European Summit

Matt Hancock Excerpts

Thursday 24th March 2011 Commons Chamber

[Mr Hoban]

The only reason that this country is in a different place from Greece, Ireland and Portugal is the action that this Government have taken to sort out the mess left by Labour.

[Matthew Hancock (West Suffolk) (Con)]

Will the Minister confirm that the contingent liability under the scheme was set up after Labour had lost the election by the then Labour Chancellor? Does what is happening in Portugal, where interest rates have today risen above 8%, not provide the most eloquent lesson on what would happen here if we did not get a grip?

[Mr Hoban]

My hon. Friend is absolutely right. The decision taken by the previous Chancellor meant that we became part of the ESFM, and that is why the liability exists today. My hon. Friend is absolutely spot on: we have taken difficult decisions in this country. This Government have decided to tackle the deficit that Labour left behind, and we have a clear plan to do it. The Opposition have no ideas. Under a Labour Government, this country would be running out of steam.

Amendment of the Law

Matt Hancock Excerpts

Wednesday 23rd March 2011 Commons Chamber

[Richard Harrington (Watford) (Con)]

I assure you, Mr Deputy Speaker, that I will stick to the guidelines you have given. In fact, uniquely both in this House and in life generally, I find that I am speechless after listening to the hon. Member for Kingston upon Hull North (Diana Johnson). There is a holiday attraction somewhere called la-la land. I cannot remember who mentioned it but, obviously, it is nothing to do with Kingston upon Hull North. The picture the hon. Lady painted forgets who has been in power for the last 13 years and who has been responsible for a bloated public sector and a starved private sector, as well as for unemployment and all the other problems that many people, including the Chancellor, have spoken about today.

[Matthew Hancock (West Suffolk) (Con)]

Is my hon. Friend as confused as I am given that the previous speaker started her speech by saying there are new jobs at Siemens in Hull, thereby showing that manufacturing is expanding under this new Government?

[Richard Harrington]

My hon. Friend makes a good point, but we heard about Siemens so long ago that it had slipped my mind.

I shall restrict my comments to my experiences in business of dealing with the economy, and the experiences of my constituents and their businesses in Watford. Watford is not dissimilar to Kingston upon Hull. It has significant unemployment and shares all the same problems as many other parts of the country. Notwithstanding the Chancellor’s commendable statement today, the most significant factor in encouraging businesses to invest is the general macro-economic situation. Therefore, the most important aspects of this Budget and the last Budget are the measures for reducing the deficit.

Budget Responsibility and National Audit Bill [Lords]

Matt Hancock Excerpts

Tuesday 22nd March 2011 Commons Chamber

[Kerry McCarthy (Bristol East) (Lab)]

The Opposition support the Bill. It has been debated at length in the other place and in this House on Second Reading, in Committee and—perhaps at greater length than some of us anticipated—on Report today.

Not much has been said during the passage of the Bill about part 2, which relates to the National Audit Office. That is not least because it implements the measures that were introduced in the Constitutional Reform and Governance Act 2010. It is fair to say that there is widespread agreement on part 2.

As was clear in previous proceedings, there is similarly common agreement on the creation of the Office for Budget Responsibility and on placing it on a statutory footing. We did, however, table a number of amendments in Committee to challenge some of the details of how the OBR will function, as one would expect from the Opposition. In particular, we addressed the concern that has been expressed inside and outside this House that the OBR may not turn out to be sufficiently independent from the Government. For the public to have confidence in the OBR, it has to be seen to be independent. That is why we proposed measures that would have made it more accountable to the House and measures that would have increased the role of the Treasury Committee. We also wanted to ensure that the division between the Treasury and the OBR in terms of staffing and premises was enshrined in law. We are grateful for the assurances that the Economic Secretary gave in Committee on those points. We also welcome her promise that substantive details of the contact between OBR staff and the Minister’s special advisers and private office staff will be published.

We were also concerned about the potential overlap between the OBR’s responsibilities and the Bank of England’s economic forecasts. We therefore proposed that the Bill provide for a memorandum of understanding to ensure that there was clarity from the outset for all parties. I urge the Economic Secretary to ensure that the memorandum is subject to proper scrutiny in this House. I hope that the OBR and the Bank of England will in time formally agree their working relationship.

We consider that a crucial way to secure the independence of the OBR is to ensure transparency in its funding so that the budget responsibility committee is not at the mercy of the Treasury and vulnerable to the whim of the Chancellor. Comparisons with other countries were made earlier. In Canada, the Parliamentary Budget Officer published two critical reports of the Government in its first year. It is difficult to divorce that from the fact that its budget was frozen, despite promises that it would be increased by a third. Some people would say that that was not a coincidence.

