 Commons Chamber

[John Mann]

I will finish my introduction first, because banks are just one aspect of the problem and I want to focus on all aspects in my brief comments.

The problem is that we have opaque structures that mean that people can avoid tax and participate in illegal activities such as smuggling and money laundering. The amount of unregistered money involved is estimated by some analysts worldwide as being in excess of £20 trillion. A third of that is estimated to be directly linked with the European Union, and a third with UK Crown dependencies.

I will illustrate how the problem works. An individual sets up a firm in a country that keeps the names of directors a secret, then links that firm with another firm in a respectable place such as the United Kingdom, where the details of who owns a company do not have to be registered if it is owned by another company. They then set up nominees to be directors of the opaque firm, register with the corporate registry in the initial country, open a bank account for the original firm and funnel money through the firm in the legitimate area to the original firm in the opaque country.

There are many examples of that, and all areas of our national life, such as football, now seem to be covered by such structures. Whether it is illegal or legal, it is a major problem for transparency. We as legislators should be particularly concerned about any illegal aspects, and the banks have been at the forefront of those, as we have seen with the problems of money laundering. HSBC funded Iran with transactions involving £19.4 billion through shell companies over seven years, through the Channel Islands and the Cayman Islands. That broke sanctions but was incredibly hard to trace, because it happened through opaque shell companies

In the case of crime, in one year alone the same company funnelled £7 billion through the Mexican Zetas drug cartel, the biggest and most violent criminal agency anywhere in the world. Again, it did so through shell operations. Various mafias have also been involved.

The BBC’s “Panorama” exposed rather efficiently a woman called Lana Zamba, a Russian-born Cypriot yoga teacher, who was the director of a firm called Nomirex and 23 other UK-based firms. Records showed that those firms were inactive between 2007 and 2009, but “Panorama” demonstrated that £350 million had passed through them in that time.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

I thank my hon. Friend for his energy in securing today’s debate. In the cases he outlines, does he agree that the complexity of modern global banking should not be used as an excuse for ignorance by those charged with the stewardship of the banks, and that we should put in place regulatory—and if necessary criminal—sanctions to ensure that responsibility cannot be evaded on the basis of professed ignorance? Responsibility for running large global complex organisations must be taken by those in charge.

[John Mann]

My right hon. Friend makes a valid and relevant point about criminal sanctions. The banks’ uniqueness is that they are the channel for funds. Because things are recorded in this technological age, it is straightforward for banks to investigate themselves and see what is going on, so the plea of ignorance by those at the top is inexcusable.

What my right hon. Friend and I are saying, and what I interpret the Financial Services Authority to be saying, is that responsibility must be taken at the top. Pleading ignorance is simply not good enough. We are talking not about small, missed operations but about huge major operations that funnel vast amounts of money. It is easy for banks to identify and track such operations, yet they choose not to do so. There seems to be a particular problem of huge reputational risk to the City of London because banks based in the UK have been those most often caught out. However, I have produced a document that demonstrates that this is not simply a UK problem. In recent years, every one of the top 50 banks in the world has had this problem and experienced prosecutions or ongoing investigations into prosecutions.

Oral Answers to Questions

Pat McFadden Excerpts

Tuesday 25th June 2013 Commons Chamber

[Mr Osborne]

I completely agree that Labour’s plan to borrow more to borrow less is completely nonsensical. It really is extraordinary that a day after the Labour leader said that Labour had ruled out borrowing more, the shadow Chancellor committed the party to doing just that. It is a catastrophic position for his party to hold. Frankly, I do not think that the country will ever adopt it.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

Given that the Chancellor appears unwilling to give us the answer that dare not speak its name on last year’s borrowing, I will ask him about the time available to debate the recommendations of the Parliamentary Commission on Banking Standards. A number of those recommendations require legislation before they can be given effect. The Government have allocated only one day on Report for the banking Bill. Although I respect their lordships, surely it should be the elected House that is given a chance to debate the recommendations. Will he reconsider and allow two days on Report?

[Mr Osborne]

First, I thank the right hon. Gentleman for his contribution to the Parliamentary Commission on Banking Standards, along with all Members of this House and the other House who took part in it. The very fact that the Commission has done its work speedily means that we can consider its recommendations for the banking Bill going before Parliament. Of course, allocation of time is a matter for the Leader of the House to make clear in his statement. The right hon. Gentleman has my commitment that over the course of the Bill’s scrutiny—it will go to the Lords and then come back to the Commons—there will be proper time to consider all the Commission’s recommendations and, if necessary, for the Government to draft changes in order to implement them. It is a parliamentary commission, which is what I wanted it to be, and it is of course right that Parliament should consider its report in detail.

Royal Bank of Scotland

Pat McFadden Excerpts

Thursday 13th June 2013 Commons Chamber

[Sajid Javid]

I thank my hon. Friend, the Chairman of the Treasury Select Committee and of the Parliamentary Commission on Banking Standards, for his comments. He is absolutely right to praise the work of Stephen Hester and I agree wholeheartedly with his views on what Stephen Hester has achieved in his five years at the bank. Perhaps my hon. Friend had his work with the Parliamentary Commission in mind when he asked his second question. The approach must be bipartisan and we must keep the interests of RBS and the economy as a whole uppermost in our minds.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

I agree that Stephen Hester did a good job in reducing the size of the bank’s balance sheet and beginning to turn the bank around, but that job was not complete at the time of his enforced departure. Will the Minister tell us more about the implications of this timing and strategy for returning the bank to the private sector? May I also tell him that, whatever else the Parliamentary Commission on Banking Standards has to say about this, if he was looking for a permission slip for a quick sale at a knock-down price, he will be disappointed?

[Sajid Javid]

It might help the right hon. Gentleman if I tell him that Stephen Hester himself has said in the past 24 hours that, for him, privatisation was the “end of a journey”, and that the board was looking for someone who would see it as the beginning of a journey. He has said that, for that reason, he understands the board’s decision. This is a voluntary agreement and a mutual decision between Stephen Hester and the board. The RBS board has said in its statement that it is looking forward to having a bank that is more focused on UK business and on the inevitable privatisation process.