My Lords, in Committee I promised the House that I would table amendments to debate the question of whether we should have separation rather than the present system. The arrangements under the Bill show that it may not work very well.
The speakers we had on the first day in Committee went to the heart of the issue. The noble Lord, Lord Turnbull, a distinguished former head of the Civil Service, told us that the amendment he moved dealt with the whole issue. In practice, I hope that my
amendment deals with what I said it would deal with. However, given the problems with drafting amendments to this complex Bill, I had to use the services of a very excellent person in the Public Bill Office, Simon Blackburn. Between us we drafted the amendments, which I hope work. If they do not, and the House agrees, no doubt the Minister will be able to amend the amendments to make sure that they do what I want them to do—that is, reconstruction, not ring-fencing.
The noble Lord, Lord Turnbull, told us at col. 18 —and of course he knows about these things—that the Government’s response to the problem here, and what they plan to do, is to “change banking for good”. Of course, if that could be done, it would be marvellous. However, the plain fact is, as the noble Lord, Lord Turnbull, pointed out, that the reality is somewhat different. The Government have, of course, embraced some recommendations, but the provisions in the Bill make sure that they are heavily diluted. Speaking as a senior official, the noble Lord knows about dilution. Certainly, if you look through the Bill, there are all kinds of dilutions and provisions that make a nonsense of the original recommendation. However, with this complex new Bill it is good to have a former distinguished leader of officials tell us what it will and will not do.
The noble Lord went on to speak about the vigorous debate the parliamentary commission had on Glass-Steagall, which is the US separation of banking. He said that eventually they came down against it because the United States had abandoned it. He was followed by my noble friend Lord Eatwell, who spoke of the importance of reviews. He said that what is being proposed here is,
“a leap in the dark and we have no idea whether it will work”.
As it is, it is a “novel innovation” and we,
“cannot be sure whether it will … have … unintended consequences”.—[Official Report, 8/10/13; col. 20.]
I do not know what kind of unintended consequences those might be, but clearly all kinds of consequences could arise from not dealing with the real issue here.
We therefore have my new amendments, which I hope that the House will eventually approve. However, we are a long way at the moment from achieving what we all want to see. We started with a Bill of 37 pages; the noble Lord, Lord Deighton, paid a well deserved tribute to his staff, who had converted 37 pages to 170 pages—virtually a new Bill. By the time we finish it is likely to be more than 200 pages long, as he knows from his own amendments that have been tabled. I certainly share his approbation of his officials, who have done an incredible job in the most difficult of circumstances. I have never known a Bill of this kind before in either House of Parliament. However, I assume that the House of Commons, which gave us this 37-page Bill, will now have to have a Second Reading on a new Bill, because it will not be able to cope with it as it is.
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Indeed, we know that the Bill will eventually be guillotined in the Commons, as all Bills are under all Governments. That is why, when they get here, the Bills have not been properly examined. My own experience tells me that, and I do not think anything has changed.
In those days—30 or 40 years ago—the House of Lords did not take much interest in financial matters. Fortunately, it now does and it does a very good job in Select Committees and on the Floor of the House considering Bills that have been ill considered in the other place.
The noble Lord, Lord Deighton, in his reply to that debate, said that his main concern on the amendments of the noble Lord, Lord Turnbull, was that,
“even if the bank’s lobbying efforts did not succeed in blocking a requirement to restructure, they could serve to delay it and slow down the process”.—[Official Report, 8 October 2013; col. 26.]
His answer to this was to give in to the lobbyists and say that we therefore have to have what we now have before us. The lobbyists do not need to lobby anymore; they have all done their job in advance. It really is a remarkable statement by the Minister.
The noble Lord, Lord Lawson, also made an excellent speech in that debate. Nobody could deny—whether we agree or disagree with him, and I have had my share of disagreements with the noble Lord in my time—that he must be second to none in the breadth, depth and length of his service and experience in this House. I pay that tribute to the noble Lord, Lord Lawson, even though, as I said, I have disagreed with him often in the past and will disagree with him again today.
The noble Lord, Lord Turnbull, pointed out that the Minister’s remarks simply did not stack up—or was that said by the noble Lord, Lord Lawson? I think it may have been. He went on to say that he agreed with the noble Lord, Lord Eatwell, and called the Vickers recommendations a wheeze. This is the description of the noble Lord, Lord Lawson, of ring-fencing: “a wheeze”. Nevertheless, he said that he wanted to give Vickers a chance. If anyone was going to compromise on anything, I would not have thought it would be the noble Lord, Lord Lawson, given my experience of him; but he did. He compromised and said that he would give them a chance. I strongly disagree with that.