Likewise, Sweden has a similar organisation to the OBR in its Fiscal Policy Council, which reported that its resources were not sufficient to enable it to carry out its remit properly. In response, the Minister for Finance suggested that the council’s budget be cut. We obviously want to avoid a situation like that, and we have received assurances from the Economic Secretary that the OBR’s funding is secure for the next five years. We very much welcome that.

Much of the OBR’s decisions and remit will be based on the charter, so it is disappointing that we have not had the opportunity to scrutinise the revised charter today alongside the Bill given that it is so central to the OBR. The Economic Secretary has assured us that it will be published promptly after Royal Assent, which we expect in no time at all, so we look forward to a full debate on the charter in the Chamber before too long.

Although we support the principle of the OBR and the Bill, we have reservations about how the OBR will work in practice. A major concern is the Treasury’s insular conception of economic policy and sustainability, which seemingly allows it to focus narrowly on the deficit and to ignore the consequences of its own policies. Rising unemployment, rising inflation, as seen in today’s figures, and falling growth are not sustainable and cannot be ignored, so we hoped that the Government would allow the OBR the latitude to take into account those crucial determinants for the long-term recovery, even if the Treasury will not. Unfortunately our amendments were rejected, so we could not enshrine that in the Bill, but we hope that a truly independent OBR will include those matters in its remit. The House may well return to the definition of “sustainability” and the issue of intergenerational fairness when we come to debate the revised charter.

During Labour’s last Budget, the present Prime Minister was fond of claiming that our growth forecasts did not match those of the independent experts. In fact, they were consistently much more reliable than he made out. He concluded:

“What we need is a proper independent office of Budget responsibility, which we would set up to set independent forecasts and to keep the Chancellor honest.”—[Official Report, 24 March 2010; Vol. 508, c. 268.]

I agree with the present Prime Minister, for once, about the need for that, but as is so often the case, the reality does not match his rhetoric. Now we have the OBR, but its independence has been undermined by the release of favourable figures in time for a recent Prime Minister’s Question Time.

Moreover, the British Chambers of Commerce has described the OBR’s growth forecasts as “too optimistic”, and despite the Prime Minister’s concern that official forecasts should match those of independent experts, it seems that other independent experts disagree with the Government’s independent experts. In February, the consensus forecast for 2011 was 1.9% growth, which was downgraded to 1.8% in March, whereas the OBR forecast was a more optimistic 2.1%. The discrepancy increases for next year’s forecast. The consensus forecast is 2.1%, compared with the OBR figure of 2.6%, which it has already had to downgrade once thanks to the Government’s policies.

The differences between the OBR and consensus forecasts could be critical. The Institute for Fiscal Studies, which the Government seem to respect on the occasions when it says anything favourable about their policies, has reported that they will fail to achieve their fiscal mandate to

“achieve cyclically-adjusted current budget balance by the end of the rolling, five-year forecast horizon”

if growth does not meet the OBR’s central economic forecast. Whether the Chancellor will achieve his fiscal mandate is clearly in the balance, and although he may use the OBR figures, it would be a great mistake if we held the OBR responsible for whether he fulfils that mandate. Only the Treasury can determine that.

Fundamentally, and finally, we have to remember that the Bill places no enforceable obligations on the Chancellor for responsible fiscal policy. The OBR can report on the state of the economy, and its analysis will no doubt be very valuable, provided it is genuinely independent. However, the Government already have a track record of ignoring expert advice and indisputable evidence that their policies are failing.

The British Medical Association and almost every health organisation that we care to think of warned against the Health Secretary’s reckless experiment with the national health service, but with the Prime Minister’s full backing, he ignored the evidence and carried on regardless. The IFS published independent research proving that the Government’s June Budget and comprehensive spending review would disproportionately hurt women and children and the most vulnerable people in our big society, but the Chancellor ignored the evidence and carried on regardless.

The Office for National Statistics reported that unemployment had reached a 17-year high and that youth unemployment was at its highest level ever, and the OBR itself reported that the Tory-Liberal Democrat plans would mean 110,000 more people on the dole by the end of this Parliament, but did the Chancellor and the Secretary of State for Work and Pensions review their policies in the light of that evidence? No, they ignored the evidence and carried on regardless.

