Banking

Alison McGovern Excerpts

Wednesday 15th January 2014 Commons Chamber

[Alison McGovern (Wirral South) (Lab)]

I am sorry that the hon. Member for Spelthorne (Kwasi Kwarteng) appears to be leaving his place, as I want briefly to say that I am worried about what he said. He seems not to have heard the message from the public that they are still dissatisfied with our banking industry. I do not think that our financial services industry should be about wealth accumulation; it is there as a supporting act to this country’s industry for wealth creation. I hope that he might consider his remarks in that light. I thank him for pausing to hear what I have said.

I want to speak about two matters—first, about co-operation versus competition in regulation, and secondly, about rebalancing our economy. I thought that those would be cross-party matters, but having heard what some Government Members have said so far, I am no longer sure.

On global co-operation in the regulation of financial services, we in this House must recognise that we are part of an international global marketplace. That has been pointed out by British citizens since Adam Smith sat on the promenade at Kirkcaldy and watched ships going in and out of the port. As a Merseyside Member of Parliament who sees very large ships coming in and out along our River Mersey, I am also acutely aware of that point.

Fundamentally, in the face of a global international marketplace—financial services are undoubtedly such a marketplace—we have two choices. We can either work with our partners to regulate the industry, given the risk that it might pose to all our economies, or we can take part in a global race to the bottom and allow global corporations to play one Government off against another. The bank bonus cap introduced by the EU is a classic example of that dilemma.

I argue that there are strong moral reasons to be internationalist, but there are clearly economic reasons too. This is a classic economic prisoner’s dilemma: we either work together and everybody benefits, or we work against others and in the end we work against our own interest. The G20 resolved in 2009 to introduce new global rules on supervision. Since then, the UK has acted unilaterally and has blocked global co-operation. If we do not co-operate, we are doomed to compete against our own interests in the long term.

I do not think that the British people are supportive of a Chancellor who has rushed to defend bankers bonuses that can be several times the size of an annual salary. The high level of variability in remuneration is leading us into the kind of cycle that we were in before. I am worried that we are dooming ourselves to make the mistakes of the past. I therefore ask the Minister to say what intention the UK has to work with its partners across the world to realise the promises that were made in 2009.

[David Mowat (Warrington South) (Con)]

I agree completely on the need for global co-operation, as do the Government. That is why the Basel agreements are being implemented in the UK, with everything that that involves. However, there is a distinction between global co-operation and European co-operation. Why does the hon. Lady think that we should not follow global rules on bankers bonuses, which the Government would be much happier to do if they existed, rather than European rules?

[Alison McGovern]

We seem to be hearing that argument more and more from the Tory party. I am sorry to hear it from the hon. Gentleman, who has previously spoken sensibly about working with our European partners. It is as if Europe is the great problem and that Britain can be part of a world that does not involve Europe. However, Europe is one of the world’s biggest trading blocs, along with the United States, so if we are not influencing Europe, where should we be influencing?

The second question that Ministers need to answer is where is their plan for rebalancing the economy. Given the way in which they have acted in relation to the City, coupled with the way in which they have acted in relation to the housing market, I suspect that we are getting the same old story from the Tory party. I would happily have debated the points that were made by the hon. Member for Spelthorne about 1986 and the influence that that moment had on our economy. However, I ask the Minister what the Government’s plan is for the City. Do they just want to reflate it all over again? Are we back to Tory economics as usual—the so-called FIRE economy of finance, insurance and real estate—leaving us open to the same worries that we faced in the past? Let the City of London rip and never mind the risk to the rest of the country!

The way to deal with the risks that we face is to consider proposals for proper regulation, such as establishing a full reserve power to split banks into retail and investment arms if necessary. We need to keep our eye on the ring fence, as was suggested by the Independent Commission on Banking. There should be a review of the ring fence to check that it is working and, if it is not, we should use the full reserve power for splitting the banks.

We must also not take our eye off the issue of remuneration. The regulator needs more powers to reform the rules if it is necessary. The British public are not comfortable with bank bonuses running away at two times people’s annual salaries. I would invite any Member of the House to talk to my constituents about how they feel about the incomes that are earned by people in the City of London. They do not feel that it is in the best interests of this country to have such a concentration of high earners. That creates risks for which they pay the price. The cuts that we have seen to local authorities have hurt communities up and down this country, but they were brought about by the actions of a very few people in the City of London.

If Ministers do not take rebalancing seriously, people in this country, and certainly those in Wirral and Merseyside, will not forgive them. If they are serious about rebalancing, I simply ask them to say what steps they will take to regulate the City properly. Will they explain to this House—I am not sure that they will, but I would like them to do so—how they think an ever-expanding City of London that imports ever more risk into this country is helpful to the ordinary businesses and companies that I represent in the Wirral?