Financial Services Bill

Lord Phillips of Sudbury Excerpts

Tuesday 3rd July 2012 Lords Chamber

[Lord Phillips of Sudbury]

My Lords, one takes one’s life in one’s hands if one tries to interpret the ineffable complexities of the Bill and of these amendments. However, I will try because I think that there has been some misunderstanding of Amendment 35, starting with the noble Lord, Lord Eatwell, and finishing with the noble Lord, Lord Davies of Stamford. If one analyses it closely, one sees that the fears that were expressed are not justified.

First, the promotion bit of Amendment 35 is couched within the purpose of the committee, which is to,

“contribute to the achievement by the Bank of the Financial Stability Objective”.

Therefore, whatever it does by way of promotion must be within that objective. The amendment continues by stating that this shall include promoting, first and crucially,

“a stable and sustainable supply of finance to the economy”.

That is the number one priority. Only then, and subject to that, as the noble Lord, Lord Peston, made clear, is there the inclusion of promoting,

“objectives for economic growth and employment”.

For the life of me, I do not see how the noble Lord, Lord Eatwell, can persevere with his concern, given that the right of promotion is subject and subsidiary to promoting a stable and sustainable supply of finance, and then has to be within the Bank of England’s financial stability objective.

Furthermore, there is no coercion here given that the economic growth objective is third on the list of priorities. Frankly, there is not a straw of difference between “promoting” these things and—in Amendment 35A, tabled by the noble Lord, Lord Sassoon—“supporting” them. Some may say that there is a difference, but as a lawyer I say that there is little or none. I contribute these thoughts in the hope that more light will be cast on Amendment 35.

[Lord Flight]

My Lords, I support the Government’s amendments. I would like to make two small points to pick up on the point made by my noble friend Lord Trenchard. First, when it comes to the achievement of stability, having adequate competition in the domestic market is crucial. The problem with the banking system is that it became too much of a cartel without enough competition. When cartels exist, they tend to do the same thing at the same time and the resulting problems are often large in scale.

I well remember, following the Barings problem, having many discussions with the then Governor of the Bank of England, the late Sir Eddie George. What happened then was that the lender of last resort principle was deemed to apply only to banks that were too large to fail, so smaller banks such as Hambros were closed down and sold, and we ended up with a moral hazard problem and a cartel problem. I stress that adequate domestic competition is very much part of the stability objective, whereas with economic success it is international competitiveness that is arguably more important, particularly for the role of London.

We will come to this subject later on, but there is an important difference in the interplay between adequate domestic competition and being adequately competitive internationally in terms of the two objectives of stability and economic growth.

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[Lord Barnett]

My Lords, I am delighted to follow the right reverend Prelate. I was in his cathedral on Friday and it was a very happy occasion. It is as beautiful as people say.

As my noble friend Lord Peston said, the two amendments are reasonably innocuous. I can certainly accept both of them with the exception of those three little words, and this is the first time that I have heard a real defence of them. Indeed, the noble Lord probably printed them himself. Last week I said that the noble Lord, Lord Sassoon, does not need to reply to most of these debates because we have three noble Lords here in the House who would be even better able to do so. However, as I say, I have not previously heard a proper defence of the words “subject to that”. The noble Lord is the first to do so, and I am sorry to have to disagree with a potential Governor of the Bank of England, if he still thinks that after all our debates.

The words “subject to that” have always seemed to be totally unnecessary because the Government of the day will certainly want to deal with inflation and, not subject to that but always on top of that, to look at economic objectives. I cannot see why that should not be so, and if I may say so, I have still not heard a good defence of it. But the amendments seem harmless enough, subject to the removal of those three words.

The question of QE has been mentioned in this brief debate. I do not wish to extend it, but it so happens—probably luckily for the Government rather than as a result of their policies—that inflation has remained relatively low. My noble friend Lord Peston, who is my professional adviser on these matters, may be right to say that that has nothing to do with the Government. However, what concerns me about both of the amendments is that I am not sure where the objectives of the Government lie on growth. I wish they could explain them, but perhaps on another occasion rather than today. Perhaps the noble Lord, Lord Sassoon, or one of the other defenders of the Government’s policy could also tell us what their policy is on economic growth and employment, because it is not succeeding. However, I will not pursue it any further except to say that I hope that the Government will be able to accept the removal of those three words.

[Lord Phillips of Sudbury]

I have a great deal of respect for the noble Lord, Lord Barnett, who says that he wants to see the words “subject to that” taken out. Am I quite clear that, in saying that, he is not in favour of a stable and sustainable supply of finance ranking as a higher priority than growth?

[Lord Barnett]

I am saying that I find the two amendments relatively harmless, and that I would be able to accept them. That is all I was saying.

