Banking (Responsibility and Reform)

Stephen Williams Excerpts

Tuesday 7th February 2012 Commons Chamber

[Stephen Williams (Bristol West) (LD)]

I thank the hon. Gentleman for giving way and for remembering accurately that my right hon. Friend the Member for Twickenham (Vince Cable) warned repeatedly, in the run-up to the crash, that we were heading for a crash. Does the hon. Gentleman recall—I am sure that he did not do this—that many Labour Members used to jeer my right hon. Friend, saying that he was indeed a doom-monger and that he was wrong?

[Mr Bailey]

I acknowledge that, shall we say, continued repetition on that theme earned the right hon. Gentleman a certain notoriety among Government Back Benchers of the time. Most people would look back and say, “Yes, there was some truth in what he said,” but they would also say, “Let’s see if he lives up to what he said.” That is what my Committee and I will seek to find out.

The situation is profoundly worrying and contravenes the sense of fairness in this country. To most people in the street, there is something perverse about a system that punishes people on low and medium incomes for something for which they were not responsible, yet those who were responsible are rewarded. Even worse, that sense of injustice is compounded when the taxes of people on low and medium incomes finance that reward. It not only offends a deep sense of fairness but, it could be argued, it is socially and economically dysfunctional. That is the context of the debate.

--- Later in debate ---

[Stephen Williams (Bristol West) (LD)]

Here we are again in another Opposition-day debate centred on the economy, banks and bonuses. The handwritten notes I prepared earlier this afternoon read, “And yet again we hear no contrition from the Labour Front Bench.” However, as this is a debate and we have to respond to it, I will at least acknowledge that there was some contrition from the hon. Member for Streatham (Mr Umunna). I guess it must be easier for him, and indeed for his Front-Bench colleagues, who were all elected in 2010, to wash their hands of the last Labour Government’s decisions and offer at least some apology for what their predecessors did in office. However, it would be good to hear a collective apology from the Opposition, including those Members who were here in the previous Parliament, for the ineffective regulation and supervision of the banking industry, which was a major factor in the collapse of the banks and the economic failure and contraction that happened four years ago.

[Chris Williamson]

On the point about contrition, will the hon. Gentleman not also call on Government Front Benchers to apologise for calling for less regulation prior to the banking crash in 2008? While on the subject, what about having some contrition from him about tuition fees?

[Stephen Williams]

I am responsible for my party’s statements and, indeed, my party’s mistakes in certain instances but, as I said in my intervention on the hon. Member for West Bromwich West (Mr Bailey), in the previous Parliament, my right hon. Friend the Member for Twickenham (Vince Cable) warned consistently about the coming economic catastrophe. The hon. Gentleman was not here at the time, but I think that he would have been ashamed to hear the jeering and cat-calling that my right hon. Friend had to put up with at the time.

It was the culture, not just the lax regulation, that led to some of the problems we have experienced in recent years. During the last decade of the Labour Government, executive pay rose on average by 13.6% per annum, while the FTSE share index rose by just 1.7% a year. In 2002-03, the bankers bonus pool, which is at the centre of the motion, totalled £3.3 billion. In 2006-07, the year before the crash and everything starting to go wrong, the pool was £11.4 billion. In the year of the crash itself, when all the bankers were staring into the abyss, the pool was £11.5 billion. I do not recall any Minister at the time being worried about the size of the bonus pool or the distorting effect it must have had on executive behaviour.

[Mr Holloway]

I do not know whether the hon. Gentleman finds this attitude terrifying, but I do, and it is on both sides of the House. We can blame the bankers all we like, but the truth about the problems across the developed world and the reason we are in schtuck is that successive Governments have not been able not to give in to demands to spend more money. In a global economy savvy investors and taxpayers—the best people—run off when they see a lynch mob. This is crazy.

[Stephen Williams]

My hon. Friend makes an interesting philosophical point about the whole culture that we have perhaps all grown up in over the past 30 years. It would require more than an eight-minute speech in a three-hour debate to deal seriously with those issues, but I am trying to raise some of them. For instance, when considering how to respond to the outbreak of collective madness on the streets of some of our cities last summer, we should recognise that some of what he says is relevant to the feelings of dislocation and despair that some people felt, but it was also about out-of-control remuneration, lax regulation and complacent political oversight. Opposition Members do not like me saying this, but I say it every time and will say it again: a previous Labour Business Secretary, Peter Mandelson, said that new Labour was intensely relaxed about people getting filthy rich. Because of that, we saw the dislocation of director and shareholder interest.

[Mr Umunna]

Will the hon. Gentleman give way?

[Stephen Williams]

No, because I have given way twice and I have a time limit, and the hon. Gentleman took rather a long time making his opening speech.

