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Queen’s Speech

My Lords, I, too, welcome the Government’s Financial Services Bill. I welcome it for three reasons. First, we have learnt that, if the financial sector is not working properly, the rest of the economy suffers. Secondly, the current system just does not stand up to public scrutiny. Thirdly, the Bill again demonstrates that it is from a Labour Government—I repeat, a Labour Government—that you get progressive policies. My concern is that it does not go far enough. Like many others, I used to think that there was a clear separation between the financial economy and the real economy. Recent experience has clearly demonstrated that that is no longer true. When Christine Lagarde, the French Finance Minister, came to London for the G20, she said that, ""you cannot kick-start the economy if you do not fix the financial sector"." That blunt and forthright sentiment was worthy of my noble friend Lord Sugar. But she was right; we have to fix it. Some accuse the Government of being populist by putting this Bill in the gracious Speech. It is not being populist. It deals with a public concern, which is whether the present system of doing business in the financial sector is fit for purpose. For the past year and a half, the sector has been held up to public scrutiny and it has obviously failed. It is a fact of political life that, if something does not stand up to public scrutiny, it has to change. Look no further than the expenses of parliamentarians. The evidence of this public concern is everywhere. The financial market is perceived as a place for speculation rather than allocation. Some, like the noble Lord, Lord Bilimoria, are bringing into question the balance of the economy. The ownerless corporation and its impact on jobs and services is a matter of interest and public concern. Responding to that concern is not jumping on a political bandwagon; it is delivering change that the public want and need. That change is not only in the way in which the financial system handles money, but also in its sense of purpose. High bonuses and salaries have been discredited. That is not the politics of envy; it is the politics of what is reasonable to sustain our industrial and commercial base. Another reason for supporting this Bill is that it is progressive. Like many noble Lords on these Benches, I was brought into the Labour Party through a commitment to progressive politics. Therefore, I was both interested and surprised when recently someone sent me a speech about progressive politics delivered by the Leader of the Opposition. I hope that noble Lords opposite will explain to their leader that it is not big government that squeezes out human kindness, generosity and imagination. As my noble friend Lord Mandelson reminded us, it is inequality and lack of opportunity. Progressive politics means the state acting to allow individuals to realise their potential, to reduce inequality and to regulate a market economy so that it helps us to grow together, not apart. That is what the Bill does. It is progressive in the moral sense and it builds the confidence that the noble Lord, Lord Hunt, spoke about. That is why I support it. My concern about the Bill is that it does not go far enough to rebuild trust between our financial institutions and society. The Prime Minister has spoken about the breakdown of the implicit contract between our financial institutions and the society that they serve. I am afraid that it is going to take a lot more than this Bill to rebuild that contract. Surely the financial institutions themselves must be anxious to rebuild it because, after all, how can you do business with a public who do not trust you? This breakdown of trust has been fuelled not only by a cavalier attitude towards risk with our money but by a suspicion of the closed and opaque way in which financial markets work. We are learning how bankers and brokers provide each other with market colour so that they can benefit at the cost of the rest of us. Some financial institutions use special information to bet on shares—betting, an activity that has nothing to do with supporting business or industry. Off-balance-sheet accounting, off-exchange trading in so-called "dark pools"—all of this destroys trust and creates anger. If taxes are raised and when we do feel the effect of cuts in public services, the banks will be blamed by a yet more angry public. With all this going on, rebuilding trust is a heavy task. Yes, Sir David Walker, who is reporting tomorrow, should provide the transparency called for by the noble Lord, Lord Wakeham. Yes, the Bill gives more power to the FSA to fine or suspend banks, companies or individuals who break the rules. Yes, there will be a Council for Financial Stability. But most of this is after the event and only if you get found out. Reform has to go further, which is why it makes a lot of sense to have two kinds of bank. We should have service banks—or retail banks, as the noble Lord, Lord Razzall, put it—so that the public can learn to trust more easily, and investment banks. If we cannot split the banks, perhaps we can at least insist on Chinese walls with different licences for different banking activities. The other area where I wish the Minister would go further is with a transaction tax. I know that the IMF is studying this, but the justification for it is not difficult. The worrying fact for me is that the volume of financial transactions in the global economy is 73.5 times the global GDP. I am aware of the arguments for liquid markets, but do we really need £73.50 traded for every £1 of goods and services that are actually produced? Twenty years ago it was 15 times global GDP, and I thought that that was unnecessarily high. Is this not yet another example of dangerous leverage? Is it not yet another bubble waiting to burst? A tax would help to deflate it and maybe even dampen speculation. Would it harm long-term investment or lead to a mass exodus from the City of London and a so-called race to the bottom? The answer is no. I hope that, as part of their progressive policy agenda and risk reduction, the Government will be more supportive of a transaction levy. A crisis brings both danger and opportunity. Hopefully, this is the best crisis that we will have for some time. The Government are right to give this priority and I hope that we shall be able to deal with it in the short parliamentary time available. But in the name of progressive politics, I say this to the Minister: please go further.