The OBR downgraded growth forecasts after the coalition’s emergency Budget, and again as a result of its comprehensive spending review, and the economy contracted by 0.6% in the last quarter of 2010, proving that the Government’s policies had undermined the economic recovery, but the Chancellor ignored the evidence and blamed it on the snow. The question for the House is whether we can do enough to secure the status of the OBR so that ideologically driven Ministers cannot just disregard its reports.

[Matthew Hancock (West Suffolk) (Con)]

Will the hon. Lady give way?

[Kerry McCarthy]

No, I am just drawing to a close.

I urge the Minister to ensure that the principles of objectivity, transparency and impartiality are respected, particularly when she lays the revised charter before the House. Most importantly, we seek assurances that Ministers will actually listen to the evidence provided by the OBR and respond accordingly.

When the Chancellor came to office, unemployment was falling, growth was predicted at 2.3% for this year, inflation was lower and falling, and borrowing had come in £20 billion lower than was forecast in 2009. I do not need to tell the House again how the Chancellor has reversed that recovery, but that is the context in which we must consider the role of the OBR. The office is intended to report on responsibility, but it cannot guarantee responsibility. That is the Chancellor’s role, and it is about time he realised it.

Fuel Prices and the Cost of Living

Matt Hancock Excerpts

Wednesday 16th March 2011 Commons Chamber

[Claire Perry (Devizes) (Con)]

rose—

[Matthew Hancock (West Suffolk) (Con)]

rose—

[Ms Eagle]

I give way to the hon. Member for Great Yarmouth (Brandon Lewis), because he stood first.

Budget Responsibility and National Audit Bill [Lords]

Matt Hancock Excerpts

Monday 14th February 2011 Commons Chamber

[Ms Angela Eagle (Wallasey) (Lab)]

The Bill makes changes to the responsibilities exercised by the Treasury in fiscal policy making, establishes the interim Office for Budget Responsibility on a permanent statutory footing and modernises the governance arrangements of the National Audit Office. I wish to make it clear at the outset that we support the sensible changes to the governance of the NAO which, as the Minister pointed out, are proposed in parts 2 and 3 of the Bill. We do so not least because they were our reforms. As she was good enough to observe, we set them out in the Constitutional Reform and Governance Bill towards the end of the previous Parliament. As someone who has served three times as a member of the Public Accounts Committee—once in opposition, once in government and once as a Treasury Minister—I am glad to see the reforms getting on to the statute book, despite the extra obstacle presented by the intervention of a general election. I also wish to thank the Minister and the Government for the open mind that they showed to Labour amendments during the passage of the Bill in the Lords. I hope that she will show a similar approach to the amendments that we will table in Committee.

The creation of the OBR seeks to apply to one narrow part of the UK’s fiscal institutions some of the autonomy that Labour brought to monetary policy when we made the Bank of England independent—of course, we took steps to make the Office for National Statistics independent too. As the House of Commons Library has pointed out, there are examples of similar bodies in other countries. Austria, Belgium, Canada, Denmark, Hungary, Holland, Slovenia, Sweden and the USA all have some arrangements for independence in forecasting and analysis of the national fiscal situation.

The reform was initially sold by the Chancellor, with much fanfare, as one that would take the politics out of economic forecasting. In doing that, he gave the entirely false implication that previous Ministers had somehow been instructing hapless officials in the Treasury to produce incorrect but politically convenient forecasts. The reality is that the previous Government published a range for gross domestic product growth, and in all the years before the crash on only two occasions did growth fall below the range that the Treasury published. In the other years, the figure fell either within the range or above it, thus showing that we were exercising caution. We were not fiddling the figures. That level of accuracy is about all that any of us can expect from economic forecasting, which is a notoriously unreliable art rather than an objective science. Let me share a quote with the House:

“Economic forecasting, by its very nature, is subject to uncertainty. Our judgement is that, at this stage of the economic cycle, the outlook is even more uncertain than usual.”

That was the OBR’s comment on its forecasts in June 2010.

However, I have found evidence of one occasion when a Chancellor overruled the Government’s forecasters, and the House may be interested to hear about it. In 1996, the then Chancellor, who is now the Secretary of State for Justice, was reported to have increased the growth forecast from 2.5% to 3% in order to make way for pre-election tax cuts. The chief forecaster he overruled was, by some odd coincidence, Sir Alan Budd, the curiously short-lived first head of the interim OBR.

[Matthew Hancock (West Suffolk) (Con)]

I am sure that the hon. Lady was not about to move on from talking about forecasts having spoken only about growth forecasts, not about the previous Government’s dreadful record on fiscal and deficit forecasts.