My noble friend Lord McFall, on the other hand, who has nine to 10 years’ experience as chairman of the Treasury Select Committee in another place, told us that he recalled evidence given to the banking standards commission by Paul Volcker. He said:
“I cannot really understand what the situation will be if you are the holding company which has authority over the ring-fence”.
I think we could certainly understand that they would not want to see it separated. It is undoubtedly what they will do, as they have done before. We could be facing another crisis.
Despite all these and many other concerns about what we are being asked to accept, what we now have is the scrapping of the FSA, and a new regulator, the FCA. We understand that it is a new regulator, but there was a request under the Freedom of Information Act which found out the proportion of staff in the FCA who came from the FSA. The answer was 95%. The proportion of senior staff was 95% as well. In other words, the FCA—the great new regulator—is really the much-maligned FSA, which will now call itself the FCA. Did the relevant officials receive redundancy pay costing the taxpayer millions on the
day that they were appointed to the FCA, thereby avoiding further criticism by transferring to a new body? We are being asked to accept something remarkable here. The average pay of personnel in the FSA was £75,000 a year. What is it now for the same people in the FCA under the new remuneration code? Have they had a rise for performing as well as they did under the FSA?
Graham Senior-Milne stated on 15 July, in an annotation to the information about the new staff at the FCA:
“The response basically confirms that the FSA has simply changed its name in order to avoid having to take responsibility for its own past failures. Same staff, same attitude—except that now they know that they will never be held to account”.
It is remarkable that the new body which we have set up comprises the same people as the old body. There is nothing new about it at all, but we are being asked to accept it.
In addition, we have a relatively young new Governor of the Bank of England. However, speaking from my own standpoint, everybody is relatively young nowadays. He now has responsibility for all these matters. The noble Lord’s officials have done a marvellous job setting out in the helpful Explanatory Notes the major new system we are being asked to accept. Paragraph 10 of the Explanatory Notes is very interesting as it provides a new meaning of the word “separate”. “Separate” does not mean separate; it means ring-fencing. I do not know whether the meaning of “separation” has changed in the dictionary but I believe that “separation” means separation, not ring-fencing, but that is what we are told here. Paragraph 10 states:
“The Bill contains provision to separate the banking activities on which households and small and medium-sized enterprises depend (in the Bill “core activities”) from wholesale or investment banking activities which may involve a greater degree of risk and expose an entity undertaking them to financial problems arising elsewhere in the global financial system. This separation is referred to in these notes as ‘ring-fencing’”.
I assume the officials wrote that on behalf of the Minister. They did a great job. I do not know whether he feels he would have done better if he had had 10 new political appointees as aides, as has apparently been suggested somewhere. I would welcome his views on that idea, which I understand has come from the Cabinet Office.
The Explanatory Notes contain one dilution after another of the powers of the Treasury and the Bank of England under the new arrangements. Frankly, we now have an incredible situation. Despite that, it may eventually work, but we will not know that for donkey’s years. There will be reviews in five years’ time and more reviews before we even have a chance to know whether the ring-fencing in the Bill will work and save us from what the noble Lord, Lord Lawson, called a meltdown. I certainly hope it will, but we do not know. It is, as my noble friend said, a leap in the dark. Is that what we should be doing? Should we be experimenting at this stage, when we have had a major crisis caused by the self-same bankers who are now in charge?
The fact is that we are now going to have what has been called a new arrangement. As to the later paragraphs of the Bill, we are told by others that the professionals do not think that the new system will work. We have heard that a firm of private consultants called Kinetic
Partners surveyed 300 people, of whom 35 thought that it would work; the rest did not—and they are the people who know what it is all about.
I apologise for going on a bit but the fact is that this is a major part of the Bill. We now have a chance to do what has not been done before. I hope that the Minister will not consider the drafting errors in the amendment to be a major problem because I am sure that he knows he can get them altered by his officials. The situation may now have changed. The noble Lord, Lord Forsyth of Drumlean, who spent seven or nine years as an investment banker, told us that,
“bankers are extremely adept at getting between the wallpaper and the wall. If they can find a way to get around something, they will”.—[Official Report, 8/10/13; col. 30.]
We have seen that succeed. The financial crisis has been too big for us now to experiment. Now is the time for action, otherwise the lobbyists will have won yet again. As the noble Lord, Lord Lawson, said, Glass-Steagall—the separation regime in the United States—did not fail but succeeded for more than 60 years. It failed when the lobbyists in the banks eventually won. However, if we managed to introduce a UK form of Glass-Steagall, strengthened to prevent lobbyists succeeding, we will have achieved something that has never been achieved before. We cannot wait for another big financial crisis. We must do it now. I beg to move.