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[Lord Carlile of Berriew]

I am grateful to my noble friend, who has considerable experience of dealing with high-level legal matters. I believe that might be achieved, but in my view there needs to be the clearest statement of intent by the Government. My intention, as my noble friend implies, is that whoever carries out this special investigation should be invested with the powers of the Serious Fraud Office, which are considerable and important. That is why I suggested earlier that this should take place under the instructions of the director of the Serious Fraud Office, Mr David Green QC. However, I believe that the Serious Fraud Office is completely unresourced for this kind of investigation. I also believe that in public terms, if the Government made it clear that they would provide Mr Green with the resources immediately to appoint a special prosecutor, albeit under his umbrella, and that person was provided with a team, probably largely from outside the SFO, which has been recruiting a large number of staff recently and may not have the experience to deal with this inquiry at present, then we would have a quicker and better result.

I do not want to detain your Lordships’ House for too long. However, I want to make the point that we have not yet reached the situation in which the essential issue is being investigated properly—that is, the potential criminality of those whom we were entitled to trust.

[Lord Phillips of Sudbury]

My Lords, I came to the City as a young lawyer in 1964 and am still there. Until last Christmas, I was a non-executive director of a well known City insurance entity. I agree wholly with the sentiments of the noble Lord, Lord Eatwell. However, the writing has been on the wall about the state of values in the City for very many years. The most recent shock—the LIBOR scandal as one might call it—is but one of many and there will be many more still to come, I am sad to say. It has been an open secret in the City that the culture has declined over the years to one of near amorality, where the law rather than normal moral instincts has been the arbiter of conduct. That in turn has declined, predictably, to a situation where too often if amorality is confronted with a significant loss of a good deal then there is little resistance left in the system and criminality occurs. Most of it is impossible to trace as it is in the form of market manipulation and oral conspiracies—whether within a firm or between different firms. It is a sad spectacle. To be fair, the vast majority of people in the City deeply regret where we have got to. Unfortunately, however, the culture of huge corporations tends to crush the moral life out of people in those entities. You get the occasional whistleblower who will stand out against the herd but one knows, I am afraid, what has happened recently to those few brave people.

The noble Lord, Lord Eatwell, is absolutely correct in his strategic overview of where we now are. We must, however, ponder this a little more than the space of this debate will allow. I am inclined towards giving serious thought to some sort of commission. It does not have to be a royal commission—a phrase which has attracted a good deal of adverse thought lately—but it is such a huge congregation of issues, not just confined to the City and certainly not confined to narrow misdeeds such as the LIBOR matter, that we may be better off with a royal commission that can look at the thing in the round, take its time, and let the criminal side of all this be separated and dealt with by the Serious Fraud Office or, conceivably, a special prosecutor.

My Amendment 109—to which my noble friend Lady Kramer and the noble Baroness, Lady Meacher, have added their names, and which we will probably get to next time—ironically achieves almost the identical effect to that of the first part of Amendment 110ZA, tabled by the noble Lord, Lord Eatwell, so I am obviously in favour of that.

In closing, the other quick point I should like to make is to wonder whether there should not be a wider duty of integrity in the Bill than that which applies only to the FCA in proposed new Section 1D on page 17 of the Bill. The prudential authority should be subject to a similar integrity objective, and it might make sense to have such an objective for the whole financial regulatory sphere. That is all I wish to say beyond thanking the noble Lord, Lord Eatwell, for raising this matter at this time.

[Lord Neill of Bladen]

My Lords, I should like to make a few observations about the amendment. We are at Committee stage of the Bill. While it is passing through your Lordships’ House there has been an enormous scandal about the fixing corruptly of the LIBOR rate by Barclays over, I understand, a period of years—a practice in which it is possible that other banks took part. They have thereby done enormous damage to the reputation of the City of London as a place where you can get honest dealing. The matters thus far brought to light show innate corruption, whereby it is seen as perfectly all right to rig the figures that you supply in order to fix the LIBOR rate and to bring in profit or reduce losses. That is a form of corruption.

One can go back to one’s early days with a bank. I banked with Barclays from the mid-1940s onwards. The notion of the bank then being involved in this type of activity was absolutely laughable. The banks have turned into merchant banks of the worst possible character, and that ethos is reflected in conduct that reveals a completely disgraceful picture.

The question is: what is the best way to have a wider inquiry into that matter? At the moment, it is a pity that what is called the Tyrie inquiry is being allowed to carry on on its own, without any thought as to whether or not the investigation of those facts would be central to any wider inquiry about the integrity of banks. However, how do you investigate integrity? The theory is that you are not allowed to look at other cases because Tyrie is dealing with the matter. In fact, it is the best possible evidence you can have of the way that bankers think today. You want to know all the details of that case and not exclude them from it, rather than ask a generalised question: how do we establish integrity or lack of it in the City?

I therefore assume that today we are having an exploratory discussion, that the amendment will be withdrawn, and that there will be time, at least by Report, to consider revised proposals of what might be done by way of investigation. The suggestions of noble Lord, Lord Carlile, are interesting and persuasive, but all this has just been pitched upon the House of Lords because of a curious financial scandal coming to light at this very time while we are in Committee. I hope that consideration will be given as to whether matters in relation to the banks and financial institutions could be better conducted after we have had time to think and the Government have had time to react to the amendment. I hope that some reasonable and rational delay will be introduced and that the amendment will be withdrawn.