[Ms Eagle]

The important thing to note about forecasts, particularly those on the tax take, is that it is difficult to be accurate with them. When I served on the Treasury Committee prior to becoming a Treasury Minister, there was comment on how accurately the Treasury was able to forecast the tax take. Clearly, it is more art than science, so the House would be mistaken to believe that because something has been forecast, it is automatically an objective certainty. Those of us who deal with these issues, on both sides of the House, know that forecasting the economy can be as uncertain as forecasting the weather—Michael Fish found out how uncertain that can be one night. Forecasts are what they are; they can sometimes be wrong and sometimes they can be accurate. I honestly think that, in general—I am not making a party political point—the Treasury has a reasonably good record on forecasting.

--- Later in debate ---

[Ms Eagle]

The important issue is how the independent forecasts interact with what happens in the economy and how that can change and be affected by the Government’s economic decisions.

[Matthew Hancock]

I enjoy debating with the hon. Lady, so I am extremely grateful to her for giving way. She has just prayed in aid the OBR, saying that it had forecast that the deficit would fall, but she has also said that under the Government’s plan the deficit will not fall. The OBR’s forecast is based on the Government’s plan, so does she agree with herself or not?

[Ms Eagle]

This is how we can get into difficulty with forecasts, which are static when they are made but apply to a dynamic situation. The hon. Gentleman knows, for example, that our debates in the House are, in part, about the effects on growth of a drastic fiscal consolidation. Our contention has always been that cutting too far too fast will suppress growth to such an extent that the deficit reductions that were hoped for will not come about. That is an essential part of the economic debate that, as far as I can see, we have been having since the Budget in June last year.

Forecasts can be affected by subsequent events and by Government policies. That demonstrates that what matters most is not forecasting for its own sake, but the judgment of the Chancellor of the Exchequer and the Government, and the extreme fiscal choices that they have made.

--- Later in debate ---

[Mr Mark Field (Cities of London and Westminster) (Con)]

Thank you, Mr Deputy Speaker, for calling me so early in the debate. As you know, I have to attend a constituency engagement for which, unbelievably, I am not well enough attired, for it is a black-tie dinner in the City of London. [Hon. Members: “Ah!”] I am supposed to be protected from that lot, Mr Deputy Speaker, so do your level best, please. I apologise that I shall not be here for all the winding-up speeches.

Listening in the House to Budgets and autumn statements over much of the past decade has been, at times, a somewhat surreal experience. Year after year the erstwhile Chancellor, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), rattled out cascading figures for growth and public deficit reduction. As the hon. Member for Wallasey (Ms Eagle) rightly pointed out, the growth figures proved, at least until the middle of the previous decade, to be uncannily accurate, even often defying so-called expert opinion. However, the deficit numbers were always hopelessly, devastatingly inaccurate.

Almost comically, although this can scarcely be regarded as a laughing matter, every single Budget between 2001 and 2007 forecast that the public finances would move back into surplus in about three or four years. As time wore on, the debt and annual deficit rose inexorably as the Treasury employed smoke and mirrors to conjure the illusion of fiscal stability.

[Matthew Hancock]

The hon. Member for Wallasey (Ms Eagle) cast aspersions on the ability of my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke), now the Justice Secretary, to forecast, saying that in 1996 he forecast more than 2.5% growth. Information has reached me that in 1997 growth was more than 3%, so it turns out that he was right. What does my hon. Friend make of that?

[Mr Field]

My hon. Friend makes an extremely good point. In the one case in which the hon. Member for Wallasey (Ms Eagle) tried to argue that there had somehow been untoward behaviour by the last Conservative Government, events have proven, if anything, that they surpassed what had been expected.

--- Later in debate ---

[Alec Shelbrooke]

As the hon. Lady suggests, previous forecasts and attempts at caution came from many different angles. The public will recognise that the OBR is giving us a proper set of figures that can be relied on. If the Chancellor of the Exchequer then ignores those figures and ploughs ahead, not only would the calls from the Opposition be deafening but the public would know that the Chancellor was acting against their interests.

[Matthew Hancock]

Does my hon. Friend know that in 1995 the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) called for a panel of independent forecasters to express their views on public finances? Does he agree that it is a great shame for the nation that the right hon. Gentleman did not act on that when in government, because it might have meant that there was restraint and, in turn, that he would not have left this country in such a terrible mess?