All of this happened under the previous Government, and the coalition Government are now having to clear up the mess. We have heard once again that all that is needed is the magic wand of the bankers bonus tax but, as my hon. Friend the Minister has pointed out, in every year of this Parliament, under the coalition Government, more money will be raised—£2.6 billion—from the permanent levy on the banks’ balance sheets. It is the behaviour of the banks, and their boards in particular, that needs to change, rather than necessarily the pay and remuneration of their employees, which I remind the House is now taxed at a higher rate than it was when Labour was in government.

The behaviour in the boardroom needs to change, especially in the remuneration committees. As I understand it, the Walker report, which is mentioned in the Opposition’s motion, simply recommended that remuneration of bank employees over £1 million should be disclosed in broad pay bands, which is hardly revolutionary.

The Merlin agreement, an interim measure while we await the implementation of more wide-ranging banking reforms, now states that a bank’s five highest-paid executives, as well as its chief executive and chairman, have to disclose their remuneration, so at least seven people each year now have to do so. That is the highest number in any global financial centre and more than in the United States, and, as the Minister pointed out, bonuses at the banks that are under effective state control, such as Lloyd’s Banking Group and the Royal Bank of Scotland, are limited to £2,000 in cash, with anything beyond that having to be offered on a deferred basis in shares.

My right hon. Friend the Business Secretary has responded to the High Pay Commission with a series of measures that were announced a couple of weeks ago, and central to those is changing the behaviour and composition of the remuneration committees, so that on the forward pay agreements that they recommend for approval they have binding votes: not the advisory votes that were in place under the Labour Government, but binding votes, so that shareholders really are empowered to make a difference and to instruct directors, who are supposed to have stewardship of their investments in those companies.

That will end the revolving door, whereby executives of one company become non-executives and sit on the remuneration committees of another, and whereby inevitably it is in everybody’s interests constantly to bid up pay in each quoted company. Indeed, they will also have to state how they have involved and consulted employees of what, in many cases, are global companies.

Labour, in its manifesto at the most recent general election, said—I had someone check this for me before the debate—that it would

“strengthen the 2006 Companies Act where necessary”.

I remember that legislation, which, along with the Crossrail Bill, was probably the least popular Standing Committee on which a Member could sit, because it was such a fat Bill and its proceedings went on for so long, but there was nothing in it proposing the regulation of corporate pay. Throughout the previous Government’s 13 years in office, they did little to act on that issue, and despite the huge legislative opportunity that they had in 2006 they did not seek to strengthen shareholder power.

The manifesto went on to state that Labour would strengthen the UK stewardship code for institutional investors so that they would have to declare how they vote on remuneration policies, which in turn should be approved by directors. It was silent on the interests of employees, and the shadow Business Secretary did not say much about that this afternoon, either. He certainly did not commit to having an employee on the board of every company.

It is the behaviour of the banks, not just their remuneration policy, that needs to change. One of the first acts of the coalition Government was to set up the Independent Commission on Banking. We have now had the Vickers report, but in our proceedings on the Financial Services Bill, which received its Second Reading last night, we went through all those issues, so I shall not go through them again today.

We also need a change of behaviour at company annual general meetings, whereby shareholders really engage with the power that they have over their companies. Recently I met the charitable group FairPensions, which is urging institutional investors, the pension fund managers who act on behalf of many of us, our constituents and local authorities, to use their power at company meetings in order to control executive pay and to act as responsible investors.

Some hon. Members may have noticed that I tabled early-day motion 2678 last week, supporting the Move Your Money UK campaign. Mr Speaker, you and I are of roughly the same political generation—although from different points on the spectrum. We would first have become involved in politics during the 1980s. So we would have been students at the time of the Boycott Barclays campaign, and indeed I had a Boycott Barclays poster up on my bedroom wall as a student. I suspect that you did not, Mr Speaker, but people of my generation will remember that the behaviour of consumers can make a real difference to the behaviour of companies, so I urge all hon. Members—I hope this is a cross-party issue—to support my early-day motion and to urge all our constituents as consumers to consider the behaviour of companies when they use their purchasing power as well as when they exercise their power as shareholders.

There has been systemic failure for quite some time, as the Opposition Front Bencher at least acknowledged. There was reckless behaviour by Mr Goodwin, but there was reckless behaviour also in the Cabinet room by the last Labour Government. The coalition Government are clearing up the mess. We are putting in place regulations and legislation to control pay policy, to introduce transparency into the implementation of that policy and to regulate the banks so that we have a sustainable financial services sector and sustainable banks, which are so essential to supporting the businesses that are required to grow our economy.