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Queen’s Speech

My Lords, I hope that the promise of further financial regulation will prove effective. This would be welcome in view of the continuing public anger over the role of the banks in causing the economic recession that is still afflicting the UK economy. The justified outrage is exacerbated by the bankers’ failure to apologise for the havoc they have wreaked, for the absurdly high levels of remuneration they persist in paying themselves while enjoying hefty subsidies from the taxpayer, and for having the nerve to claim that they are "doing God’s work". All this is happening at a time when in the UK the gap between the poor and the rich continues to widen, unemployment is rising and wages are being frozen for the second year running. This creates a threat to social cohesion. As recently as last Friday, Dr Gillian Tett in her regular column in the Financial Times indicated the factors that provoke much more public anger and an even greater backlash against the bankers. The problem is worse than it appears and is much more profound. The issue, no less, is the deep fault that has arisen between polity and economy in the United Kingdom. That is grievous and highly dysfunctional and needs to be urgently addressed. Between the two world wars of the last century the problem of the relations between state and the economy and the consequences for public accountability were much better perceived than they are today. In the 1920s, the Webbs proposed a bicameral Parliament, consisting of a political chamber and a social chamber, whereby the latter would deal specifically with economic and welfare matters. Ten years later, Winston Churchill, in his Romanes lecture at Oxford, plagiarised the Webbs with a diluted version of their scheme, advocating the creation of a corporatist industrial sub-parliament to advise on economic policy. Nothing, of course, came of these ideas because they were impractical and not properly worked out, but that is not the point. The point is that these authors were seized of the potential problems inherent in the tension between government and business. However, the dilemma disappeared from public discourse until it re-emerged in General Eisenhower’s valedictory speech as President of the United States, when he warned of the dangers of the coming "military-industrial conflicts". But, as the current recession has revealed, it is by no means confined to defence: the banks have proven themselves to be just as capable of distorting the public agenda to their own ends, as, indeed, have other institutions in the financial sector. In the past decade and a half, there has been a growing realisation that business had to be regulated and not left to the unfettered workings of the market. While, on the one hand, privatisation continued apace under succeeding Governments, there was, on the other, a corresponding nurturing of the notion of corporate governance. We witnessed successive reports on aspects of the subject: Cadbury in 1992; Greenbury in 1995; Hampel in 1998; Turnbull in 1999; a Myners report, no less, in 2001; two in 2003, Higgs and Smith; with a final report from Sir David Walker expected tomorrow. That, too, risks being sidelined. The upshot has been a lot of huffing and puffing that has done little to improve things. It has been said of the parliamentary expenses scandal that MPs "just don’t get it". In fact, they do rather more than the bankers. Collectively, UK bankers, along with their counterparts in the US and elsewhere in Europe, have wriggled and screamed to fend off any new regulation. They are never proactive in suggesting how they might reform themselves; they just want a return to the status quo. Ms Angela Knight, the former Tory MP, as spokesperson for the British Bankers’ Association, has laboured indefatigably to defend the indefensible and lobbied hard to leave the banks untouched. It is rumoured that David Cameron intends to give her a peerage in the near future, and that will confirm that the Conservatives have shifted from being the erstwhile brewers’ party to becoming the bankers’ party. Governments of whatever persuasion must tackle the coincidence of political and economic crisis head on. The latest revelations of the looting by the Phoenix Four of MG Rover’s assets provide further evidence of how bad the situation is. In my view and that of my honourable friend Dr Vince Cable, the Minister, the noble Lord, Lord Myners, has come nearest to recognising the magnitude of the problems that confront us. He has worked tirelessly and imaginatively to deal with some of the worst excesses and he has not shirked in his criticism of malpractices. We should all recognise the important contribution he is making. However, it will require even more to get the country out of the mess. Before elaborating on what I would propose, I ask the Minister whether in winding up he can say why, in marked contrast to the US, so few, if any, prosecutions have been brought regarding major skulduggery. Two things now need to be done. First, as the Wright report said yesterday, we need to radically revamp the system of Select Committees in another place. The Treasury Select Committee under John McFall has worked very well in the circumstances, but how much more effective could it have been given greater powers and resources? We need the constitutional imagination that fired an earlier generation of the political elite, which the Webbs and Churchill exemplified. Secondly, we need a total transformation in the culture of corporate life. The rise of the so-called "ownerless corporation" cries out for this. I recently had the privilege of hearing Mr Pravin Gordhan, the South African Finance Minister, speaking at a parliamentary seminar organised by ActionAid. Looking at the minimisation of tax liability that is practised by so many conglomerates, he acknowledged the exercise of legitimate prudence but seriously questioned the widespread practice of "loophole planning" that relies on the ingenuity of legions of highly skilled lawyers, accountants and other financial engineers and depends on the existence of tax havens. He said that these days tax avoidance is seen as an acceptable form of tax evasion. What is needed is a mindset change away from the "catch me if you can" tactic, as my noble friend Lord Oakeshott so aptly put it, to one of the good corporate citizen that conforms to the spirit as well as to the letter of the tax regime of a country. In Mr Gordhan’s view, this would require a "philosophical revolution" within the big business community. The noble Lord, Lord Plant, may have cynical views about this, but nothing less will do. We need a royal commission. They have been rather out of favour but there is now a strong case to appoint one to take stock of the plethora of previous proposals and to devise new, radical provisions for the deliverance of good corporate governance. This should include changes in the kind of parliamentary oversight that needs to be implemented, and I ask the Minister whether such a suggestion commends itself to the Government. Failing that, this House should set up a Select Committee to undertake this vital task. Nothing short of a fundamental review of the interaction between our polity and economy in order to secure a better operational match between the two will enable the fault to be repaired. We must not shrink from rising to that intellectual challenge.