Banking

Matt Hancock Excerpts

Wednesday 9th February 2011 Commons Chamber

[Mr Osborne]

Unfortunately, if we sold those shares today, we would lose money as a country. Of course we want to return those banks to the private sector. That is clearly an objective of this Government, and I suspect that it will be an important issue in this Chamber during this Parliament. The hon. Gentleman makes a very good point: a huge sum of money was put in to bail out the banks and no conditions were attached. With all the things that I have talked about today and all the things that the shadow Chancellor asked about, such as pay and transparency, when the previous Government had the leverage, they did not use it. Unfortunately, we have to deal with that inheritance.

[Matthew Hancock (West Suffolk) (Con)]

Yesterday, before the Public Accounts Committee, Treasury civil servants explained that the previous Government had the opportunity to seek to put constraints on this year’s bonuses at the partly state-owned banks, but that they chose not to. Is the Chancellor disappointed by that?

[Mr Osborne]

I am not only disappointed by it; it has been a constraint in what we have been dealing with. It is very explicit—[Interruption.] The shadow Chancellor says this is rubbish, but that was the agreement that he and his colleagues signed up to. That is the problem on this issue, and I think that that is beginning to dawn on them. They have a past—they have a record. It is a record of letting the City get away with murder, and of the rest of us having to pick up the pieces.

Oral Answers to Questions

Matt Hancock Excerpts

Tuesday 8th February 2011 Commons Chamber

[Mr Hoban]

My hon. Friend makes an important point. Of course, under the old regime, there was no clawback when bonuses were paid out in cash, and no lock-up. The new code on remuneration introduced by the Financial Services Authority, which is ahead of international practice, has clear rules on deferral, requires that bonuses be clawed back for poor performance, and requires that bonuses for significantly highly paid members of staff—those who take risks—be paid out principally in shares, not in cash. That will ensure that the interests of bankers are aligned with those of shareholders.

[Matthew Hancock (West Suffolk) (Con)]

How much has the Minister been constrained in his dealings with the majority state-owned banks by the contracts on payments that were signed by the Labour party before the election?

[Mr Hoban]

My hon. Friend puts his finger on the problem. When the previous Government entered into arrangements to bail out RBS and Lloyds, they limited the period of their involvement in the bonus regime. That is why we had to take action this year and why we have engaged with banks through project Merlin to achieve restraint on bank bonuses. We will make an announcement in the next week.

Bank Bonuses

Matt Hancock Excerpts

Tuesday 11th January 2011 Commons Chamber

[Mr Osborne]

We have introduced a permanent bank levy. An argument was made at the general election by Labour Treasury Ministers and the Labour Prime Minister that we should not introduce a levy unilaterally, as it would make Britain uncompetitive. That argument was aired then, and we have now introduced a permanent bank levy. I do not know whether the Labour party supports it or not, but it will raise almost £10 million during this Parliament, and it applies each and every year, rather than being a one-off.

[Matthew Hancock (West Suffolk) (Con)]

Has the Chancellor noted that in The Guardian this morning, when given the opportunity to support the idea of continuing the bank payroll tax, the right hon. Member for Edinburgh South West (Mr Darling), whom I cannot see in the Chamber, refused to back the opportunistic policy of the Leader of the Opposition?

[Mr Osborne]

The former Chancellor has clearly made his views known, and I would suggest that he has more credibility on the subject than the shadow Chancellor.

Oral Answers to Questions

Matt Hancock Excerpts

Tuesday 21st December 2010 Commons Chamber

[Danny Alexander]

We are sticking to the winter fuel allowance. We announced that in the spending review, and we have not changed our position. In addition, we have made permanent the £25 a week level of the cold weather payment. The previous Government had planned to return it to £8.50 a week. Imagine what that would be doing now to the millions of families who are suffering in the cold.

[Matthew Hancock (West Suffolk) (Con)]

What assessment has the Chief Secretary made of the impact of the CSR on business confidence, and especially the ability to take on new people? For instance, the Dalton’s peanut factory in my constituency is taking on more people because of the confidence in the stability plans set out by the Government.

Banking Reform

Matt Hancock Excerpts

Monday 29th November 2010 Commons Chamber

[Mel Stride (Central Devon) (Con)]

I rise to speak against the motion, not least because of the argument made by my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) that implicit in the motion is the suggestion that the Government have done nothing to avert a future banking crisis. I also believe that the motion is too prescriptive at a time when these matters are being considered in detail, not least through the Sir John Vickers commission. This Government set up the commission and released its issues paper as recently as last September.

Huge complexity, tensions, conflicts and dangers are inherent in the development and implementation of policies that are designed to stabilise the banks. Many hon. Members have spoken about banks being too big to fail. It is true that if we have banks that are too big to fail, there is moral hazard in the actions of those who run them, because they always know that the taxpayer is there to back them up if necessary. In such situations, there is an element of unfair competition in that larger banks, backed by the taxpayer, can afford to take larger risks. However, we are also told by many in the industry that size is a function of competitive advantage and that being big is important in global markets.

Many hon. Members have rightly mentioned capital asset ratios. It is important that banks strengthen their balance sheets and that Basel III is implemented, yet there are inherent dangers even in that. PricewaterhouseCoopers has estimated that the implementation of Basel III in the UK will result in £600 billion put into increased capitalisation, which could in turn reduce growth by between 1 and 2%. I therefore welcome the fact that Basel III will not come into full effect until about nine years’ time.

[Matthew Hancock (West Suffolk) (Con)]

Does my hon. Friend think that it is inconsistent to argue both that the banks should lend more to small businesses and that the improvement in capital ratios should be speeded up, as we have heard from some hon. Members?

[Mel Stride]

That is precisely my point. If we speed up the rate at which the banks have to recapitalise, there is a real danger that we will choke off the supply of lending. There is an argument that lending is not just about supply, but about demand. Companies are not taking up many existing bank overdraft facilities, so it is conceivable that there is an issue with demand, as well as with supply.

We have heard a great deal about the importance of united global action. In an internationally competitive world, there is such a thing as regulatory arbitrage. If one jurisdiction adopts a particularly light approach to regulation, vast sums of money can flow in that direction. However, as the Chancellor of the Exchequer has pointed out, our country needs to retain flexibility to reflect the particular conditions in our banking markets.

I agree with many of the comments on the importance of transparency in corporate pay, and in particular bonuses. I accept that because banks can ultimately turn to the state and the taxpayer for support, we have a right to take an interest in that matter and to see that fair dealing prevails. However, I concur with Sir David Walker’s recommendation that we should act in a united way globally so that we do not disadvantage countries that might move on their own.

We have heard very little about taxation on banks. I congratulate the Government on being the first to introduce a permanent tax on banks. However, the arguments about taking out capital that banks might otherwise lend also pertain to that measure. We want the banks to lend more, but the picture is not clear as to why they are not lending, as I alluded to in response to my hon. Friend the Member for West Suffolk (Matthew Hancock). It may not be just a lack of supply owing to recapitalisation and a greater aversion to risk among the banks, but to do with a lack of demand among companies, many of which are focusing on paying down debt, rather than taking on more.

My hon. Friend the Member for Orpington (Joseph Johnson) and the hon. Member for Bassetlaw (John Mann) mentioned competition. This country has a highly concentrated banking sector and it became more concentrated after the financial crisis, when some foreign lenders withdrew and some banks amalgamated. Lloyds and RBS make up 50% of lending to the retail, mortgage and small and medium-sized enterprises sectors. That is a huge degree of concentration. There are high barriers to entry to banking, not least the very regulation that we are discussing. Over the past century, the only new high street bank, disregarding demutualisations, has been Metro Bank, which was created last year. On the other hand, Australia and Canada have highly concentrated banking sectors and seem to have been spared the worst of the financial crisis.

I welcome the Government’s approach to Basel III and their setting up of the Financial Policy Committee, along with its oversight role in relation to the Bank of England and the Financial Services Authority. I particularly welcome the setting up of the Independent Commission on Banking under Sir John Vickers, which has been welcomed broadly by business, including in a recent speech by Richard Lambert, the director general of the CBI. I welcome some of the approaches that the Government are taking to encourage equity finance to increase above the current level of 1 or 2%.

I fear that stalking the perimeters of the debate on the Government side and perhaps at the heart of the debate on the Opposition side is the idea of bashing bankers and of revenge. The hon. Member for Streatham (Mr Umunna), who I think is no longer in the Chamber, denied that that was what he said. However, when he was speaking, I jotted down his reference to bankers being “to blame”. That is the kind of populism that we must get away from; emotionalism must not triumph over the rational when we consider such issues.

This is a highly important sector in which we have a world-leading position and we must retain that. Protectionism, trade imbalances and exchange rates are threats, but I argue that we must not lose momentum on banking reform, particularly in countries that have not been as swept up in the crisis as we have, for what has bitten us may yet come round to bite them.

--- Later in debate ---

[Matthew Hancock (West Suffolk) (Con)]

I want to speak briefly at the end of what has been a very interesting and informative debate, which I commend the Backbench Business Committee on securing.

I welcome some of the measures that the Government have already taken, so in the light of this debate, I hope that the motion, which states that the Government have taken no action, will not be pressed to a vote. Many Members have accepted that the measures on tax, including a permanent tax on banks, the Vickers review into banking structures, the international push for transparency and the action taken to bring banks together to work on bonuses show that a strong work programme is in place already.

[Mr Meacher]

I do not want to take up time, because I have a couple of minutes at the end of the debate, but the hon. Gentleman picks up on a point I was going to raise. I did not say that no action has been taken. My motion states that

“no action has so far been taken which would prevent a recurrence of the financial crash”.

That is a very different proposition.

[Matthew Hancock]

I thank the right hon. Gentleman for that intervention, because it brings me precisely to the final thing that the Government have already proposed, and which I think is central to preventing a recurrence of the financial crash: the decision to move the powers for prudential regulation to the Bank of England and to strengthen those powers.

Having quickly welcomed the action already taken, I want to concentrate on prudential regulation. The removal of powers of prudential regulation in 1997 was central to many of the things that Members on both sides of the House have talked about. The hon. Member for Islwyn (Chris Evans), who is not in his place, spoke passionately about how his managers were telling him to lend more no matter what the customer needed. That was part of the rapid expansion of banks’ balance sheets, because there was no prudential regulation at the top of the size of those balance sheets. We also heard, from Government Members, about the rapid, uncontrolled run-up in balance sheets.

The idea of prudential regulation and having an institution exercising judgment, instead of just lots more rules-based regulation, has come of age. After all, the system before 1997, although imperfect, had prevented a run on any bank in the UK for 140 years, so it deserves some credit, and it deserves studying. So why would more discretion and judgment based in strong institutions work better than more rules? There are three key reasons. The first, as we have heard in many contributions, is that although rules can be set down in statute, statute can take a long time to change, whereas bankers can change and adapt very quickly. We have heard a lot this evening about regulatory arbitrage—another example of how financial institutions will change quickly to make the most out of whatever rules have been put in place on the ground. But the system cannot then adapt quickly.

Secondly and crucially, the system cannot adapt to innovations. We have seen massive financial innovation, especially with the development of computers over the past 30 years. However, to blame that innovation itself for the mess we are in ignores the fact that it was the lack of regulations—as my hon. Friend the Member for Warrington South (David Mowat) pointed out so eloquently, regulation is crucial to a functioning market economy—around these new developments and the attempt to regulate through explicit and specific rules, rather than the exercise of judgment, that was the problem.

[Stephen Barclay]

Is not one issue that mitigates the need for specific rules the regulator’s 11 principles, which act a bit like the 10 commandments? For example: “Principle 1: you must act with integrity. Principle 11: you must be open with the regulator. Principle 3: you must have adequate risk management.” It is inconceivable, given that those rules have legal force, that some of those catch-all principles could not be used in enforcement.

[Matthew Hancock]

They were not used, and that is the problem. A massive, heavy and expanding rulebook distracted the attention of regulators away from the big picture.

My third point about why discretion rather than rules is the best way for the future concerns the importance of the macro-economy, because we cannot separate monetary policy from banking policy. The size of banks’ balance sheets is crucial to regulating the supply of money in the economy. Having counter-cyclical rules rather than pro-cyclical capital rules, as we had under Basel II, is crucial. The exercise of judgment over a bank’s balance sheet is best done in the same place as the exercise of judgment over the macro-economy. Bringing those two things back together in one institution—the Bank of England—is a better long-term way of trying to wrestle with such difficult judgments than having them in separate organisations, which, as we heard in an earlier, eloquent speech, ended with the tripartite system, in which nobody was in charge.

[David Rutley (Macclesfield) (Con)]

I do not know whether my hon. Friend is aware of this, but last week the deputy Governor of the Bank of England appeared before the Treasury Committee and said that he felt that the new twin peaks approach would be a much better model. He felt that the advantage was that it would remove the problems of underlap that were so obvious in the previous system. Whereas there might be some overlap under the current proposal, that has to be much preferable to the previous arrangements.

[Matthew Hancock]

That is a valid and important point. Central to that point is the judgment of people who look forward and have a broad view, looking after the health not only of the banking system, but of the macro-economy, while also having the ability to change the way they regulate according to changes in the economy, so as to take into account new developments, which is critical. Far from being the simple renaming of the institutions, bringing together macro-prudential regulation with regulation of the economy and monetary policy more broadly is central to restoring the ability to prevent the build-up of credit, as happened over the past 15 years.

[Andrew Bridgen]

Does my hon. Friend agree that it is better to have a regulator who is fleet of foot than a clunking fist?

--- Later in debate ---

[Matthew Hancock]

In my experience it is always better to be anything than a clunking fist.

I will end by saying this. We do not know what the future holds. We know that regulation is not perfect. It is therefore far better to have one person and an institution in charge of the regulatory structure who can exercise judgment to the best of their ability than it is to try to write a rulebook for a perfect system that we know we will never create. That is why I think that the Government have already put forward such a critical change to our financial architecture—a change that I hope will be accepted by the Opposition and which will form the basis of the good economic governance of our country for years to come.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

I call Mr Morris. Are you going to be very brief?

--- Later in debate ---

[Chris Leslie]

It is difficult for the hon. Gentleman to criticise the previous Government, when they put the statute in place ready to be triggered by the present Government. It is baffling to my constituents and to his that we cannot allow them to see the simple figure of how many multi-millionaire bankers there are. I am not suggesting that we reveal their names, just the number involved.

[Matthew Hancock]

rose—

[Chris Leslie]

I am hoping that the hon. Gentleman is going to concede that that needs to happen.

[Matthew Hancock]

The hon. Gentleman is making an argument for rejecting the Walker review. I was not in the House during the last Parliament. Could he just tell us who commissioned the Walker review?

[Chris Leslie]

I am not making an argument for rejecting the Walker review. It recommended the disclosure of the numbers, but it is true that Walker has since changed his tune. The reliance on what he calls “regulatory arbitrage”, and the suggestion that if we were to make that change here in the UK alone, we would suddenly see an exodus of the banking community, are absolutely fallacious arguments. We have a responsibility to show a lead, and surely the Government should be able to do that. It would be invidious if that were not the case.

In the short time available to me, I also want to walk through some of the other proposed changes that hon. Members mentioned. They raised issues about proprietary trading, and there are even more Government Members who are in favour of the Glass-Steagall split between investment and retail banking. There has been an interesting consensus on that. That might not necessarily be the right thing to do, but it is certainly worth consideration by the Vickers commission.

The structure of the sector has also been mentioned, as has the question of whether we need to revisit the issue of competition. My hon. Friend the Member for Edinburgh East (Sheila Gilmore) asked how we could remove some of the constraints on mutuals and credit unions, and on others entering the sector, given that the barriers to new entrants are too high. Indeed, I note the very thoughtful speech from the hon. Member for South Northamptonshire (Andrea Leadsom), who mentioned a number of interesting ideas about how reforms might take place. I was quite taken by her suggestion about consumers’ current account numbers being portable. Other interesting suggestions were also made.

Basel III and the question of cushions and reserves are clearly important for guarding against failure and reducing taxpayer liability, but do we need to pay similar attention to liquidity, as the hon. Member for Bromsgrove (Sajid Javid) and my hon. Friend the Member for Wirral South (Alison McGovern) suggested? Should certain institutions have greater cushions and reserves than others? Perhaps that is the subject for a more sophisticated debate at another time.

Other components have to be addressed as well, including the financial capability of consumers and consumer responsibility. Yes, consumers have a right to know more about the products and companies involved, but perhaps it is also important to have a debate about the responsibilities of consumers. That needs to be acknowledged. We need to revisit the question of fairness for the taxpayer, and for public service users, indirectly, as well. Unfortunately, we have heard too much back-pedalling on the banking levy and on the role that the banks need to play in repairing the public balance sheet—[Interruption.] The Minister suggests that he is not back-pedalling, but from what we read—albeit in the newspapers—it sounds as though the Government might reduce the percentages that they want to implement, as announced in the Budget, if they are going to stay within the proposed 0.04% in year one and 0.07% thereafter. I would be more than happy to give way to the Minister on that specific point if he wants to clarify that position once and for all. But perhaps he will keep that for another day. He has also been back-pedalling on net lending targets of the business, although that was in the coalition agreement.

It is important that we have these debates. They show that there is a thirst for democratic accountability on financial services policy. Perhaps one of the lessons that we learn is that simply delegating many of these issues to European institutions or to the regulators is inadequate. There is a democratic deficit, and Parliament has a role to play. Hon. Members who try to find out information on Financial Services Authority reforms and regulations sometimes struggle to get the necessary documentation from the Vote Office, which is not good enough. We need to recognise our role as legislators, because our constituents are watching how we behave. They are watching how we set policy, and they expect us to do that. We should not be blown around entirely by the regulators, by Europe and by the markets. Politicians need to lead, and Ministers need to show greater leadership, and I hope that the Government will do that.